Registered Office HICOM Industrial Estate PROTON Holdings Berhad Batu Tiga, 40000 Shah Alam, Selangor Darul Ehsan (Company No. 623177-A) Tel: +603 8026 9741 • Fax: +603 8026 9744 www.proton.com (Company No: 623177-A) PROTON Holdings Berhad
ANNUAL REPORT 2006
ourHERITAGE ourBRANDS ourFUTURE ANNUAL REPORT 2006 contents PROTON Holdings Berhad
1 Corporate Mantra & Core Values 74 Statement on Corporate Governance 2 Financial Calendar 87 Additional Compliance Information 3 Key Financial Indicators 88 Statement on Internal Control 4 Summary of Financial Highlights for Five Years 92 Risk Management 6 Corporate Profile 94 Calendar of Events 2005-2006 8Awards & Recognition 102 Statutory Financial Statements 10 Corporate Information 177 Shareholdings Statistics 12 Group Operations 180 Properties Owned by PROTON Group 14 Profile of Directors 187 Share Price and Volume Traded 22 Senior Management 188 Notice of Annual General Meeting 26 Chairman’s Statement 190 Statement Accompanying the 36 An Interview with the Managing Director Notice of Annual General Meeting 46 Operations Review Form of Proxy 1 ANNUAL REPORT 2006 THE PROTON WAY PROTON employees are dedicated to the Group’s long-term success. Every PROTON employee shall operate under the Group’s shared values and rely on these values to guide their behaviour with each other and the customers. These values form the foundation of how we work and conduct business. Corporate Mantra & Core Values
CORE ideology CORE values AUDACIOUS GOAL QUALITY TEAMWORK Driving Malaysia’s transformation into a leader in We make products that work first time, We trust, respect and share knowledge technology and quality. every time. to foster teamwork at the workplace.
VIVID DESCRIPTION CUSTOMER FOCUS SPEED We deliver innovative and superior quality Customers are the source of our We have a “can-do” attitude and will products and services. Our brands inspire income. We deliver on our promises to not rest until the problem is solved. confidence and pride. customers’ satisfaction. We have an inherent sense of urgency in everything we do. PURPOSE INNOVATION We are a passionate group of people working We challenge convention, always CARING together, creating exhilarating products and seeking new and better ways to do As a responsible corporate citizen, services for global markets, synonymous with things. We view change as opportunity. we invest in safety, health and the great styling, innovation and leading technology. environment. 2 FINANCIAL CALENDAR
PROTON HOLDINGS BERHAD
EVENTS DATE
Unaudited First (1st) Quarter results for the period ended 30 June 2005 30/08/2005
Second (2nd) Annual General Meeting 28/09/2005
Entitlement date for the tax exempt final dividend of 10% for the financial year ended 31 March 2005 07/10/2005
Payment of the tax exempt final dividend of 10% for the financial year ended 31 March 2005 28/10/2005
Unaudited Second (2nd) Quarter results for the period ended 30 September 2005 29/11/2005
Unaudited Third (3rd) Quarter results for the period ended 31 December 2005 27/02/2006
Unaudited Fourth (4th) Quarter results for the period ended 31 March 2006 30/05/2006
Third (3rd) Annual General Meeting 08/09/2006
Extraordinary General Meeting 08/09/2006
Entitlement date for the tax exempt final dividend of 5 sen for the financial year ended 31 March 2006 14/09/2006
Payment of the tax exempt final dividend of 5 sen for the financial year ended 31 March 2006 18/10/2006 KEY FINANCIAL INDICATORS 3
ANNUAL REPORT 2006 216.1 197.7 92.9 80.6 8.5 7.73 9.41 10.14 10.67 10.69 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006
BASIC EARNINGS PER SHARE (Sen) NET ASSETS (RM) 78.7 87.9 93.3 137.3 54.9 3,197.2 4,195.1 4,611.8 4,916.9 4,908.8 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 RETAINED PROFITS DIVIDEND PAID (RM’Million) CARRIED FORWARD (RM’Million) 4 SUMMARY OF FINANCIAL HIGHLIGHTS FOR FIVE YEARS
PROTON HOLDINGS BERHAD
BALANCE SHEET AS AT 31 MARCH
(RM Million) 2006 2005 2004 2003 2002 (restated) (restated) (restated) (restated)
Current Assets Inventories 1,389.0 967.1 795.8 813.6 689.4 Receivables 1,244.0 1,403.2 930.0 822.5 871.5 Short term investments 212.0 201.5 182.0 166.4 185.0 Deposits, bank and cash balances 1,586.0 2,454.7 2,877.4 3,713.7 3,591.8
4,431.0 5,026.5 4,785.2 5,516.2 5,337.7
Current Liabilities Payables 2,324.2 2,207.4 1,900.5 2,438.4 2,231.1 Taxation 16.9 2.6 140.3 192.3 272.2
2,341.1 2,210.0 2,040.8 2,630.7 2,503.3
Net current assets 2,089.9 2,816.5 2,744.4 2,885.5 2,834.4
Property, plant and equipment 3,330.9 3,313.3 2,908.4 2,221.4 1,703.1 Associated companies 155.7 162.0 170.1 146.9 89.3 Jointly controlled entities 249.9 255.4 110.7 75.2 59.0 Other long term investments 10.4 6.3 6.3 6.3 6.3 Long term liabilities (101.0) (760.7) (447.4) (222.3) (509.8) Minority interest 0.0 (0.3) 0.0 (1.6) (1.5) Deferred tax assets 105.8 38.4 45.5 25.7 (10.0) Goodwill 29.0 29.0 29.0 29.0 29.0
5,870.6 5,859.9 5,567.0 5,166.1 4,199.8
Shareholders’ Funds Share capital 549.2 549.2 549.2 549.2 543.1 Other reserves 412.7 393.8 406.0 421.8 459.5 Retained profits 4,908.7 4,916.9 4,611.8 4,195.1 3,197.2
5,870.6 5,859.9 5,567.0 5,166.1 4,199.8 5
ANNUAL REPORT 2006
INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH
(RM Million) 2006 2005 2004 2003 2002
Revenue 7,796.9 8,483.3 6,361.2 9,133.5 10,169.2
Profit before taxation 28.1 412.3 576.7 1,326.9 1,495.7
Profit after taxation 46.7 442.4 510.3 1,086.0 1,173.7
Retained profit attributable to shareholders 4,963.6 5,054.2 4,705.1 4,283.0 3,275.9
Dividend (54.9) (137.3) (93.3) (87.9) (78.7)
Retained profit carried forward 4,908.7 4,916.9 4,611.8 4,195.1 3,197.2
SHARE INFORMATION
2006 2005 2004 2003 2002
Per share Basic earnings (sen) 8.5 80.6 92.9 197.7 216.1 Tax-exempt dividend paid 10.0 25.0 17.0 16.0 14.5 Net assets 10.69 10.67 10.14 9.41 7.73 Issued share capital 549,213 549,213 549,213 549,213 543,144
* Comparatives have been restated to conform with current year’s presentation and prior year adjustment arising from certain changes in accounting policies. 6 PROTON HOLDINGS BERHAD
Corporate PROFILE
PROTON was established on 7 May 1983
as a private limited company under the name Perusahaan Otomobil Nasional Sdn. Bhd. (“PONSB”) and was subsequently listed on the Main Board of the then Kuala Lumpur Stock Exchange (now Bursa Malaysia Securities Berhad) on 26 March 1992 as Perusahaan Otomobil Nasional Berhad (“PONB”). PROTON Holdings Berhad (“PHB”) which was incorporated on 28 July 2003 assumed the listing status of PONB on 16 April 2004 pursuant to a Scheme of Arrangement under Section 176 of the Companies Act 1965. 7 ANNUAL REPORT 2006
PROTON has three primary national policy objectives: versatile Arena/Jumbuck, the fun-to-drive Savvy and the •To spearhead the development of component desirable sporty Satria Neo. PROTON Group’s portfolio also manufacturing industries, includes the world-renown sports cars Lotus Elise, Lotus Esprit •To acquire and upgrade technology and industrial skills and the recently launched Lotus Europa. These cars are within the automotive manufacturing industry, and manufactured in Malaysia and the United Kingdom. •To strengthen the international competitiveness of PROTON Group conducts research in its centres in the United Malaysia’s industrial capability. Kingdom and Malaysia for new technologies with the PROTON commands a substantial share of the domestic ultimate aim of putting these innovations into production market for passenger cars and over the years has been through partnership with Tier One Suppliers of OEM building up distribution networks in key market centres across customers. A number of these patents have been licensed these four regions: to leading car manufacturers. • United Kingdom, Currently, PROTON Group has almost 11,000 employees who • The Middle East, are involved in a spectrum of business ranging from • South-East Asia, and research, design, development, testing, stamping, casting, • Australasia. machining and assembly to marketing, distribution and after- sales activities. The business of the PROTON Group has been expanded to include engineering consultancy, manufacturing, distribution, Strong customer-orientation and competitively-priced financial services and property investments. With a turnover products are the foundation of PROTON’s business and are of almost RM8 billion in financial year 2005/2006, PROTON essential to the group’s success. PROTON aims to maintain Group is one of the largest companies listed on Bursa market leadership by continuing to develop innovative Malaysia Securities Berhad. products and through satisfying its customers in a better and more profitable way than its competitors. PROTON Group designs and produces cars for diverse consumer preferences. The portfolio of PROTON models includes the family sedan Waja, the stylish Gen.2, the 8 AWARDS & RECOGNITION
PROTON HOLDINGS BERHAD
Awards& Recognition
2006 2004 2002 ● Reader’s Digest Trusted Brand 2006 – ● Malaysia Best Brand Award. ● Best Landscape Competition Gold Award for Car Category. (Second Place – Factory Category). ● National Creativity & Innovation ● Nanyang Siang Pau’s ‘2006 Chinese Award 2004. ● Appreciation Award for Contribution to New Year Greeting Advertisement’ the development of Malaysian ● *Proton WAJA – 4.5 stars out of 5 star Award – Full Color Category – 5th Motorsports for 2002. rating for being the Most Economical Runner Up. and Greenest Sedan in Australia. ● KPMG/The Edge Shareholder Value Award 2002 Sectoral Winner – Industrial 2005 2003 Market. The award measured ● Reader’s Digest Super Brand 2005 – economic profit as a percentage of ● Industry Excellence Award 2003, Gold Award for Car Category. invested capital. Quality management category III. ● Merdeka Millennium Endurance Race ● Highest Increase in Turnover Award ● Industry Excellence Award 2003. 2005 – 1st place Overall and Class ‘O’ among companies listed on the Kuala Winner. ● Best Landscape Competition Lumpur Stock Exchange for financial (First Place – Factory Category). year 2002-2003. ● Malaysian Rally Championship 2005 – Overall class Winner P10 Category. ● Motor vehicles and transport equipment sector leader award among the top 1,000 Malaysian companies. 9
ANNUAL REPORT 2006
As testimony to our efforts in leading the Malaysian automotive industry as well as making
inroads in branding and motor sports, PROTON received the following awards and
accolades from various organisations:
● Highest Increase in Net Profit Award PROTON was also appreciated for its ● Special Membership Certificate to among companies listed on the contributions to various national causes commemorate the Malaysian Kuala Lumpur Stock Exchange for and its support of community events Industry-Government Group for financial year 2002-2003. by the following organisations: High Technology’s 10th Anniversary. ● Certificate of Appreciation in 2001 2006 conjunction with QDay by the ● Certificate of Merit for 2001 NACRA ● Certificate of Appreciation from the Ministry of Cooperation and Award. Badminton Association of Malaysia Entrepreneur Development. for the “Badminton Melayu Malaysia ● Appreciation Award for sponsoring ● Certificate of Appreciation for Piala DYMM Sultan-Sultan ke-50” ‘Le Tour de Langkawi’ 2001 event. the support of the Karnival Kulim tournament. Hi-Tech Park. ● Superbrand Award for Automotive sector for year 2001. 2005 ● Support of the International CEOs Conference 2005 – Global issues and ● Certificate of Appreciation for the 1999 challenges facing Asian corporations. production of the Kelantan Royal ● Satria GTI – Wheels Magazine Project 2005 special documentary. ● Certificate of Appreciation for the ‘Best Hot Hatch Buy’ Year 1999. National Anti-Drug Campaign. 10
PROTON HOLDINGS BERHAD Corporate Information
BOARD OF DIRECTORS
● Dato’ Mohammed Azlan bin Hashim (Chairman)
● Syed Zainal Abidin bin Syed Mohamed Tahir (appointed on 1 January 2006)
● Lt. Gen (R) Dato’ Seri Mohamed Daud bin Abu Bakar
● Abdul Jabbar bin Abdul Majid
● Badrul Feisal bin Abdul Rahim
● Mohammad Zainal bin Shaari
● Abdul Kadir bin Md Kassim
● Dato’ Ahmad bin Haji Hashim (appointed on 26 October 2005)
● Dato’ Haji Abd. Rahim bin Haji Abdul (resigned w.e.f. 2 September 2005)
● Tengku Tan Sri Dr. Mahaleel bin Tengku Ariff (retired w.e.f. 30 September 2005)
● Datuk Kisai bin Rahmat (appointed on 1 January 2006) (resigned w.e.f. 31 July 2006) CORPORATE INFORMATION 11
ANNUAL REPORT 2006
BOARD AUDIT COMMITTEE BOARD RISK MANAGEMENT AUDITORS • Abdul Jabbar bin Abdul Majid COMMITTEE PricewaterhouseCoopers – Chairman • Abdul Kadir bin Md Kassim (Chartered Accountants) – Chairman 11th Floor, Wisma Sime Darby • Mohammad Zainal bin Shaari Jalan Raja Laut, P.O. Box 10192 • Md Ali bin Md Dewal • Abdul Kadir bin Md Kassim 50706 Kuala Lumpur • Badrul Feisal bin Abdul Rahim Tel:03-2693 1077 Fax : 03-2693 0997 • Datuk Tan Kim Leong BOARD NOMINATION COMMITTEE (appointed on 29 August 2005) • Dato’ Mohammed Azlan bin Hashim • Dato’ Michael Lim Heen Peok – Chairman REGISTERED OFFICE (appointed on 29 August 2005) HICOM Industrial Estate • Lt. Gen (R) Dato’ Seri Mohamed • Abdul Jabbar bin Abdul Majid Batu Tiga Daud bin Abu Bakar (resigned w.e.f. 29 August 2005) 40000 Shah Alam • Abdul Jabbar bin Abdul Majid • Lt. Gen (R) Dato’ Seri Mohamed Tel:03-8026 9741 Fax : 03-8026 9744 • Badrul Feisal bin Abdul Rahim Daud bin Abu Bakar (resigned w.e.f. 29 August 2005) • Abdul Kadir bin Md Kassim REGISTRAR BOARD EXECUTIVE COMMITTEE Tenaga Koperat Sdn. Bhd. (Established on 1 January 2006) BOARD REMUNERATION COMMITTEE 20th Floor, Plaza Permata (Disbanded w.e.f. 30 June 2006) • Badrul Feisal bin Abdul Rahim Jalan Kampar, Off Jalan Tun Razak • Dato’ Mohammed Azlan bin Hashim – Chairman 50400 Kuala Lumpur – Chairman Tel:03-4041 6522 • Abdul Jabbar bin Abdul Majid • Syed Zainal Abidin bin Syed Fax : 03-4042 6352 • Ahmad Tajuddin bin Abdul Carrim Mohamed Tahir (appointed on 29 August 2005) • Datuk Kisai bin Rahmat • Md Ali bin Md Dewal STOCK EXCHANGE LISTING (appointed on 29 August 2005) • Badrul Feisal bin Abdul Rahim Main Board of Bursa Malaysia Securities Berhad • Mohammad Zainal bin Shaari (resigned w.e.f. 29 August 2005)
• Lt. Gen (R) Dato’ Seri Mohamed COMPANY SECRETARY Daud bin Abu Bakar (resigned w.e.f. 29 August 2005) Mohd Nizamuddin bin Mokhtar (LS 006128) 12 GROUP OPERATIONS
PROTON HOLDINGS BERHAD
ENGINEERING SERVICES DIVISION
◆ LOTUS ADVANCE TECHNOLOGIES SDN. BHD. (100%) ● PROTON ENGINEERING RESEARCH TECHNOLOGY SDN. BHD. (100%) ❋ Marco Acquisition Corporation (USA) (100%) ● MIYAZU (MALAYSIA) SDN. BHD. (51%) MANUFACTURING DIVISION ● LOTUS GROUP INTERNATIONAL LIMITED (100%) ◆ PROTON TANJUNG MALIM ❋ Group Lotus Plc. (100%) SDN. BHD. (100%) • Lotus Cars Ltd. (100%) ◆ PERUSAHAAN OTOMOBIL NASIONAL SDN. BHD. (100%) • Lotus Engineering Ltd. (100%) ● PROTON AUTOMOBILES • Lotus Engineering (M) Sdn. Bhd. CHINA LTD. (BVI) (100%) (100%) ❋ Goldstar PROTON Automobiles • Lotus Body Engineering Ltd. (100%) Co. Ltd (49%) • Lotus Motorsport Ltd. (100%) ● PT PROTON TRACOMA MOTORS • Lotus Holdings Inc. (USA) (100%) (INDONESIA) (51%) • Lotus Engineering Inc. (100%) ● VINA STAR MOTORS CORPORATION • Lotus Cars USA Inc. (100%) (VIETNAM) (25%) • Lotus Pension Trustees Ltd. (100%) • Lotus Cars Foundation (100%) • Lotus Finance Ltd. (49.9%) 13
ANNUAL REPORT 2006
MARKETING DIVISION PROPERTY DIVISION
◆ PROTON MARKETING SDN. BHD. (100%) ◆ PROTON HARTANAH SDN. BHD. (100%) ● PROTON EDAR SDN. BHD. (100%) ● PROTON PROPERTIES SDN. BHD. (100%) ❋ Proton Edar Resources Sdn. Bhd. (100%) ● PROTON CITY DEVELOPMENT CORPORATION SDN. BHD. (40%) ❋ Proton Edar Ventures Sdn. Bhd. (100%) ❋ Proton Singapore Pte. Ltd. (100%) ❋ PT Proton Edar Indonesia (95%) FINANCIAL DIVISION ❋ Proton Commerce Sdn. Bhd. (50%) ◆ PROTON CAPITAL SDN. BHD. (100%) ❋ Netstar Advanced Systems Sdn. Bhd. (40%) ● PROTON PARTS CENTRE SDN. BHD. (55%) ● PROTON CARS (UK) LTD. (100%) INVESTEE & ASSOCIATE COMPANIES
❋ Smith & Sons Motors Ltd. (100%) ◆ EXEDY (MALAYSIA) SDN. BHD. (45%) ❋ Proton Direct Ltd. (100%) ◆ PHN INDUSTRY SDN. BHD. (35%) ❋ Proton Cars (Imports) Ltd. (100%) ◆ ALUMINIUM ALLOY INDUSTRIES SDN. BHD. (19%) ❋ Proton Cars Direct Ltd. (100%) ◆ MARUTECH ELASTOMER INDUSTRIES SDN. BHD. (25%) ❋ Proton Finance Ltd. (49.99%) ◆ TECHNOMEIJI RUBBER SDN. BHD. (15%) ● PROTON CARS (EUROPE) LTD. (55.56%) ◆ ARA BORGSTENA SDN. BHD. (6.67%) ● PROTON CARS AUSTRALIA PTY. LTD. (100%) ◆ PEPS-JV SDN. BHD. (10.50%) ● PROTON CARS BENELUX NV SA (BELGIUM) (100%) ● AUTO COMPOUND AND DISTRIBUTION CENTRE SDN. BHD. (100%) ● PROTON CORPORATION SDN. BHD. (100%) OTHERS ● LOTUS CARS ASIA PACIFIC SDN. BHD. (100%) ◆ YAYASAN PROTON 14 PROFILE OF DIRECTORS
PROTON HOLDINGS BERHAD
Dato’ Mohammed Azlan bin Hashim was appointed as a Director on 17 December 2004 and was re-designated as Chairman on DATO’ MOHAMMED AZLAN BIN HASHIM 7 February 2005. A Chartered Accountant, he graduated with a Chairman Bachelor of Economics from Monash University, Australia. He is a Non-Independent Non-Executive Director member of the Institute of Chartered Accountants, Australia, Aged 49, Malaysian Malaysian Institute of Accountants, Fellow Member of Malaysian Institute of Directors and Fellow Member of the Institute of Chartered Secretaries and Administrators.
He has extensive experience in the corporate sectors including in financial services and investments. Among others, he has served as Chief Executive/Executive Director of Bumiputra Merchant Bank Berhad, Group Managing Director of Amanah Capital Malaysia Berhad and Executive Chairman of Bursa Malaysia Securities Berhad (formerly known as Kuala Lumpur Stock Exchange) Group.
Dato’ Azlan also served on various government bodies, including Finance Committee on Corporate Governance, the Second National Economic Consultative Council and Financial Reporting Foundation.
He is currently a Board Member of among others, Labuan Offshore Financial Services Authority, Employees Provident Fund, Khazanah Nasional Berhad, Scomi Group Bhd., D&O Ventures Berhad and Malaysian Industry-Government Group for High Technology. He was recently appointed Chairman of Universiti Darul Iman Malaysia.
Within PROTON Holdings Berhad, Dato’ Azlan serves as Chairman of Board Nomination Committee and Board Disciplinary Committee.
He attended 20 out of 21 Board of Directors’ Meetings held during the Financial Year. He was nominated to the Board by Khazanah Nasional Berhad and has no conflict of interest with the Company and does not have any family relationship with any director and/or major shareholder of the Company. He has had no conviction of any offences within the past ten (10) years. 15
ANNUAL REPORT 2006
Syed Zainal Abidin bin Syed Mohamed Tahir was appointed as the Managing Director of PROTON on 1 January 2006. He graduated from the University of Maryland, USA with a Bachelor of Science in Civil Engineering in 1983.
Syed Zainal Abidin began his career in 1987 as a Project Engineer with Petronas Gas Sdn. Bhd. before joining Petroliam Nasional Berhad in 1992 as Senior Executive, Corporate Planning & International Business Development. In 1995, he joined HICOM Holdings Berhad and assumed various senior positions in the company.
In 1999, Syed Zainal Abidin joined Perodua as Senior General Manager. In 2002, he was appointed as the Executive Director of Perodua Auto Corporation Sdn. Bhd. and was later promoted as Deputy Managing Director in October 2005.
Syed Zainal Abidin also sits as a director in several subsidiary and investee/associate companies with the PROTON Group.
He has attended 4 out of 4 Board of Directors’ Meetings held during the Financial Year. He has no conflict of interest with the Company and does not have any family relationship with any director and/or major shareholders of the Company. He has had no conviction of any offences within the past ten (10) years. SYED ZAINAL ABIDIN BIN SYED MOHAMED TAHIR Managing Director Aged 44, Malaysian 16 PROFILE OF DIRECTORS
PROTON HOLDINGS BERHAD
LT. GEN. (R) DATO’ SERI MOHAMED DAUD Lt. Gen. (R) Dato’ Seri Mohamed Daud bin Abu Bakar was appointed to the Board on 12 April 2004. He graduated from BIN ABU BAKAR the world renowned Royal Military Academy, Sandhurst; the Independent Non-Executive Director Army Staff College, Camberley and the Royal College of Aged 70, Malaysian Defence Studies in United Kingdom.
He served the Malaysian Army with distinction for 36 years. During his military career, he was appointed to various key command and staff appointments both in the field headquarters and in the Ministry of Defence, amongst them, Director of Army Training, Commandant of Armed Forces Staff College, Brigade Commander, Division Commander, Chief of Armed Forces Logistics and Army Corps Commander cum General officer Commanding-in-Chief responsible for command and operations in Peninsular Malaysia.
He has also served in various committees at national and international levels, including as Joint Chairman of the Regional Border Committee (with Thailand), Deputy Chairman of the Socio Economic Development Committee and Member, General Border Committee (with Thailand).
Lt. Gen. (R) Dato’ Seri Mohamed Daud is currently a member of the Board Nomination Committee of the Company. He is the Chairman of Johan Ceramics Berhad and a Director of Mieco Chipboard Berhad and Bank Kerjasama Rakyat Malaysia Berhad (Bank Rakyat). He is also Chairman of the Audit Committee, member of the Nomination Committee of Mieco Chipboard Berhad; member of the Nomination Committee, the Board Risk Management Committee and the Audit Examination Committee of Bank Rakyat.
He attended 19 out of 21 Board of Directors’ Meetings held during the Financial Year. Save for the PROTON dealership held by his son, Lt. Gen. (R) Dato’ Seri Mohamed Daud has no conflict of interest with the Company. He has no family relationship with any other director or major shareholders of the Company. He has had no conviction of any offences within the past ten (10) years. 17
ANNUAL REPORT 2006
Abdul Jabbar bin Abdul Majid was appointed as a Director on 12 April 2004. He is a Fellow Member of the Institute of Chartered Accountants, Australia, as well as a member of the Malaysian Institute of Accountants. He is also a member of the Executive Council of the Malaysian Institute of Certified Public Accountants (MICPA).
He started his career in 1974 as Senior Manager in the Internal Audit and Organisation Department of Bank Pertanian Malaysia. In 1977, he joined KPMG Malaysia as Manager and was admitted to partnership two years later. In 1993, he was promoted to Deputy Senior Partner and was made Senior Partner in 1995, a position he held until his retirement in 2000. He joined Malaysia Derivatives Exchange Berhad in 2001 and retired as Executive Chairman on 28 February 2004. He was a past president of MICPA. He is an Adjunct Professor of the Faculty of Economics and Accounting of the International Islamic University. He was a member of the Senate of the Open University Malaysia Board.
Abdul Jabbar is currently the Chairman of the Board Audit Committee and a member of Board Nomination and Board Remuneration Committees of the Company. He is also a member of Board Disciplinary Committee. Besides PROTON Holdings Berhad, he is an Independent Non-Executive Director of Malakoff Berhad and Tradewinds Corporation Berhad and also the Chairman of the Audit Committee of Tradewinds Corporation Berhad and Malakoff Berhad. He is also a Director of Opcom Holdings Berhad and Bank Muamalat Malaysia Berhad. ABDUL JABBAR BIN ABDUL MAJID Independent Non-Executive Director Abdul Jabbar attended 15 out of 21 Board of Directors’ Meetings Aged 61, Malaysian held during the Financial Year. He has no conflict of interest with the Company and has no family relationships with any other director or major shareholders of the Company. He has had no conviction of any offences within the past ten (10) years. 18 PROFILE OF DIRECTORS
PROTON HOLDINGS BERHAD
Badrul Feisal bin Abdul Rahim was appointed to the Board on 12 April 2004. He holds an American Associate Degree in Accountancy (AAD) and also a Bachelor of Science in Accountancy from University of Missouri, Columbia, USA in 1994.
He started his career with Arthur Andersen & Co as an intern and thereafter held the posts of Senior Officer, Internal Audit of United Overseas Bank, Kuala Lumpur; Manager, Investment Department of Malaysian Technology Development Corporation Sdn. Bhd. and Executive Director of MTDC Private Equity Management Sdn. Bhd. He joined Khazanah Nasional Berhad in February 2001 as Senior Manager and is now a Senior Vice President, Investments.
Badrul Feisal is currently the Chairman of the Board Remuneration Committee and a member of the Board Nomination and Board Risk Management Committees of the Company.
Badrul Feisal attended 19 out of 21 Board of Directors’ Meetings held during the Financial Year. He was nominated to the Board of the Company by Khazanah Nasional Berhad and has no conflict of interest with the Company and has no family relationships with any other director or major shareholders of the Company. He has had no conviction of any offences within the past ten (10) years.
BADRUL FEISAL BIN ABDUL RAHIM Non-Independent Non-Executive Director Aged 37, Malaysian 19
ANNUAL REPORT 2006
MOHAMMAD ZAINAL BIN SHAARI Non-Independent Non-Executive Director Aged 43, Malaysian
Mohammad Zainal bin Shaari was appointed as a Director on 17 December 2004. He is currently the Executive Director/Chief Operating Officer at Khazanah Nasional Berhad (“Khazanah”). He spent 18 years in the public accounting profession and has worked in the United Kingdom, USA and Malaysia. In 1997 he was made a partner in Price Waterhouse (now PricewaterhouseCoopers). In 2002 he left PricewaterhouseCoopers and joined BinaFikir Sdn. Bhd. in 2003.
Mohammad Zainal is a member of the Board Audit Committee of the Company.
He is a Fellow of the Institute of Chartered Accountants in England & Wales and a fellow of the Association of Chartered Certified Accountants (UK), as well as a member of the Malaysian Institute of Accountants and the Malaysian Institute of Certified Public Accountants.
Mohammad Zainal has attended all Board of Directors’ Meetings held during the Financial Year. He is a nominee director for Khazanah Nasional Berhad and has no conflict of interest with the Company and does not have any family relationships with any director and/or major shareholder of the Company. 20 PROFILE OF DIRECTORS
PROTON HOLDINGS BERHAD
Abdul Kadir bin Md Kassim was appointed to the Board of PROTON Holdings Berhad (“the Company”) on 10 March 2005. Kadir serves as the Chairman of the Board Risk ABDUL KADIR BIN MD KASSIM Management Committee. He is also a member of the Board Independent Non-Executive Director Audit Committee, Board Nomination Committee and Board Aged 66, Malaysian Disciplinary Committee of the Company.
Kadir holds a Bachelor of Laws Degree from University of Singapore. He served in the Malaysian Administrative and Diplomatic Service and in the Judicial and Legal Service between 1966 and 1973, holding various positions. He is currently the managing partner of Messrs Kadir, Andri & Partners. He is also a chairman of Ho Hup Construction Company Berhad and a director of United Engineers (Malaysia) Berhad, UEM World Berhad, Suria Capital Holdings Berhad, TIME dotCom Berhad, and a few private companies, including being chairman of the Committee of Labuan International Financial Exchange.
Abdul Kadir has attended all Board of Directors’ Meetings held during the Financial Year. He has no conflict of interest with the Company and does not have any family relationship with any director and/or major shareholders of the Company. He has had no conviction of any offences within the past ten (10) years. 21
ANNUAL REPORT 2006
Dato’ Ahmad bin Haji Hashim was appointed Director of PROTON on 26 October 2005. He graduated from the University of Malaya with a Bachelor of Economics (Hons) in 1974 and obtained his Master in Business Administration from City University, Washington State, USA in 1983. He has attended the Oxford Advanced Management Programme, University of Oxford, United Kingdom conducted in 2004 and also attended Leaders in Development: Managing Political and Economic Change, Harvard University, USA conducted in 2006.
Ahmad began his career in 1974, as an Assistant Secretary, Implementation and Coordination Unit, in the Prime Minister’s Department and has served numerous Ministries including the Ministry of Finance between 1977 and 1984, holding various positions, before joining the Ministry of International Trade and Industry as the Principal Assistant Secretary in 1985. In 1992, he joined the Foreign Investment Committee, EPU, Prime Minister's Department as Principal Assistant Secretary. In 1996, Ahmad was appointed as Deputy Secretary, Economic and International Division, Treasury in the Ministry of Finance (MoF). He was later appointed as Secretary in the Loan Management and Financial Policy Division, Treasury, MoF in 2000. He served in the Ministry of Health as Deputy Secretary General (Finance) in 2003 until he assumed his present position as the Deputy Secretary General (Operation), Treasury, MoF in September 2005. Ahmad has previously held directorships and memberships in several organisations between 1999 to 2004, such as Institut Jantung Negara, Islamic Development Bank in Jeddah, Bank Simpanan Nasional, Lembaga Tabung Haji, Perbadanan Labuan, Employees Provident Fund, Johor Corporation, Malaysian Timber Industry Board, Klang Port Management Sdn. Bhd. and Penang Regional Development Authority.
Throughout his illustrious career with the Malaysian civil service, he has also represented Malaysia in APEC Economic Committee, APEC Finance Ministers/Leaders meetings, Islamic Development Bank Board of Governors meetings, Commonwealth Finance Ministers meetings, Asia-Europe (ASEM) Leaders meeting, WTO meetings, among others.
Ahmad is also a Director of Telekom Malaysia Berhad and Keretapi Tanah Melayu Berhad. DATO’ AHMAD BIN HAJI HASHIM Director He has attended 6 out of 8 Board of Directors’ Meetings held Non-Independent Non-Executive Director during the Financial Year. He has no conflict of interest with Aged 54, Malaysian the Company and does not have any family relationship with any director and/or major shareholders of the Company. He has had no conviction of any offences within the past ten (10) years. 22 SENIOR MANAGEMENT
PROTON HOLDINGS BERHAD Senior Management
Syed Zainal Datuk Datuk Maruan Abidin bin Syed Kamarulzaman bin Mohd. Said Mohamed Tahir bin Darus Director, Managing Director Director, Domestic Markets Manufacturing
Razif bin Ahmad Fauzi bin Abdul Wahab Ahmad Tifli Director, Che Rus Mohamed Khalid bin Dato’ Procurement Director, Head, Mohd. Talha Human Resource Engineering Head, Exports Markets 23
ANNUAL REPORT 2006
Tan Chun Weng Mohd. Low Pheng Dato’ Head, Nizamuddin Head, Tony Chan Group Finance Mokhtar Group Kok Chuen Head, Internal Audit Head, Group Secretarial Quality & Compliance Management
Michelle Andy Khoo Kythe Lim Boo Teik Head, Chief Information Group Legal Officer Key Personnel Abroad
Michael J.Kimberley Brian Collier John Startari Robert Braner Moses Tan Dwi Sasetia Chief Executive Officer (Acting) Managing Director Managing Director Chief Executive Officer Managing Director Director Group Lotus Plc. Proton Cars (UK) Ltd. Proton Cars (Australia) Pty. Ltd. Lotus Cars, USA Proton Singapore Pte. Ltd. P.T. Proton Edar Indonesia SPEED The attitude of being able to do everything and anything with purpose.
26 PROTON HOLDINGS BERHAD Chairman’s Statement
DATO’ MOHAMMED AZLAN BIN HASHIM CHAIRMAN 27
ANNUAL REPORT 2006
On behalf of the Board of Directors, I am pleased to present the Annual Report and Audited Financial Statements of the PROTON Group and Company for the financial year ended 31 March 2006.
INDUSTRY OVERVIEW 2006 period, the total industry volume In the financial period under review, the of vehicles sold was at 248,407 units The Malaysian auto Malaysian auto industry continued to compared with 261,111 in the equivalent industry continued to experience significant changes brought period last year. Passenger cars, which “ upon by a more liberalised operating make up 74% of the industry, saw experience significant environment and challenging market 184,725 units sold, against 199,554 units changes brought upon conditions. The year was marked by previously. aggressive marketing efforts by almost by a more liberalised all automotive manufacturers and This recent decline has been attributed operating environment distributors with the rapid introduction of to a number of factors, including the new vehicles and very competitive rise in fuel prices, tighter credit policies and challenging market promotional campaigns. Higher petrol leading to less loans being approved as conditions prices and increased cost of raw well as the fall in used car values which materials resulting in lower profit have affected trade-ins. It is expected margins, also posed a challenge. As a that the market will continue to remain “soft” until the end of 2006. ” result of these extremely competitive Although exports to Australia and the conditions and rising prices at the United Kingdom increased by 49.8% pump, the domestic market saw a shift and 16% respectively for the financial FINANCIAL PERFORMANCE in favour of cars with smaller engine year, total export sales for the period displacement and relatively cheaper Given the industry scenarios described, declined 7% to 12,765 units. people-movers. characterised by increased market competition and a dearth of products With the reduction in sales, PROTON’s Total vehicle industry volume rose by in the growing market segments, financial performance for the year in 13% to 551,052 units in 2005, with total PROTON’s domestic sales volume for review also recorded a decline. Group sales for passenger cars rising by 5.3% the financial period under review revenue decreased by 8% to RM7,796.9 to 400,835 units. The industry was declined by 11.1% to 166,968 units in million compared to RM8,483.3 million in relatively firm throughout 2005 particularly comparison to 187,800 units in the the preceding financial year. Group for commercial vehicles, including MPV previous financial year. PROTON also profit after tax however, decreased by and 4X4, which saw sales increasing by saw its domestic market share decline 89% to RM46.7 million from RM442.4 40.3%. However, sales softened during to 40% in 2005 in comparison to the 44% million (adjusted) in the preceding year. the first half of 2006. In the January–June market share recorded in 2004. 28 CHAIRMAN’S STATEMENT
PROTON HOLDINGS BERHAD
DIVIDENDS MV Augusta Motors SpA bankruptcy. With the sale finalised, In view of the performance of PROTON The Group-wide review of PROTON’s PROTON can now harness its resources for the year under review, the Board of investments, was to determine their and focus on strengthening its core Directors recommends a final tax- continued relevance and the changes, businesses of automotive design, exempt dividend of 5 sen a share in if any, that would be required to ensure engineering, manufacturing and sales respect of the financial year ended 31 the investments provided positive for the benefit of all its stakeholders, March 2006. This is subject to the returns to the Group going forward. including its customers and shareholders. approval of the shareholders at the As a result of this review, Proton Capital forthcoming Annual General Meeting to Sdn. Bhd. (PCSB), a wholly-owned It is unfortunate that there are a few who be held on 6 September 2006. subsidiary of PROTON, made a decision continue to question the disposal. But let to dispose of its entire interest in MV us assure all stakeholders, PROTON has If approved, the total dividends Agusta Motors SpA (“MVAM”). The done a thorough assessment of its payable for the financial year under Share Sale Agreement was signed on involvement in MVAM before its decision review would amount to 5 sen a share 23 December 2005 and completed on on this matter. PROTON now considers or a total tax-exempt dividend of 1 March 2006. this matter closed. RM27,460,650 as compared to 35 sen a share or a total tax-exempt dividend of As already publicly explained, this Governance Structures RM192,224,550 in the previous financial action was deemed necessary as there Since July 2005, PROTON initiated the period. is very little synergy to be gained by the move to review its governance continued investment in MVAM. structures to ascertain weaknesses in Furthermore, continuing to be a the system and to determine possible CORPORATE DEVELOPMENTS DURING shareholder in this financially troubled actions that could be taken to remedy THE PERIOD UNDER REVIEW entity, which is in a net liability position, the situation. In addition, PROTON has In last year’s Chairman’s Statement, it would have put both PCSB and also completed a review of the was clearly stated that PROTON must PROTON at great financial and decision making process for investments be versatile and dynamic, to remain reputational risk, were MVAM to fall into undertaken by PROTON in the past. relevant and competitive. Following on from the management changes announced in July 2005, the Group has continued its comprehensive review to ...there is very little synergy to be gained by the ensure it remains relevant and is able to continued investment in MVAM. Furthermore, compete more effectively and efficiently “ going forward. From this review, a continuing to be a shareholder in this financially number of corporate exercises had troubled entity, which is in a net liability position, been initiated and undertaken during the year to realign the strategic would have put both PCSB and PROTON at great direction of the company. Some of financial and reputational risk... these are explained further in the following paragraphs. ” 29
ANNUAL REPORT 2006
The Savvy has the body strength of a ...PROTON initiated the car twice its size and comes with safety move to review its features surpassing those usually found “ in cars of similar class. To top it off, with governance structures to the collaboration of Lotus Engineering, ascertain weaknesses in the Savvy’s ride and handling is among the system... the best in its class. In December 2005, PROTON officially launched the Chancellor, a car Again this was to ascertain weaknesses ” developed mainly as a chauffeur driven in the process leading to these saloon to further expand its product investment decisions and to identify line-up. This model was specifically measures to strengthen the process. conceived to provide a higher level of comfort, luxury and quality for its As a result of the various reviews, passengers. This car is now expected to changes have been made to the be the official Government car for Management Committee and Board senior members of Government, senior structures of PROTON and its Group. In civil servants and other senior corporate addition, the decision-making structures executives. and limits of authorities, especially with respect to investments, have also been More recently, on 16 June 2006, tightened to ensure better clarity to all PROTON launched the Satria Neo as a Y.A.B. Dato’ Seri Abdullah Haji Ahmad Badawi, those concerned, as to actual authority Prime Minister of Malaysia, officially launched successor to its popular Satria. This and essential information to be disclosed. the Satria Neo at PROTON’s Centre of Excellence new product is representative of Complex, Subang Jaya. PROTON’s joint-efforts with Lotus Apart from the re-organisation of Engineering. As a result, the Satria Neo domestic structures, PROTON has also has the unique combination of good undertaken changes to the governance styling, performance and safety structures of its overseas investments. features unparalleled in many other This is with a view to improve and cars within the same segment. strengthen their financial discipline.
Launching of new products ...the Satria Neo has the unique combination of During the financial year, in June 2005, good styling, performance and safety features PROTON launched the Savvy, a super- “ mini, in both manual and automated unparalleled in many other cars within the manual transmission (AMT) configurations. same segment...” 30 CHAIRMAN’S STATEMENT
PROTON HOLDINGS BERHAD
OTHER SIGNIFICANT DEVELOPMENTS local manufacturers, assemblers and environment which requires them to be DURING THE PERIOD UNDER REVIEW other industry players, including potential able to adapt to the challenges of Apart from the various corporate investors, will be able to better plan globalisation, new regulations, higher developments mentioned, there have their businesses and automotive-related energy prices, endure the rapid also been other external developments investments. emergence of increased competition during the financial year which have and changing customer needs. had an impact on PROTON’s In the spirit of the NAP, PROTON on performance and its prospects going 24 March 2006, announced that the Globalisation has spurred the automotive forward. prices of its cars would be reduced industry to introduce better quality across the board by between 2.5% products and concurrently strive for National Automotive Policy to 7%, representing a reduction lower manufacturing costs. It has forced of between RM1,000 to RM3,000 players to introduce the ”World Car” The financial year in review saw the depending on the model. This is in line strategy – a vehicle based on a single release of the National Automotive with the Government’s call for local platform that can be the base for Policy (NAP), which represents a manufacturers to produce cars which multiple products and sold in multiple comprehensive framework of the are more affordable. regions in the world, thus leveraging on Government’s aspirations and engineering, distribution, development expectations of the automotive sector. and marketing costs and achieve the The overall objective of the NAP is to CONTINUING INDUSTRY CHALLENGES economies of scale in production. generate sustainable economic value through maximising the long-term In today’s global automotive industry, New regulations that call for the contributions of the automotive sector opportunities and risks are everywhere, harmonisation of safety regulations and to the national economy, while in emerging and mature markets alike. emission levels with international simultaneously benefiting the Malaysian But while possibilities are plentiful, standards, are forcing automakers to consumer. This thrust by Government for profitable growth is becoming more meet stringent new standards, produce the local industry to create economic difficult to achieve, as challenges cleaner vehicles and meet customer value will entail all segments of the emerge from within the supply chain expectations for higher fuel economy, industry to work together. It is also right through to the retail environment. safety and performance features. essential that the industry continues to Hence automotive players must receive the full support of the conduct their business amidst this new Government, in its efforts to strengthen itself, in order to become fully competitive globally. ...National Automotive Policy (NAP), which represents a comprehensive framework of the The NAP and its specific policy “ instruments will benefit the Malaysian Government’s aspirations and expectations of automotive industry over the longer the automotive sector... term. With this clearly outlined policy, ” 31
ANNUAL REPORT 2006
demanding that their suppliers too, adapt to these changes. For some time now, major OEMs have put their Tier 1 suppliers under intense and relentless cost pressures, forcing annual cost cuts. As a result, Malaysian suppliers too are now required to deliver further cost reductions, by significantly cutting costs and even consider to merge in order to achieve greater economies of scale.
The consumer revolution is bringing about the emergence of a customer base that has become more discerning, well-informed and demanding. Today’s automakers must ultimately balance the increasingly stringent regulations with the needs of consumers who have become more spoilt for choice. These consumers look to brands they can trust, brands that are reliable, and brands that are in a position to offer them the best value for money and Higher energy prices have provided the simultaneously managing costs, after sales support. impetus to introduce better and more capacity and inventory to remain fuel efficient and economical vehicles. competitive and profitable. As On the domestic front, as PROTON The push by well-informed consumers automakers look for greater economies moves forward into its new financial and environmental regulations for of scale by introducing common year, intense competition in both the cleaner and more eco-friendly vehicles, platforms for multiple models and domestic and export markets is has seen auto players devoting more multiple markets, they are also resources towards development of concept models for hybrid cars and alternative fuel vehicles.
The changing business landscape Globalisation has spurred the automotive industry means that today’s automotive players to introduce better quality products and have to compete with new products “ concurrently strive for lower manufacturing costs and adapt to new regulations while ” 32 CHAIRMAN’S STATEMENT
PROTON HOLDINGS BERHAD
expected to continue to put pressure going it alone. PROTON does not have Motor Corporation (“Mitsubishi”). The on Group sales and profitability. Tighter the luxury of time to develop the collaboration with Mitsubishi is part of credit control by financial institutions necessary range of products from the Product Alliance strategy and will coupled with increasing interest rates scratch. Consequently, the previous enable PROTON to quickly develop and the softening of the used car operating strategy to develop multiple additional products and technical market will continue to dampen new platforms in-house has to be revamped expertise in specific areas. car sales. Higher fuel prices and the to reflect current challenges. Thus the recent increase in electricity tariffs will pursuit of strategic alliances with In addition to the agreement with correspondingly increase the cost of international partners for mutual benefit. Mitsubishi, PROTON had also entered production. into a Memorandum of Understanding Alliance and Collaboration Strategy with Chery Automobile Company The PROTON Group recognises the In the last one year, PROTON undertook Limited (“Chery”) on 23 May 2006. The immense challenges facing the industry a review of its alliance and collaboration business arrangement with Chery globally and at home and is undertaking strategy. Clearly, the proposed provides the opportunity for both the necessary measures to adapt to this collaboration in the past could not companies to work together, amongst changing landscape. The Group is meet the specific needs of the Group. others, to co-source materials and positioning itself to leverage upon its Going forward, PROTON will pursue a components. strengths and every opportunity that collaborative strategy that is flexible, comes its way, to prepare it to rise balanced, mutually beneficial and PROTON, via Lotus Engineering Malaysia, above the challenges it may encounter. specifically tailored for the Group had also entered into a Memorandum The Group seeks to assure its requirements. It will focus on establishing of Understanding with Jinhua-Youngman stakeholders that it is financially sound collaborations aimed at acquiring the Automobile Limited (“Jinhua-Youngman”) and has the resources, commitment right technology, expertise and know- on 23 May 2006. The collaboration with and resolve to transform itself for the how to become a competitive Jinhua-Youngman is particularly better and will spare no effort to car manufacturer globally. These significant from a business standpoint as improve its long-term profitability. collaborations are also for the purpose it provides PROTON with the opportunity of acquiring products, where to improve its revenue generating appropriate, to optimise capacity usage capabilities from the licensing of some STRATEGIC INITIATIVES GOING and even for gaining market access. of the Group’s technologies. More FORWARD importantly, this collaboration will also In light of the increased competition PROTON could conceivably establish assist in introducing PROTON’s products and liberalisation within the domestic alliances and collaborations with to China, one of the most vibrant automotive industry, rapidly changing different partners for different purposes. automotive markets in the world. trends and industry challenges, PROTON has to re-strategise how it should It is in line with this new philosophy that compete. It is clear that PROTON can on 3 February 2006, PROTON entered utilise its limited resources more efficiently into a Memorandum of Understanding via strategic collaborations rather than with Japanese automaker, Mitsubishi 33
ANNUAL REPORT 2006
Under the management team led by Managing Director, Syed Zainal Abidin, the Group is actively looking to rebuild and realign its internal resources, particularly its managerial resources, to be able to meet new priorities and new challenges. While there is a need for haste, at the same time more discipline is warranted to ensure things are done in an effective manner for long-term profitability.
Some of the clear lessons learnt in the last year include the need for PROTON to realign its resources to enable rapid ...going forward, PROTON will focus on renewal of its core products, and the delivering to its customers, the right car need to be more economical in its “ product development strategy. These for the right market at the right time for were not applied vigorously enough in the right price the past and led to PROTON losing its dominant market share in the domestic market. Moving forward, rapid renewal of core products and a more realistic Apart from the international Operations Strategy ” platform strategy for optimising the use collaborations, PROTON had also on Despite the shortcomings of the past of available platforms and components 2 February 2006, signed a Memorandum and the current challenging environment bin, will form the cornerstones of the of Understanding with Petroliam going forward, the Group will endeavour Company’s strategy to improve its cost- Nasional Berhad (Petronas). This to improve and regain its domestic competitiveness. collaboration is aimed at exploring the market share, while continuing to possibility of further developing Petronas’ promote export growth. The Group will Despite the focus on improving cost- large capacity engines for use in also continue to intensify efforts to competitiveness, PROTON will not PROTON’s cars. further improve quality, enhance cost renege on the promise to deliver “the competitiveness and introduce new right car for the right market at the right In all these relationships, PROTON will models to mitigate the impact of higher time for the right price”. It will spare no seek to establish partnerships that are costs and increasing competition. effort to deliver on this promise. Although mutually beneficial and which will PROTON has had to re-evaluate its optimise stakeholder value. product planning, I am confident that 34 CHAIRMAN’S STATEMENT
PROTON HOLDINGS BERHAD
the company will be able to introduce In addition, the Group is also planning FUTURE PROSPECTS a new product range based on this to rationalise and optimise its domestic The various challenges and trends philosophy within the next 12 months. and international distribution/dealer affecting the global automotive This will then herald in the new product network, to make the network more industry, have to a large extent cycle of PROTON, developed on the cost-effective, whilst at the same time adversely affected the fortunes of promise of giving the customer what it improve customer satisfaction at point many automotive industry players. wants! of sale as well as after-sales service. There are not that many that have emerged from the last few years The implementation of quality Both restructuring efforts are significant unscathed. Looking ahead, market programmes to enhance the quality of undertakings and will likely take some complexity and interdependence are PROTON’s products, services and brand time to implement successfully. Once increasing. The road ahead for PROTON image is an extremely important thrust fully implemented, PROTON has no will continue to be challenging given given the continued perception issues doubt that the subsidiaries and the global trends affecting the afflicting the brand. PROTON has shown distribution/dealer network will be on a automotive sector and specific factors that it is capable of producing good better financial footing and will be able affecting the company. quality products, as evident with the to serve its customers better. recently launched Satria Neo. Going It is with this in mind that since mid- forward, the company will continue to The three strategic initiatives mentioned 2005, PROTON had been realigning its stress on the need to “over deliver” on are but a few of the initiatives currently various core strategies – such as the quality to address the continuing being worked on by PROTON. There are new product and export strategy. perception issues regarding its quality. naturally other initiatives that will be However, due to the complexity of implemented as part of the Group’s several of these initiatives, some remain Restructurings and recapitalisations commitment to improve itself. The in the process of implementation and Apart from the above, it is also clear industry landscape is such that PROTON have yet to generate a positive effect that further restructuring of the Group is must continue to demonstrate great for the company. needed to make it more efficient and commitment and self-reliance to effective. The restructuring will also remain relevant to its stakeholders. The Notwithstanding this fact, PROTON include recapitalisation of key overseas Group is confident that these key thrusts remains positive that with the various subsidiaries to ensure they remain will take it back on the road to remedial steps being taken and the financially sound to better serve the profitability and long-term success. commitment of its staff and employees, interest of their respective customers. as well as other stakeholders, it will be With this in mind, PROTON is currently able to surmount the current challenges working towards recapitalising its and emerge a stronger, leaner and distributive arms in the United Kingdom more disciplined company. and Australia, as well as its subsidiary, Lotus Group International Ltd. 35
ANNUAL REPORT 2006
ACKNOWLEDGEMENTS brand ambassadors – we applaud your is committed to ensure that going As PROTON puts another year behind it efforts and contributions to PROTON’s forward it will continuously improve the and moves on to new challenges, we success. quality of its products as well as the want to appreciate the efforts of the level of after-sales service. many people that make up the We take this opportunity to acknowledge PROTON family. the contributions of Edaran Otomobil Last but not least, our sincere Nasional Berhad (EON) and their dealers appreciation to PROTON’s shareholders On behalf of the Board of Directors, under EDAM, and also our very own who have to a great extent, been I wish to convey our sincere appreciation PROTON Edar and their dealers grouped instrumental in nurturing its success from to PROTON’s staff and employees, at all under PEDA. We look forward to your a fledgling automotive manufacturer to levels and across the various functions continued support and on our part will where it is today. Of course, there is still and many continents. We are grateful do what is necessary to enhance and a long way to go before PROTON can for all your sacrifices and contributions. strengthen our partnership for our truly call itself a successful global player. I trust that the staff and employees of mutual benefits. In any event, we thank you for your the PROTON Group will continue to support and guidance which has provide their support and hard work to PROTON would not be where it is today helped seen this Company through. ensure PROTON’s continued success, without the strong support of the as we forge ahead into the new Rt.Hon. Prime Minister, Y.A.B. Dato’ Seri It is our sincere hope that all our key automotive landscape. Abdullah Haji Ahmad Badawi and the stakeholders will continue to support Malaysian Government through its and work together with PROTON On behalf of PROTON Group, I would various Ministries and agencies. We are with renewed commitment and also like to convey my appreciation to committed to working closely with the perseverance to support our products, Datuk Kisai Rahmat, who has resigned, Government, in the spirit of Malaysia the brand and the Group, more so for his service and contribution to the Incorporated, for the betterment of the amidst this challenging new landscape. Group over the years. national automotive industry and our nation. Thank you. We are also grateful to the support shown by our partners – PROTON’s PROTON would also like to record its vendors and suppliers as well as our appreciation to all its customers that distribution and sales teams. Our utmost have continuously supported the appreciation to the vendors who have company and its products over the stood by us through both the good and years. We realise full well that a large Dato’ Mohammed Azlan bin Hashim lean times – we acknowledge the part of the company’s success over the Chairman many sacrifices you have made. To our years is due to the strong support distributors and dealers – PROTON’s shown by customers. As such, PROTON 36 AN INTERVIEW WITH THE MANAGING DIRECTOR
PROTON HOLDINGS BERHAD
An Interview with the Managing Director
THE WAY FORWARD
PROTON’s new Managing Director, Syed Zainal Abidin bin Syed
Mohamed Tahir, shares his insights on the strategic initiatives being
undertaken to make PROTON more competitive and agile amidst
a rapidly changing automotive landscape.
What are your impressions of PROTON since you came onboard 1 January 2006?
The basics are very much in place at PROTON. The one thing is that, somewhere along the line we may have lacked the discipline to ensure that certain processes were followed appropriately. We intend to put everything back into perspective so that everyone is aligned. If we are strong in monitoring this, we will achieve the results we want – it will all come together. What’s needed now is that the right people are in the right system (business process) with a strong desire to set things right.
SYED ZAINAL ABIDIN BIN SYED MOHAMED TAHIR MANAGING DIRECTOR 37
ANNUAL REPORT 2006
You’ve been tasked with moving PROTON forward – how will you achieve this? After taking a long hard look internally and externally, we’ve decided to focus on seven critical areas that will put us back on the road to being truly competitive. Our key thrusts will involve initiatives in the areas of:
1. Product Development – We will focus on introducing the 2. Quality Enhancements and Improvements – A number of right car, for the right market, at the right price and at quality programmes have been initiated and more will be the right time. It is about producing vehicles that are not introduced to enhance the quality of not only our only exciting, of a diverse range and model, but also products but also our services. These programmes aim to those that are in line with what the market wants and of paint a more positive perception of the brand among better and higher quality. We will be sending at least 50 car buyers and existing PROTON car owners. To ensure technical staff to dealers and service centres in various this, the division that looks after product quality will no parts of the country to get feedback. These staff will act longer fall under the control of the factory but will report as our ambassadors to gather feedback from customers directly to me. Every morning, employees at our factories for three months and if the outcome is positive we will are reminded about the importance of quality for 60 implement it over a longer period. PROTON will use this seconds before they begin work. There is always room for information to build cars that the people want instead of improvement because quality is not something that what it feels they should drive. PROTON will also abandon remains stagnant, but constantly evolves. PROTON must its “silo” approach to building cars so that the good and keep abreast of these developments and changes in the the bad experiences can be shared across all platforms. industry as well as customer needs and requirements. PROTON will also develop new cars of its own and those in collaboration with other car makers, to replace some of PROTON’s existing models which have been on the road for too long. PROTON is tapping deeper synergies with LOTUS and will work on producing “more affordable” LOTUS cars using advanced PROTON vehicle platforms. 38 AN INTERVIEW WITH THE MANAGING DIRECTOR
PROTON HOLDINGS BERHAD
3. Cost Improvements – Cost improvements or cost savings 5. Vendor Development – As a national car company and here do not necessarily translate into lower or cheaper as the backbone of Malaysia’s automotive industry, quality products and services. Instead, improvements PROTON has both a national and social obligation to here focus on the entire network’s ability to operate in a ensure that local vendors have the necessary expertise, more productive and efficient manner thus further resources, skills, international accreditation and competitive reducing wastage or unnecessary costs. PROTON will edge to take Malaysia’s component manufacturing consolidate its parts-making manufacturers and suppliers, industry several notches up. PROTON will implement a focussing on 20 to 30 core vendors. The rest of the parts first-tier concept for our vendors. The selection for Tier and components suppliers should deal directly with these One vendors will be very stringent. Tier One vendors must key vendors. Currently we have 14 logistics providers and prove that they posses the capability as well as astute this is not very efficient. We may want to reduce this financial and management skills to run their business well; number to three or two, at best. This will translate into besides this, they must uphold high quality standards and better response and cost efficiencies. Improvements in undertake research and development activities. PROTON quality and factory efficiencies will further contribute to will work closely with the vendors to ensure continuous cost savings. improvement in quality and efficiency is implemented.
4. Enhancements to Production and Efficiency – This initiative 6. Enhancement of Sales, Distribution and After Sales Service relates to how PROTON will identify and arrest weaknesses – PROTON will focus on consolidating and improving its and inefficiencies across the board in its current existing network and presenting itself to consumers in a operations. PROTON will reduce the 1,700 third party more effective manner. Delivery or cars will be done at suppliers of raw materials and other non-automotive our customers’ convenience – even if they request the components and will deal directly with the source. This pick-up at 10 pm, we must be able to accommodate this will minimise transactions that do not create any value for request. PROTON will also now refocus on its export PROTON. The production process will be reviewed to strategy and will ensure a balance between volume and eliminate any inefficiency in manpower and machinery. profitability when pursuing its export model. Other initiatives here will also include creating synergies in logistics, distribution, spare-parts and training. PROTON is no longer in the business of just manufacturing and selling cars, but must, however, undertake measures to enhance its pre, in and post-customer service efforts. 39
ANNUAL REPORT 2006
7. Human Capital Development – Every employee, representative and even our business partners must not only understand what is required of them and have the appropriate resources at hand, more importantly, they must be equipped with the right knowledge and skills. Our people are our greatest asset. A renewed emphasis will be given to upgrading employees and representatives’ skills-sets and technical knowledge, as well as inculcating a positive mindset among them to embrace the changes going forward.
EXPECTED DELIVERABLES
• SATISFIED CUSTOMERS • WIDER MARKET • COMPETITIVE PRICING • POSITIVE PERCEPTION • MORE CUSTOMERS • SUSTAINABLE MARGIN THE WAY FORWARD 7 CRITICAL AREAS OF FOCUS
PRODUCT QUALITY COST MANUFACTURING VENDOR SALES & DEVELOPMENT CONTROL EFFICIENCY DEVELOPMENT DISTRIBUTION
ORGANISATION STRUCTURE 40 AN INTERVIEW WITH THE MANAGING DIRECTOR
PROTON HOLDINGS BERHAD
If we are to truly move forward, we must do all that is necessary to ensure these seven key areas are effectively turned around. They will be the foundation upon which we build this company up again. To build a house you need a strong foundation. If the sub-structure and the floor is weak, How will PROTON’s product development initiative your house will collapse and that’s something we can’t play out? afford. The elements of the new road map for PROTON We need to venture out to really understand what the underline this i.e. that we form and strengthen the foundation market wants. We will go out and study our customers, first, so that when the future presents itself, we already have dealers, etc. to understand who our target market is. This a strong base and are prepared to respond accordingly. information must be in place before we can even start thinking of building a car.
What is your part in all this? We will focus on segments where we are very strong and will My job, and that of my team, is to harness and align every expand our presence there by introducing a greater variety member in the PROTON family to help realise our objectives. of products. We will be open-minded and look at products We’re not here merely to help set the direction, but, to that are suitable across borders. Having said that, we have support the family, making sure that there is a conducive to be really realistic about the markets we want to penetrate working environment in order to achieve our objectives. into, taking into account our weaknesses and strengths. We There is no individual in this world who does not want to will study these markets by living in them, by understanding improve or to change, but in order to do so successfully, the people, by analysing buying trends and by studying what there has to be the right working environment and chemistry. other companies are doing – only then will we design a PROTON’s new management understands this, is focused on product and position it to suit that market. what it wants to do, and will effect the necessary positive changes to move forward. It truly is all about having the right product and coming out with it at the right time and at the right price – all these three elements must work hand in hand for PROTON to be successful. Only when we have a full suite of products in every segment of the car market can you call us a true auto manufacturer. 41
ANNUAL REPORT 2006
What will the quality improvement initiatives What will you do to manage costs and enhance entail? production and efficiency as well as vendors’ efforts?
Everyone knows about the numerous quality complaints that A reduction in costs does not necessarily translate into plague our brand. We need to be realistic here and stop reduced margins. We can in fact improve our margins. We pointing fingers at any one group, as quality is the ownership need to be clear on the areas that we need to be more and responsibility of everyone. There needs to be a change of efficient in. Some 80% of a car is built of add-on materials – attitude and mindset throughout the length and breadth of so it’s not just the parts we have to look at, but the cost of our organisation if we are to improve – this is the very first step. producing these parts and cost of assembling the car. An I believe the journey of improvement has started at PROTON. extensive vendor programme to improve the overall cost Some improvements have started, others may take months to index is essential here. achieve. Having said this, it is imperative that we satisfy the requirements of our customers quickly. While we are on a level playing field with other automotive players in terms of labour costs, raw material costs and the Going forward, PROTON must and will offer better quality type of facilities we utilise, we cannot say the same for our products. We intend to put the best practices into every car overheads. There are two things to consider here: Firstly, the that rolls out of the factory. How do we instil this? It has to be things we have put in place to enhance capacity have not done via training, having managers and supervisors frequently yet been amortised. It is only a matter of time before these conducting checks, through visualisation, and through a strong costs are recoverable. In this area, we will work to enhance belief in quality. We must also set higher benchmarks and our capacity so there is some incremental reduction. everyone in our organisation must have strong quality awareness – not just speaking of it, but visualising it and Secondly, inefficiencies undoubtedly exist. Many vendors do practicing it in a consistent and not sporadic manner. not rise to the level of quality we require, resulting in many rejections – all of which have a direct impact on cost. As a A Quality Improvement Committee has been tasked with manufacturer, PROTON views our vendors not just as our coordinating and improving all quality programmes found to business partners – we need one another to survive. Going be inconsistent in the past. Our processes and relationships forward, we will allocate the resources and work hand-in- with vendors are also being reviewed so that all parties hand with our vendors to improve the situation by reducing understand their respective roles in ensuring quality products. these inefficiencies. We also need to acquire more information on our customers’ buying experiences, analyse this and take the proper steps to resolve negative experiences. Quality must and will be ingrained in everyone. 42 AN INTERVIEW WITH THE MANAGING DIRECTOR
PROTON HOLDINGS BERHAD
We also envisage the inefficiencies within our own factories improving once quality improves and expect this to translate into automatic cost savings. Our Cost Reduction Committee will review the entire supply chain, from components and production to sales and marketing. We will also review the number of outlets we have against the volume we want to push and will initiate a programme to consolidate our dealer network system.
How will you harness strategic partnerships and alliances to move forward?
As a national car manufacturer, we have strong national In engaging with others, we firstly need to ask ourselves what objectives to fulfil; but at the same time, we must also be are the products we want; then, who has them now; and realistic. Can we do everything by ourselves? I think not. who are the right people with the right product who can Consider the MPV and SUV segment today – it’s the fastest assist us in getting into a market? Once we identify who has growing market segment in Malaysia. However, PROTON is these attractive products, it’s about courting them to see if definitely not a player here and by the time we can produce they are willing to work with us in a win-win situation. a suitable product, I’m afraid we would have already lost out on the opportunity. The one option we have of entering this In identifying partners, we will carefully look at three criteria. segment is to engage strategic partnerships and alliances. Here, a strategic alliance may not necessarily involve equity Firstly, a partner must be willing to share with us the product participation. There are many other forms of cooperation that we are looking for. including the sharing of resources. In today’s auto industry, it is common for two to three auto manufacturers to Secondly, they must also be willing to share with us the collaborate to save on cost, time and development technology aimed at enhancing our know-how of building expenditure and in the process obtain a larger volume. cars and the knowledge of managing manufacturing efficiency, quality, costs, etc. effectively. 43
ANNUAL REPORT 2006
Finally, they must also be able to present us with a market or markets in which we have not been able to penetrate because of the lack of a suitable product. At the same time, we must be prepared to offer our partners any of our products that may suit their needs, our own expertise and know-how, as well as open up our markets.
Can you elaborate on the key challenges At the same time, we will also explore strategic collaborations for PROTON today? and alliances, which will form the base for PROTON’s future Today, we acknowledge that PROTON needs to regain its sales products, improved quality and operational efficiency. We and market share as the leading car brand in the domestic will also implement a more structured human capital market, mainly through the consolidated effort on sales development programme with an emphasis on technical operations and quality improvement. The export revenue and training and exposure to the world’s best practices, and, brand presence abroad must also be increased. On top of it conduct this on an ongoing basis. In recognition of the fact all, customer satisfaction is an all-important element where that our people are the company’s key asset, we will deploy various initiatives are being or will be rolled out to make the experienced and skilled personnel to key support functions to experience of owning a PROTON, a satisfying one. strengthen our competitive edge in our markets.
Additionally, improvements on manufacturing operations, It’s going to be a tough journey, but it is one that we must production systems and purchasing processes; as well as the take and will take. We trust that all the parties that have consolidation of vendors, shall deliver a better financial supported us in the past, plus the new ones that want to position for PROTON. come along on this adventure, will remain steadfastly with us till we reach the finishing line.
FOCUS Our vehicles move beyond fulfilling a need rather we share an experience 46 OPERATIONS REVIEW
PROTON HOLDINGS BERHAD
ENGINEERING SERVICES 47
ANNUAL REPORT 2006
The PROTON Group’s engineering capabilities have grown by leaps and bounds over the years and today encompass a wide spectrum of automotive research and developmental (R&D) activities. Today, PROTON is able to develop new models from scratch with most activities done in-house at the Shah Alam R&D facility.
PROTON’s Engineering and R&D division possesses its own PROTON also boasts extended engineering capabilities as a New Product Introduction (NPI) process which enables us to result of the resources of the other subsidiaries within the undertake all stages of the NPI process from concept Group, namely Lotus Group International Limited which is initiation, vehicle engineering, and powertrain engineering to renowned for its automotive engineering services, and Miyazu prototyping, homologation, testing and production (Malaysia) Sdn. Bhd., for its die and mould-making capability. preparation. This in-house capability within PROTON makes PROTON has also been able to leverage on Lotus’s global Malaysia one of thirteen countries with the capability to network to gain speedy entry into foreign markets where we develop a model from the ground-up. offer our own products and engineering services. 48 OPERATIONS REVIEW
PROTON HOLDINGS BERHAD
Research & Development
Our efforts to establish our very own R&D facility, reflect The new enhancements to PROTON’s R&D facilities PROTON’s commitment to meeting the objectives of include:
Malaysia’s Second Industrial Master Plan (IMP 2). • Upgraded design facilities boasting the latest Our R&D teams are continuously working to enhance CATIA version 5 which provides for more versatile our capabilities, retain our position at the forefront of and compatible operating system support and technological development and enhance our networkability. competitive edge. • Upgraded laboratory equipment for chassis engineering and vehicle testing to enhance data With the commencement of Malaysia’s Third Industrial range and accuracy during vehicle development Master Plan (IMP 3), which aims to develop human and testing. capital and support the knowledge growth of local •A Virtual Reality Facility for digital mock-ups of talent, PROTON has initiated efforts to transfer vehicles which allows for faster assessment of design technology and accelerate our learning curve. This has concepts and significant savings and flexibility. resulted in extensive R&D facilities coming into being, which in turn translates into a renewed focus on the quality of the end product and the services that PROTON offers. 49
ANNUAL REPORT 2006
Product Development
PROTON has received recognition from the automotive •WAJA CAMPRO industry for our recent product development activities The CamPro, Malaysia’s first commercialised engine, which have materialised in the product line-up that we has proven itself in the market since its integration currently offer the local and international markets. into the Gen.2 model. The engine’s cost advantages and fuel efficiency had provided PROTON with a •SAVVY definite market advantage. The integration of the The PROTON Savvy creates a new standard for the CamPro into the Waja platform has also enabled compact car segment by raising the bar in the PROTON to extend this advantage on a larger scale area of safety, ride and handling and components reliability. PROTON has also introduced the much- while revitalising the Waja model. awaited Automated Manual Transmission (AMT) variant for the Savvy incorporating the essence of •SATRIA NEO both manual and automatic shifting for product The much-awaited Satria Neo met the Start of versatility. Production (SOP) date by utilising PROTON’s Tanjung Malim manufacturing facility. The two-door hatchback • CHANCELLOR powered by PROTON’s very own CamPro engine is PROTON’s new flagship vehicle, the Chancellor, designed to provide exceptional ride and handling offers a choice of luxury with its four-seat stretch as well as occupant safety and is compliant with and chauffeur-driven focus. Fitted with plush leather EURO 4 emission standards. The Satria Neo, was seats and the necessary elements that provide for launched by the Prime Minister on 16 June 2006. a refined ride, the Chancellor also boasts superb in- car multimedia components such as a DVD player and LCD display which are both standard fittings. The Chancellor is also offered in a five-seat long- wheel sedan option. 50 OPERATIONS REVIEW
PROTON HOLDINGS BERHAD
In the near future, PROTON will endeavour to create excitement in our Moving product line-up by releasing enhancements and cosmetic changes to existing platforms such as the Waja, Gen.2 and Savvy – appealing new colour shades Forward and styling cues will be standard features. New models are also planned to help us penetrate the MPV and luxury sedan segments for both the domestic and export markets.
Technology Development
PROTON will continue to keep abreast of technological • COMPOSITE MATERIAL RESEARCH advancements in the automotive industry by undertaking The Lotus Europa S which made its debut along with projects that aim to enhance our technical know-how the APX at the Geneva Motorshow signifies the and capabilities in high-technology areas as well as Group’s intent to enhance our knowledge and provide potential long-term benefits. Our intent is that capabilities in the area of composite materials. The every effort we undertake will translate into tangible end end product saw a low volume production line products and that we will be able to capitalise on the successfully set up at the Shah Alam manufacturing knowledge gained from these activities. facility. The Europa project had also established an industrial partnership between PROTON and • ALUMINIUM PERFORMANCE CROSSOVER (APX) Composite Technology Research Malaysia (CTRM) PROTON Group had successfully developed a who are known for their support activities on the concept prototype that utilises the Versatile Vehicle Airbus A380. Architecture (VVA) that was developed through Lotus Engineering. The APX was built with an aluminium- •PARALLEL HYBRID ELECTRIC VEHICLE (PHEV) based VVA powered by a V6 supercharged engine PROTON had embarked on a project with the Lotus and is a seven-seat crossover vehicle. The APX made Group to develop a hybrid vehicle capable of its debut in the Geneva Motorshow in early 2006 and running on either electricity or gasoline. This was also PROTON’s highlight for the KL International programme aims to elevate our technology to a Motorshow 2006. level that is on par with our global competitors by creating an alternative vehicle for the future which provides customers with better fuel economy, reduced emissions and uncompromising performance. 51
ANNUAL REPORT 2006
Continuous Initiatives
PROTON continuously innovates and improves to PROTON’s pursuit of engineering excellence also aims provide our customers better quality products. to elevate the standards of Malaysia’s automotive Testing activities and initiatives continue past the industry and is exemplified though our commitment in commencement of production and model launches to providing Engineering and R&D services to facilitate the ensure industry standards are dynamically surpassed. supply chain and other local car manufacturers. This is reflective of the PROTON Brand Essence of The services we provide span the entire range of “striving for customer satisfaction”. facilities, from clay modelling, prototyping and vehicle engineering to homologation and testing. 52 OPERATIONS REVIEW
PROTON HOLDINGS BERHAD
MANUFACTURING 53
ANNUAL REPORT 2006
PROTON’s manufacturing capacity and capability comprises two main plants in Malaysia, namely Perusahaan Otomobil Nasional Sdn. Bhd. in Selangor and Proton Tanjung Malim Sdn. Bhd. in Perak, as well as two overseas subsidiary plants – P.T. Proton Tracoma Motors in Indonesia and Lotus Cars in the United Kingdom. Together, these plants possess a combined installed manufacturing capacity of 400,000 units annually.
MALAYSIAN FACILITIES The manufacturing facilities in Malaysia are the most integrated within the region. With casting and foundry facilities as well as machining, stamping, assembly, painting and complete vehicle testing facilities, PROTON has moved beyond being a mere assembler to becoming a full-fledged auto manufacturer. 54 OPERATIONS REVIEW
PROTON HOLDINGS BERHAD
Shah Alam
The Shah Alam plant, with its combined capacity of 200,000 units annually, comprises the main factory which produces the Saga, Wira, Perdana and Arena models, and the medium volume factory which produces the Waja and Chancellor models for the domestic and export markets.
PROTON’s casting, engine and transmission factories are also located in Shah Alam and these facilities are capable of producing 180,000 units of CamPro engines per year for both the Shah Alam and Tanjong Malim plants. The Shah Alam plant also supplies CKD (Completely Knocked-Down) parts and components to Zagros-Khodro in Iran to assemble and market PROTON vehicles in the Middle East region. In the period under review, 1,740 vehicle sets were delivered for assembly.
In the period under review, various initiatives focusing on improving the quality of products, operational efficiency and new product variants and introductions, were implemented. Among the new products introduced were the Saga Iswara Special Edition and a low end variant as well as the Perdana V6 enhancement, the Waja enhancement with CamPro Engine, and the Chancellor.
Over the course of the year, the built-up quality (measured in Defect per Unit or DPU) at both the main and medium volume factories improved by almost 20%, while the cost per unit was reduced by 1%. 55
ANNUAL REPORT 2006
Tanjung Malim
PROTON’s ultra-modern manufacturing and assembly In the period under review, several initiatives aimed at plant in Tanjung Malim has an annual installed capacity improving the quality of products and operational of 150,000 units and is capable of producing three efficiency as well as new products variant and different platforms and multiple variants. The plant introductions were implemented. currently produces the Gen.2 and Savvy models – two new platforms and products from the PROTON stable. The CamPro facilities in the engine factory, comprising the main machining facilities for the CamPro cylinder The plant complex consists of engine, stamping, body head, camshaft, crankshaft and cylinder block, were assembly, painting and final assembly facilities, inclusive successfully commissioned. New product introductions of end-of-line vehicle testing equipment that is fully included the Gen.2 1.3 variant and Savvy AMT both for integrated into PROTON’s Automated-Assembly Line the domestic and the RHD export markets. Concurrently, Controller (PALC) application. preparations for the Gen.2 and Savvy LHD-export variants, including a new Satria model, are being While the Tanjung Malim Plant has the potential of undertaken and these models should be ready in the assembling up to one million vehicles, to date, only 240 next financial year. acres of the total 1,280 acres have been developed. A community of suppliers has developed in the vicinity The financial year saw the Tanjung Malim plant’s built- of the plant complex ensuring effective and efficient up quality (measured in DPU) improving by almost 25%, logistics network. To date, more than 10 major modules while its cost per unit was reduced by 1%. and system suppliers are operating in the PROTON City Vendor Park. 56 OPERATIONS REVIEW
PROTON HOLDINGS BERHAD
OVERSEAS FACILITIES Chikarang, Indonesia
The manufacturing plant in Indonesia is held under a The assembly equipment and facilities were completed joint venture between Perusahaan Otomobil Nasional and fully-commissioned in the third quarter of 2005. Sdn. Bhd. (which owns 51% equity) and Tracoma Holdings The plant is all set to assemble vehicles in the coming Berhad (which owns 49% equity). The joint venture financial period and has an installed capacity of 40,000 company, P.T. Proton Tracoma Motors, is involved units per year. mainly in the manufacture of PROTON’s products not only for Indonesia but also for the ASEAN markets. 57
ANNUAL REPORT 2006
Norwich, United Kingdom
PROTON’s manufacturing plant in the United Kingdom is mainly involved in the manufacture and distribution of sports cars. A fully-owned subsidiary of PROTON, Lotus Cars has an annual capacity of 10,000 units per year. The main products produced by Lotus Cars are the Exige and Elise models mainly for the European and US markets.
In the period under review, efforts focused on new product development including the development of the Europa among others. An Esprit replacement is also being intensely developed with its introduction targeted within the next two years. With these imminent new products, efforts and activities will focus on marketing and sales in the United States in particular, as this is a major market of the future. 58 OPERATIONS REVIEW
PROTON HOLDINGS BERHAD
MARKETING
Crystal Showroom, PROTON’s Centre of Excellence Complex, Subang Jaya. 59
ANNUAL REPORT 2006
Domestic Markets
In the year 2005, the Malaysian automotive industry The PROTON brand recorded another milestone with registered its best performance to date chalking up the introduction of the totally new PROTON Savvy in motor vehicle sales of 551,042 units, up 13% from June 2005. The Wira, Gen.2 and Saga models were also 487,605 units in 2004. Sales in the passenger car given fresh touches in order to compete with newer segment grew by 5.3% to 400,835 units from 380,568 products. The Waja, meanwhile, was repackaged with units in the previous year. It was the best year ever for PROTON’s own Campro engine in January 2006. the industry despite the uncertainties of the much- anticipated National Automotive Policy (NAP). The On the operational front, Proton Edar Sdn. Bhd. industry’s record sales in 2005 were mainly attributed to continued to focus on its sales and service network, our the strong sales of many new models introduced at key focus and advantage over other brands, to serve competitive prices, in addition to low interest rates and our customers better. The year under review saw our longer repayment periods. sales outlets increasing to 234 outlets from 224 outlets the year before, whereas the service network grew to 168 outlets from 150 outlets in the preceding year. 60 OPERATIONS REVIEW
PROTON HOLDINGS BERHAD
Another key highlight was the opening up of the Various initiatives were implemented to boost sales as Crystal Showroom within the Centre of Excellence well as to bring in service revenue. The PROTON 20-Year (COE) Complex in Subang Jaya in October 2005. Campaign (P20Y) carried out from September to This world-class showroom is fully equipped with state- November 2005 managed to boost sales by 70% to hit of-the-art facilities and a dedicated Customer Delivery 22,917 units in October 2005, the highest in PROTON’s Centre (CDC) which will deliver new cars directly to the history to date. The Customer Management Center buyers within the Klang Valley. (CMC) was strengthened and tasked with monitoring the overall Customer Satisfaction Index (CSI). This will ensure that the products and services we offer are on par or better than our competitors. 61
ANNUAL REPORT 2006
Export Markets
The export market for the financial year under review review. The response to the Savvy has been very experienced a reduction in volume shipped compared encouraging, with the Savvy now being the best selling to the previous financial year, from 17,243 units in model for PROTON in South Africa. Left-Hand-Drive FY2005 to 12,526 units in FY2006. While actual orders versions of the Savvy are expected to be introduced by the various overseas markets were far in excess of from September 2006 onwards. This is expected to the number shipped, the difference was due to further increase the popularity of the Savvy and constraints in the supply chain. There is no doubt that contribute towards our overall export numbers. demand for PROTON cars in the overseas markets exists. As such, looking forward into FY2007, we New markets are also continually being opened up. anticipate a significant improvement in the number of Saudi Arabia and Pakistan are the latest to be PROTON cars sold overseas. penetrated by PROTON, and should start showing results within the current financial year. Closer to home, The many markets that were opened in the preceding following the announcement of the NAP, countries within financial year are now beginning to show encouraging ASEAN are evolving into attractive markets. The duty signs of ramping-up volume. South Africa, which started structures within these ASEAN countries are expected to distributing PROTON cars in August 2005, is fast growing be rationalised within the AFTA guidelines, thus making to become PROTON’s third largest overseas market PROTON’s entry into these markets a viable proposition. after the United Kingdom and Australia. The Gen.2, inclusive of the Left-Hand-Drive version, was well In the longer term, PROTON’s exports are expected to received upon its introduction into new countries in the contribute significantly to the volume sold. Based on the overseas market. roadmap of new markets to be opened, coupled with the expected introduction of new models in PROTON’s The Savvy was also introduced into the Right-Hand- product line-up, the export market will continue to be Drive overseas markets including the United Kingdom, an exciting area of expansion, accelerating forward Australia, Singapore and South Africa in the year under PROTON’s position as a global automotive player. 62 OPERATIONS REVIEW
PROTON HOLDINGS BERHAD
PROPERTIES
Rear view of PROTON’s Manufacturing Plant at Tanjung Malim, Perak. 63
ANNUAL REPORT 2006
PROTON is involved in the property sector through its equity ownership in Proton Hartanah Sdn. Bhd., which in turn wholly owns Proton Properties Sdn. Bhd. and 40% equity in Proton City Development Corporation Sdn. Bhd.
PROTON manages 1,280 acres encompassing its plant in The Proton plant contributes towards the continuing Tanjung Malim and has access to a further 2,720 acres via its development of the Tanjung Malim township and the investment in Proton City Development Corporation Sdn. Bhd. surrounding neighbourhood. As a caring employer, PROTON The latter project comprises an integrated development for offers its staff the opportunity to own low and medium-cost residential, commercial, educational and vendor parks as apartments in the vicinity of their workplace. well as recreational facilities. 64 OPERATIONS REVIEW
PROTON HOLDINGS BERHAD
FINANCIAL SERVICES
PROTON’s Centre of Excellence view at dawn. 65
ANNUAL REPORT 2006
PROTON has entered into relationships with reputable financial institutions to provide convenient services that include financing package for customers and operational facilities for authorised dealers.
• PROTON Commerce Sdn. Bhd. is a venture between Proton Edar Sdn. Bhd. and Bumiputra Commerce Bank Berhad;
•Proton Finance Ltd. is a venture between Proton Cars UK Ltd. and Llyods TSB Bank;
• Lotus Finance Ltd., is a venture between Group Lotus Plc. and Chartered Trust, provides financial services solely for Lotus cars.
Proton Commerce’s e-Finance system enables customers to apply for hire purchase facilities via the Internet. By simply logging onto www.proton-edar.com.my or www.bcb.com.my from any Internet terminal, customers are immediately advised as to whether their applications have been rejected or conditionally approved, subject to the submission of relevant supporting documents. 66 OPERATIONS REVIEW
PROTON HOLDINGS BERHAD
HUMAN CAPITAL DEVELOPMENT 67
ANNUAL REPORT 2006
PROTON’s global workforce today comprises 11,000 employees, many of whom are long-service employees that began their careers at PROTON and have grown with the Company. PROTON has also brought in many new employees hired from top multinational companies.
This infusion of new blood aims to balance the new ideas At PROTON, we believe in providing our employees a and skills against the rich knowledge and experience of our favourable platform to contribute creative and innovative long-standing employees. Recognising that our success ideas to Management. The Innovative and Creative Circles depends very much on our people, PROTON has made (ICC) initiative is a channel that enables employees to human capital development one of our foremost priorities. showcase their creativity and innovation in solving problems The Company provides a conducive learning environment at the workplace and in creating accessories, tools or where employees are encouraged to continually ascend an administrative functions that will help boost the Company’s upward learning curve. productivity. The ICC is also a platform that lends to our workforce sharpening its customer service and leadership PROTON’s top-line organisation has been restructured to skills. By empowering our employees, we aim to inculcate a ensure that it supports the company’s current and future greater sense of involvement and ownership among them. business needs. Structured training and development The ICC concept and methodology was first implemented at programmes focusing on leadership and managerial the main factory in Shah Alam and now covers the factory competencies as well as technical functional competencies in Tanjung Malim as well as the value chain of PROTON have been developed. Some of these initiatives have suppliers and dealers. involved joint programmes with the University of Malaya since March 2003 i.e. the Executive Development Programme An ICC Secretariat has also been set up to further develop (EDP) and Managerial Development Programme (MDP). and promote the ICC concept and methodology among PROTON employees. The Secretariat and ICC facilitators have December 2005 saw our third EDP intake kicking off with 150 been tasked with visiting each registered ICC project at least executives and the graduates are expected to receive their twice during the tenure of a project as well as with educating certificates in December 2006. The first module of the MDP its members and helping them achieve their project goals. kicked off in April 2004 with a total of 53 managerial heads with the graduates receiving their certificates in December Going forward, PROTON will continue to focus on performance 2005. To fulfil the Company’s future human capital needs, we measurements, using key performance indicators (KPIs) have also identified top-notch students from universities and directly linked to reward and recognition. Human Capital provided them scholarships through Yayasan PROTON. Development will continue to play an important role in ensuring PROTON measures up as a competitive player amidst the changing automotive landscape. 68 OPERATIONS REVIEW
PROTON HOLDINGS BERHAD
CORPORATE SOCIAL RESPONSIBILITY
Dato’ Mohammed Azlan Hashim, Chairman of PROTON, handing over the contribution for earthquake relief aid to Rt.Hon. Dr. Muhammad Jusuf Kala, Vice President of the Republic of Indonesia. 69
ANNUAL REPORT 2006
PROTON is committed to serving the various communities in which we operate. Over the course of the year under review, PROTON continues to lend support to various organisations and worthy causes. As part of our collaborative efforts with the Government to highlight the nation’s automotive capabilities and the PROTON brand, we extended our support as the “Official Car” sponsor to international events such as the 39th ASEAN Ministerial Meeting, the 11th ASEAN Summit Kuala Lumpur, the First Malaysian Women’s Games, the Perdana Global Peace Forum and COMINAC.
PROTON also undertook several educational initiatives & Time Attack and the A1 GP Malaysia. We also helped including those related to the automotive industry and key promote Malaysia among international motorsport audiences support services. These included supporting a special by supporting Malaysia’s A1 Team. Other sports initiatives educational scheme for unemployed graduates and one for included supporting the Women’s Sports & Fitness Foundation high-flyers in the SPM examinations; collaborating with of Malaysia in their national fitness programme as well as institutes of higher-learning; contributing cash or donations in sponsoring the Tour de Langkawi. kind or sponsoring cars for activities initiated by educational- related organisations; and providing an educational relief Funds were also channelled towards various registered fund for underprivileged groups. charities and worthy causes including the Yayasan Harapan Kanak-Kanak Malaysia’s Gift of Hope Night 06’; Pusat Harian In support of road safety efforts, PROTON supported a Kanak-kanak Spastik Bandar Ipoh; Majlis Amal Pesara for a defensive driving course for car owners and supported a haemodialysis machine; as well as the Pertubuhan Kebajikan defensive motorcycle riding programme for employees and Anak-anak Yatim & Miskin for its charity fund. We also lent our the public in conjunction with Majlis Keselamatan Jalan Raya. support to other institutions such as the Yayasan Sultan Idris We also supported the KLIMS 2006 Road Safety Campaign. Shah and Badan Amal Darling.
As part of our commitment to the development of national As part of PROTON’s natural disaster fund relief efforts, we sports, in particular key sports that would enhance Malaysia’s provided assistance to the community in Shah Alam affected and PROTON’s image in the global sports arena, we by floods in early 2006. In addition, fishing boats pledged by supported the development of Malaysian Badminton through PROTON in aid of the tsunami victims in Kedah were recently the “Program Penajaan Sukan (PROTON-BAM)” and local delivered to fishermen who were affected by the tragedy. motorsports through several motorsports events. Our We have allocated funds for disbursement to affected motorsports initiatives included such R3 (Race•Rally•Research) communities for future relief efforts as and when such help is programmes as the Merdeka Millennium Endurance (MME) required. PROTON remains committed to raising the standards Race, the Malaysian Rally Championship, the Street Shoot Out of and caring for the communities we operate in. 70 OPERATIONS REVIEW
PROTON HOLDINGS BERHAD
ENVIRONMENT, HEALTH AND SAFETY 71
ANNUAL REPORT 2006
As a responsible corporate citizen, PROTON has taken steps to ensure that we practice sustainable development – meeting present needs without compromising future prospects – as part of our overall working environment, from the manufacturing process and the cars we make, to factory safety and the conditions under which our employees work.
PROTON provides the resources for as well as promotes good Recycling is also encouraged and by-products such as paper environmental protection, health and safety (“EHS”) practices and boxes are sent to vendors for recycling. The increased to ensure the safety and health of our employees and the use of metal and reusable plastic boxes instead of wooden protection of our environment. We actively instil an awareness boxes, is a conscious effort on our part to reduce the need of and look after the safety and health needs of our for logging trees. employees, our business associates and the general public. PROTON is also committed to phasing-out the consumption PROTON believes that technological advancements and of Ozone Depleting Substances in the manufacturing process national development at the cost of the environment or and components we use by using alternative materials and civilised society will not help us achieve the Malaysia that we processes. PROTON also encourages our component aspire to create. We stand firm in the belief that all suppliers to phase-out Ozone Depleting Substances in their development must be sustainable to be viable. industrial and manufacturing processes.
In line with this philosophy, we have integrated our objective PROTON, as a responsible corporate organisation, carries out into every component of PROTON. Although it is an added various safety campaigns and training, including training on cost of millions of ringgit a year to us, PROTON believes that hearing conservation, defensive driving and riding and also being an environmental-friendly corporate citizen is an integral fire safety for all its employees. part of our responsibility as the national car manufacturer. PROTON also provides an Ergonomics programme where PROTON’s car manufacturing processes have been designed studies are being made to reduce work related injuries, to be environmentally-friendly and to comply with strict occupational diseases, improve safety levels in the factory, internationally-accepted standards and legal compliance. work quality and productivity. For example, waste water resulting from the manufacturing process and other sources are treated at PROTON’s own As we move ahead, PROTON will endeavour to uphold good waste water treatment facility in compliance with the EHS practices in all our dealings with all our target audiences Department of Environment’s regulations before being and in all our activities. discharged into the river as clean water. CARING Taking care of our customer needs dictate how we design the environment around us.
74 STATEMENT ON CORPORATE GOVERNANCE
PROTON HOLDINGS BERHAD
Statement on Corporate Governance The Board is committed to applying the recommendations of the Malaysian Code on Corporate Governance to ensure that good corporate governance is practiced throughout the Group to effectively discharge its responsibilities to protect and enhance shareholder value. Set out below is a statement on how the Group has applied the principles of the Malaysian Code on Corporate Governance.
BOARD OF DIRECTORS
The Board is committed to establishing and enhancing shareholder value in the long-term. To this end, the Board is responsible for the overall Group strategy, acquisition and divestment policies, capital expenditures, annual budget, review of financial and operational performance, and internal controls and risk management processes.
The Managing Director (“MD”) on the other hand is responsible for the implementation of broad policies approved by the Board and reports and discusses material matters including regulatory developments and strategic projects to the Board. There is therefore a natural separation of management and governance leading to a balance of power and authority. 75
ANNUAL REPORT 2006
In the financial year ended 31 March 2006, the Board of PROTON Holdings Berhad (PHB) met twenty one (21) times. The following are the details of attendance of the Directors:
No. Name of Director Designation Date of Date of Meeting Appointment Resignation Attendance
1. Dato’ Mohammed Azlan Non-Independent 17 Dec 2004 — 20/21 bin Hashim – Chairman Non-Executive Chairman
2. Syed Zainal Abidin bin Syed Managing Director 1 Jan 2006 — 4/4 Mohamed Tahir
3. Lt. Gen (R) Dato’ Seri Mohamed Independent 12 Apr 2004 — 20/21 Daud bin Abu Bakar Non-Executive Director
4. Abdul Jabbar bin Abdul Majid Independent 12 Apr 2004 — 15/21 Non-Executive Director
5. Badrul Feisal bin Abdul Rahim Non-Independent 12 Apr 2004 — 19/21 Non-Executive Director
6. Mohammad Zainal bin Shaari Non-Independent 17 Dec 2004 — 21/21 Non-Executive Director
7. Abdul Kadir bin Md Kassim Independent 10 Mar 2005 — 21/21 Non-Executive Director
8. Dato’ Ahmad bin Haji Hashim Non-Independent 26 Oct 2005 — 6/8 Non-Executive Director
9. Dato’ Haji Abd. Rahim Non-Independent 17 Dec 2004 2 Sep 2005 6/9 bin Haji Abdul Non-Executive Director
10. Tengku Tan Sri Dr. Mahaleel Chief Executive Officer 12 Apr 2004 30 Sep 2005 6/11 bin Tengku Ariff
11. Datuk Kisai bin Rahmat Executive Director I Jan 2006 31 Jul 2006 3/4
The profiles of the directors are set out on pages 14 to 21 of the Annual Report.
Board meetings for a particular year are scheduled in advance before the start of each calendar year. Additional meetings are convened whenever necessary. 76 STATEMENT ON CORPORATE GOVERNANCE
PROTON HOLDINGS BERHAD
BOARD COMPOSITION AND BALANCE POLICY ON DIRECTOR APPOINTMENTS
The Board consists of eight members, with the Chairman who The Board Nomination Committee reviews all new appointments is a Non-Independent Non-Executive Director, three Non- by taking into consideration the skill sets required by the Independent Non-Executive Directors, three Independent Company and the Group. The Board has formulated guiding Non-Executive Directors and one Executive Director. principles for appointment of directors for Proton Holdings Berhad, its subsidiary, associate and investee companies. As in the previous year, Abdul Jabbar bin Abdul Majid is the Company’s Senior Independent Director to whom concerns New directors are required to undergo familiarisation pertaining to the Group may be conveyed by shareholders programmes, plant visits and briefings to get a better understanding of the Proton Group, its operations and the and the public. automotive industry.
The Board Nomination Committee annually reviews the mix INDEPENDENCE AND CONFLICT of skills and experience of the Directors to ensure that the OF INTEREST Board has the right balance and effectiveness. The Directors are required to make written declarations and it is their responsibility to declare whether they have a RE-ELECTION OF DIRECTORS potential or actual conflict of interest in any transaction. Where issues involve conflict of interest, the interested All Directors including the Executive Director are subject to Directors abstain from discussing or voting on the matter. retirement by rotation at least once in every three years and are eligible for re-election. In accordance with Article 104 of the Company’s Articles of Association, 1/3 of the Directors SUPPLY OF INFORMATION shall retire from office at each Annual General Meeting.
In general, board papers and minutes of previous meetings The following Directors shall retire by rotation at the forthcoming of the Board and Board Committees including minutes of Annual General Meeting of PROTON Holdings Berhad and board meetings of subsidiary companies are circulated in have offered themselves for re-election: advance to the Board before a board meeting. 1. Dato’ Mohammed Azlan bin Hashim; and 2. Abdul Jabbar bin Abdul Majid Senior management as well as professionals and external advisors are, from time to time invited to attend board Any new appointed director shall hold office only until the meetings. next Annual General Meeting of the Company and shall be eligible for re-election under Article 111. The Board has access to the Company Secretary who is available to provide the Directors with the appropriate The following Directors shall retire pursuant to the said Article advice and services and also to ensure that the relevant and have offered themselves for re-election. procedures are followed. 1. Dato’ Ahmad bin Haji Hashim 2. Syed Zainal Abidin bin Syed Mohamed Tahir 77
ANNUAL REPORT 2006
BOARD COMMITTEES
The Board has delegated specific responsibilities to five sub-committees, namely the Board Audit Committee, Board Nomination Committee, Board Remuneration Committee, Board Risk Management Committee and Board Executive Committee. The said Committees have the authority to examine specific issues and report to the Board with their recommendations. The responsibility of decisions on all matters ultimately lies with the Board as a whole.
(I) BOARD AUDIT COMMITTEE The composition of the Board Audit Committee and the respective attendance record of meetings of its members for the financial year ended 31 March 2006 are as follows:
No. Name of Director Designation Date of Date of Meeting Appointment Resignation Attendance
1. Abdul Jabbar bin Abdul Majid Chairman – 10 Mar 2005 — 16/16 – Chairman Independent Non-Executive Director
2. Mohammad Zainal bin Shaari Member – 10 Mar 2005 — 15/16 Non-Independent Non-Executive Director
3. Abdul Kadir bin Md Kassim Member – 10 Mar 2005 — 16/16 Independent Non-Executive Director
During the financial year, the Board Audit Committee of PROTON Holdings Berhad undertook the following activities:
(a) Assisted the Board in discharging its statutory duties and responsibilities relating to accounting and reporting practices of the Company and the Group in accordance with Generally Accepted Accounting Practices.
(b) Reviewed the external audit terms of engagement, the audit strategy, the proposed audit fee and the achievement of the agreed upon reporting timeframes for the audit of the financial statements.
(c) Reviewed the external audit reports and discussed any problems and reservations arising thereon.
(d) Reviewed the internal audit plan, methodology, functions and resources.
(e) Took cognisance of findings on internal audit reports and management response.
The Board Audit Committee Terms of Reference is set out below. 78 STATEMENT ON CORPORATE GOVERNANCE
PROTON HOLDINGS BERHAD
COMPOSITION • the adequacy of the scope, functions and resources The Committee shall be appointed from amongst the Board of the internal audit functions and that it has the and shall:- necessary authority to carry out its work, and the performance of the members of the internal audit (i) comprise of no fewer than three members; function; (ii) a majority of the members must be independent • the internal audit programme, processes, the results directors; and of the internal audit programme, or investigations (iii) at least one member must be a member of the undertaken and whether or not appropriate Malaysian Institute of Accountants or if he is not, then he action is taken by the management on the must be a person who complies with Paragraph 15.10 of recommendations of the internal audit function; Bursa Malaysia Securities Berhad’s Listing Requirements. • the quarterly results and year-end financial statements, prior to the approval by the Board of The Chairman, who shall be elected by the members of the Directors, focusing particularly on:- Committee, shall be an independent director. (i) changes in or implementation of major accounting policy; No alternate director may be appointed as a member of the (ii) significant and unusual events; Board Audit Committee. (iii) compliance with accounting standards and The Board will review the terms of office and the performance other legal requirements; and of the Board Audit Committee and its members at least once (iv) accuracy and adequacy of the disclosure every three years. of information essential to a fair and full presentation of the financial affairs of the Group; • any related party and conflict of interest situation that FUNCTIONS AND DUTIES may arise within the listed issuer or group including The functions and duties of the Board Audit Committee shall any transaction, procedure or course of conduct that be to:- raises questions of management integrity; •promptly report to Bursa Malaysia Securities Berhad (a) Review and report to the Board of Directors on the on any matter reported by it to the Board of the following:- Company which has not been satisfactorily resolved • with the External Auditors, the audit plan; resulting in a breach of the Listing Requirements of • with the External Auditors, the External Auditor’s Bursa Malaysia Securities Berhad; evaluation of the system of internal controls; • submit to the Board a Report on the summary of • with the External Auditors, the External Auditor’s audit activities of the Board Audit Committee in the report; discharge of its functions and responsibilities in • the assistance given by the Company’s employees respect of each financial year. to the External Auditors; (b) Consider the appointment of the external auditor, the audit fee and any questions of resignation and dismissal. 79
ANNUAL REPORT 2006
MEETINGS INTERNAL AUDIT FUNCTION The Committee shall hold meetings on at least four occasions The Group uses the services of the Group Internal Audit each year, although additional meetings may be called, as Division to accomplish its internal audit requirements. The and when necessary, by the Chairman of the Committee. Group Internal Audit Division reports to the Board Audit These meetings will usually be:- Committee on matters concerning the Group and assists the • prior to the current year’s audit; Board of Directors in monitoring and managing risks and • upon completion of the External Auditor’s interim internal controls. examination; • prior to the meeting of the full board to approve the The Group Internal Audit Division reviews internal controls financial statements; related to all key activities of the Group and recommends • prior to the announcement of the quarterly results; improvements in controls and procedures. The Group Internal • upon the request of any member of the Committee or Audit Division is independent of the activities it audits and the External Auditors, the Chairman of the Committee performs with impartiality and due professional care. The shall convene a meeting of the Committee to consider findings of the Group Internal Audit Division are reported to the matters brought to its attention; the Board Audit Committee. • at least once a year, the Committee shall meet with the External Auditors without any Executive Directors present. The Board Audit Committee approves the internal audit plan of the Group Internal Audit Division each year. The scope of the internal audit covers the audits of all units and ATTENDANCE operations, including subsidiaries. In order to form a quorum in respect of a meeting of an During the year, the Group Internal Audit Division serves to audit committee, the majority of members present must be ensure control measures are adequate and effective in independent directors. The Chairman may request that mitigating key risks and that they are monitored. The directors and members of the management, the Internal monitoring process will form the basis for continually Auditors and representatives of the External Auditors be improving the risk management process in the context of the present at meetings of the Committee. Group’s overall goals.
In the course of auditing, the Group Internal Audit Division MINUTES has identified some minor internal control weaknesses during The Company Secretary shall be the Secretary to the the period, which have been or are being addressed. None Committee and shall be present at all meetings to record of the weaknesses has resulted in any material losses, minutes. contingencies or uncertainties that would require disclosure in
Minutes of each meeting shall be prepared and entered into the Group’s Annual Report. the books provided for the purpose and sent to the Committee members and will be made available to all Board members. The Minutes shall be signed by the Chairman of the Committee. 80 STATEMENT ON CORPORATE GOVERNANCE
PROTON HOLDINGS BERHAD
(II) BOARD NOMINATION COMMITTEE The Board Nomination Committee reviews new director appointments of the Group and the balance and effectiveness of the boards of directors, taking into account the required mix of skills and experience and other qualities, before making recommendations to the Board. It also reviews appointments of Senior Level Critical Mission positions for PROTON Group.
The Board Nomination Committee is made up entirely of Non-Executive Directors, with the majority consisting of Independent Non-Executive Directors.
No. Name of Director Designation Date of Date of Meeting Appointment Resignation Attendance
1. Dato’ Mohammed Azlan Chairman – 10 Mar 2005 — 5/5 bin Hashim Non-Independent Non-Executive Director
2. Lt. Gen (R) Dato’ Seri Mohamed Member – 10 Mar 2005 — 5/5 Daud bin Abu Bakar Independent Non-Executive Director
3. Badrul Feisal bin Abdul Rahim Member – 10 Mar 2005 — 4/5 Non-Independent Non-Executive Director
4. Abdul Jabbar bin Abdul Majid Member – 10 Mar 2005 — 3/5 Independent Non-Executive Director
5. Abdul Kadir bin Md Kassim Member – 10 Mar 2005 — 5/5 Independent Non-Executive Director
* With effect from 1 August 2006, the Board Nomination Committee and Board Remuneration Committee have merged as one entity, known as Board Nomination & Remuneration Committee. 81
ANNUAL REPORT 2006
(III) BOARD REMUNERATION COMMITTEE The Board Remuneration Committee is empowered to conduct periodic reviews on the overall remuneration policy and package for the Executive and Non-Executive Directors and Senior Level Critical Mission positions of the Group for recommendation to the Board.
The Board Remuneration Committee is made up of Non-Executive Directors and third party members (not being directors of the Company) who are appointed by the Board from time to time.
No. Name of Director Designation Date of Date of Meeting Appointment Resignation Attendance
1. Badrul Feisal bin Abdul Rahim Chairman – 10 Mar 2005 — 5/5 Non-Independent Non-Executive Director
2. Abdul Jabbar bin Abdul Majid Member – 10 Mar 2005 — 4/5 Independent Non-Executive Director
3. Ahmad Tajuddin bin Abdul Carrim Member – Independent 29 Aug 2005 — 4/4
4. Md Ali bin Md Dewal Member – Independent 29 Aug 2005 — 4/4
5. Lt. Gen (R) Dato’ Seri Mohamed Member – 10 Mar 2005 29 Aug 2005 1/1 Daud bin Abu Bakar Non-Independent Non-Executive Director
6. Mohammad Zainal bin Shaari Chairman – 10 Mar 2005 29 Aug 2005 1/1 Non-Independent Non-Executive Director
* With effect from 1 August 2006, the Board Remuneration Committee and Board Nomination Committee have merged as one entity, known as Board Nomination & Remuneration Committee. 82 STATEMENT ON CORPORATE GOVERNANCE
PROTON HOLDINGS BERHAD
(IV) BOARD RISK MANAGEMENT COMMITTEE The Board Risk Management Committee assists the Board to oversee the overall management of all risks faced by the Group’s business. Further details of the activities of the Board Risk Management Committee are spelt out in the Statement of Internal Control.
The Board Remuneration Committee is made up of Non-Executive Directors and third party members (not being directors of the Company) who are appointed by the Board from time to time.
No. Name of Director Designation Date of Date of Meeting Appointment Resignation Attendance
1. Abdul Kadir bin Md Kassim Chairman – 29 Aug 2005 — 1/1 Independent Non-Executive Director
2. Badrul Feisal bin Abdul Rahim Member – 29 Aug 2005 — 1/1 Non-Independent Non-Executive Director
3. Datuk Michael Lim Heen Peok Member – Independent 29 Aug 2005 — 1/1
4. Datuk Tan Kim Leong Member – Independent 29 Aug 2005 — 1/1
5. Md Ali bin Md Dewal Member – Independent 29 Aug 2005 — 1/1
6. Lt. Gen (R) Dato’ Seri Mohamed Member – 10 Mar 2005 29 Aug 2005 1/1 Daud bin Abu Bakar Independent Non-Executive Director
7. Mohammad Zainal bin Shaari Chairman – 10 Mar 2005 29 Aug 2005 1/1 Non-Independent Non-Executive Director
8. Dato’ Haji Abd. Rahim bin Member – 10 Mar 2005 29 Aug 2005 1/1 Haji Abdul Non-Independent Non-Executive Director 83
ANNUAL REPORT 2006
(V) GROUP EXECUTIVE COMMITTEE/ DIRECTORS’ TRAINING BOARD EXECUTIVE COMMITTEE All Directors have successfully completed the Mandatory (a) GROUP EXECUTIVE COMMITTEE Accreditation Programme. Despite repeal of Bursa Malaysia A Group Executive Committee (GEXCO) was formed on Securities Berhad’s Continuing Educational Programme with 26 July 2006, to facilitate the transition period, in view of effect from 1 January 2005, the Directors continue to identify the retirement of the then Group Chief Executive and attend appropriate seminars and courses to keep Officer. The GEXCO comprised four members, with two abreast of changes in legislation and regulations affecting representatives from amongst the Board members and the Group. the remaining representatives from the management team. The members were: Chairman : Dato’ Mohammed Azlan bin Hashim DIRECTORS’ REMUNERATION
Members : Badrul Feisal bin Abdul Rahim In the case of the Executive Directors, the remuneration is Datuk Kisai bin Rahmat structured to link rewards to corporate and individual (Joint Chief Operating Officer) performance through key performance indicators comprising fixed and performance-based rewards. The Board Datuk Kamarulzaman bin Darus Remuneration Committee is responsible for reviewing the (Joint Chief Operating Officer) performance of the Executive Directors and recommending to the Board the remuneration package and reward (b) BOARD EXECUTIVE COMMITTEE structure. The Board Remuneration Committee carries out Subsequently on 21 December 2005, the Board resolved reviews when appropriate and refers to remuneration surveys to disband the GEXCO with effect from 31 December and consultants to assist in determining the appropriate level 2006 and in place, set up a Board Executive Committee of reward, which is competitive and consistent with the (“EXCO”) comprising the following members: corporate objectives. This is necessary in order to attract and Chairman : Dato’ Mohammed Azlan bin Hashim retain professionals with the qualities needed to manage the Members : Syed Zainal Abidin bin Syed Mohamed Tahir Group successfully.
Badrul Feisal bin Abdul Rahim
Datuk Kisai bin Rahmat
The key objective of the Board EXCO is to facilitate decisions to be made by the Board and the timely response to changes affecting the Company through more frequent meetings of a smaller number of appointed members of the Board who have the power to provide direction to the Management of the Company. The Board subsequently resolved to disband Board EXCO with effect from 30 June 2006. 84 STATEMENT ON CORPORATE GOVERNANCE
PROTON HOLDINGS BERHAD
In the case of Non-Executive Directors, the Board as a whole determines the remuneration of the Non-Executive Directors. A Non-Executive Directors Scheme/Policy has been formulated as a guideline for the determination of remuneration and benefits for the Non-Executive Directors at PROTON Group. The level of remuneration of the Non-Executive Directors reflects the experience and level of responsibilities undertaken by the Director concerned. The Non-Executive Directors are paid annual fees and attendance allowances in accordance with the number of meetings attended. In addition, the Non-Executive Directors are each provided with the use of car.
Details of the total remuneration of the Directors of PROTON Holdings Berhad for the financial year ended 31 March 2006 are as follows:
Directors Basic Salaries Fees and Benefits in Kind Total Bonus and EPF Allowance
Executive Directors 955,638 127,070 56,837 1,139,545
Non-Executive Directors — 691,811 23,733 715,544
TOTAL 955,638 818,881 80,570 1,855,089
Number of Directors
Range of Total Remuneration Executive Non-Executive Total
RM50,000 and below — 2 2
RM50,001 – RM100,000 — 5 5
RM150,001 – RM200,000 2 — 2
RM250,001 – RM300,000 — 1 1
RM500,000 – RM1,000,000 1 — 1
TOTAL 3 8 11 85
ANNUAL REPORT 2006
FINANCIAL REPORTING In preparing the financial statements the Board has; • Selected suitable accounting policies and applied them The Board is committed to providing a balanced, clear and consistently; meaningful assessment of the financial performance and • Made judgements and estimates that are reasonable prospects of the Group to shareholders, the investor and prudent; community and the regulatory authorities. Shareholders and • Ensured that all applicable accounting standards have other stakeholders are kept abreast of the Group’s been followed; and performance through the timely announcement of the •Prepared financial statements on the going concern basis quarterly financial results and accompanying press releases. as the Directors have a reasonable expectation, having made enquiries that the Group has adequate resources The Board Audit Committee assists the Board to oversee the to continue its operations for the foreseeable future. financial reporting processes and the quality of its financial reporting. Quarterly financial results and annual financial statements are reviewed by the Board Audit Committee to INTERNAL CONTROLS ensure adequacy and completeness of information prior to the Board’s approval. To enhance the quality of the Group’s The Board acknowledges its overall responsibility for financial reporting, the external auditors will be conducting maintaining a system of internal controls that provides quarterly reviews of the Group’s quarterly results in addition to assurance of effective and efficient operations and the year-end audit. compliance with laws and regulations and also its internal procedures and guidelines. The size and complexity of the operations may give rise to risks of unanticipated or DIRECTORS’ RESPONSIBILITY STATEMENT unavoidable losses.
The Board is required by the Companies Act, 1965, to ensure The system of internal controls is designed to provide that financial statements prepared for each financial year reasonable but not absolute assurance against the risk of have been made out in accordance with the applicable material errors, frauds or losses occurring. The Board Audit approved accounting standards and give a true and fair view Committee reviews the effectiveness of the system of internal of the state of affairs of the Company and the Group at the controls, which covers financial, operational and compliance end of the financial year, as well as of the results and cash controls, and also risk management. flow of the Company and the Group for the financial year.
The Board is responsible for ensuring that the Company keeps accounting records which disclose with reasonable accuracy, the financial position of the Company and the Group and that the financial statements comply with the Companies Act, 1965. 86 STATEMENT ON CORPORATE GOVERNANCE
PROTON HOLDINGS BERHAD
RELATIONSHIP WITH AUDITORS In addition, the Chairman briefs the shareholders on the company’s operations for the financial year. Senior The Board Audit Committee maintains an appropriate management and the external auditors are present to transparent relationship with both the Group external auditors respond to questions and queries to ensure a high level of and internal auditors. The external auditors are invited to accountability and transparency of the business goals, attend Board Audit Committee meetings and present their strategy and operations. audit findings when the Company’s annual financial results are considered. The Board Audit Committee meets with the For investors, regular dialogues are held with financial analysts external auditors at least once a year without the presence and fund managers representing institutional and individual of the Executive Director and management. shareholders through the investor relations programme.
Besides the Annual Report, the Board ensures timely DIALOGUE BETWEEN THE COMPANY announcements are made to Bursa Malaysia Securities AND INVESTORS Berhad and disseminates clear, accurate, and sufficient information to enable the shareholders and investors to make The Board recognises the importance of transparency and informed decisions. The Investor Relations Unit also proactively accountability to its shareholders and investors. Different disseminates appropriate and relevant information to the channels of communication are optimised to provide investor community and attends to whatever queries they shareholders and investors with a balanced and complete may have. view of the Group’s performance and the issues faced by its businesses in the competitive environment amidst a changing landscape.
The issue of the Annual Report is an important medium of information for the shareholders and investors whereas the Annual General Meeting of the Company is the main forum for communication and dialogue with the shareholders. Shareholders are encouraged to actively participate and interact with the Board and members of the senior management pertaining to the agenda items during the general meeting. ADDITIONAL COMPLIANCE INFORMATION 87
ANNUAL REPORT 2006
NON-AUDIT FEES During the financial year, the amount of non-audit fees paid and payable to the external auditors by the Group are as follows:
External Auditors 2006 2005 RM’000 RM’000
PricewaterhouseCoopers Malaysia 1,934 87 Member firm of PricewaterhouseCoopers International Limited, 362 1,682 a separate and independent legal entity from PricewaterhouseCoopers Malaysia
Total 2,296 1,769
MATERIAL CONTRACTS (i) By an investment agreement dated 7 July 2004 entered into between Proton Capital Sdn. Bhd. (“PCSB”) and Claudio Castiglioni, PCSB acquired 57,750,000 Class A shares representing 57.75% of the corporate capital of MV Agusta Motor S.p.A (“MVA”) for Euro70 million. MVA is a company organised and existing under the laws of Italy and the principal activity of MVA is the manufacturing and marketing of motorcycles and related products. In connection with the investment agreement, PCSB entered into a shareholders agreement dated 26 November 2004 with Claudio Castiglioni in relation to governance and other shareholder issues concerning MVA.
(ii) By an agreement dated 24 December 2005 entered into between PCSB and GEVI S.pA, a company incorporated under the laws of Italy (“Purchaser”), PCSB agreed to sell to the Purchaser 57,750,000 Class A shares representing 57.75% of the corporate capital of MVA to the Purchaser in consideration of Euro 1.00. The agreement was completed on 1 March 2006.
Announcements to Bursa Malaysia Securities Berhad were made in accordance with the Listing Requirements. 88 STATEMENT ON INTERNAL CONTROL
PROTON HOLDINGS BERHAD
Statement On Internal CONTROL INTRODUCTION The Malaysian Code on Corporate Governance requires listed companies to maintain a sound system of internal control to safeguard shareholders’ investments and the Group’s assets.
Directors of listed companies are required to make disclosures in their annual reports on the state of internal control in accordance with the Revamped Listing Requirements of the Bursa Malaysia. The Bursa Malaysia’s Statement on Internal Control: Guidance for Directors of Public Listed Companies (“Guidance”) provides guidance for compliance with these requirements. The Board’s Internal Control Statement, which has been prepared in accordance with the Guidance is set out below.
BOARD RESPONSIBILITY The Board recognizes the importance of sound internal controls and risk management practices to good corporate governance. The Board has an overall responsibility for the Group’s system of internal controls and its effectiveness, as well as reviewing its adequacy 89
ANNUAL REPORT 2006
and integrity. The Group’s system of internal control is designed to manage the principal business risks that may impede the Group from achieving its business objectives. The system, by its nature, can only provide reasonable but not absolute assurance against any material misstatement or loss occurrence.
RISK MANAGEMENT Risk Management is regarded by the Board of Directors to be an integral part of the Group’s operation with the objective of maintaining a sound internal control system and ensuring its continuing adequacy and integrity. It is for this reason that it continues to embed the risk management process in the conduct of the business operations to provide reasonable assurance of achieving the Group’s business objective while at the same time enhancing shareholders’ value.
The Group Risk Management Unit (GRMU), established since July 2002, is responsible for ensuring that an appropriate risk management framework exist within the Group and effectively implemented to manage the key risk exposures of the organization on an ongoing basis. 90 STATEMENT ON INTERNAL CONTROL
PROTON HOLDINGS BERHAD
To ensure the effective & systematic implementation of the Responsibility for implementing the Group’s strategies and Group’s Risk Management Framework, Risk Management day-to-day businesses are delegated to the Management. Champions were nominated comprising representatives from The organization structure sets out clear segregation of key Business Units and Subsidiaries to ensure enterprise level roles and responsibilities, lines of accountability and levels risks are effectively cascaded down to the operational level of authority to ensure effective and independent and effectively managed. GRMU together with the Risk stewardship. Management Champions has undertaken a number of risk During the financial year, the Chief Executive Officer assessments during the year which include risks associated to (CEO) had retired. Following the retirement, a Group quality, vendors and continue to monitor risk related to Executive Committee was promptly set up to assume the operations and projects. GRMU has facilitated in the process decision making authority of the CEO. In addition, a Joint of risk identification, reporting, mitigation and continuing Chief Operating Officers (COO) position was established resolution of these issues. to oversee the day-to-day operations of the Group. The above measures were taken prior to the appointment of The Group Risk Management Committee (GRMC) comprises the Managing Director. of senior management is responsible for overseeing the risk management implementation, regular updating of the group • Board Audit Committee risk profiles and improving the implementation methodology. The Board has delegated the duty of reviewing and The committee also provides direction to the GRMU in monitoring the effectiveness of the Group’s system of carrying out its activities. internal control to the Board of Audit Committee (BAC). The BAC comprises non-executive members of the Board, The Board Risk Management Committee (BRMC), established the majority of whom are independent directors. The BAC in November 2003 had conducted periodic meetings to assumes the overall duties of reviewing with the external deliberate on risk issues and assist the Board in reviewing risk auditors their audit plan, audit report, as well as their policies and strategies. findings and recommendations on internal controls highlighted annually in the Internal Control Memorandum. Throughout the financial year, the BAC is updated on the ASSURANCE MECHANISM Malaysian Financial Reporting Standards, as well as legal The Board and Management have established numerous and regulatory requirements. It also reviews the processes for identifying, evaluating and managing the effectiveness of the internal audit function with particular significant risks faced by the Group. These processes include emphasis on the scope and quality of audits, resources as updating the system of internal controls when there are well as independence of the Group Internal Audit changes to the business environment or regulatory guidelines. Department (GIAD). The key elements of the Group’s control environment include: The composition of the Audit Committee consists of •Organisation structure members who bring with them a wide variety of The Board is supported by a number of established Board experience from different industries and backgrounds. committees in the execution of its responsibilities, namely They continue to meet regularly and have full and Audit, Nomination, Remuneration and Risk Management, unimpeded access to the internal and external auditors the details of which are set out in the Statement on and all employees of the Group. Corporate Governance. Each committee has a clearly- defined terms of reference. Further information relating to the activities of the BAC are set out in the Statement on Corporate Governance. 91
ANNUAL REPORT 2006
•Group Internal Audit • Management Committee meetings are held on a regular The GIAD continues to independently monitor basis to identify, discuss and resolve operational, financial compliance with policies and procedures and the and key management issues; effectiveness of the internal control systems and highlights •A comprehensive budgeting process where the annual significant findings and corrective measures in respect of budgets are approved by the Board and reviewed at any non-compliance on a timely basis. The annual audit mid year; plan, established primarily on a risk-based approach, is • The Board receives and reviews monthly reports from reviewed and approved by the BAC annually before the management on key strategic and operational issues and commencement of the following financial year and a provides direction to management; quarterly work status update is given by GIAD. • Regular visits to operating units and subsidiaries by senior GIAD also reports to the Management Committee on management; monthly basis on the status of implementation of • Measurement of each department’s performance recommendations arising from the audit findings by both against a set of common criteria via internal survey GIAD and also the external auditors. questionnaires; Further information relating to the activities of GIAD • Continuous training efforts to enhance competency of functions are set out in the Statement on Corporate the workforce; and Governance. • Formal employee appraisal system for effective coaching and evaluation of employee performance.
OTHER KEY ELEMENTS OF INTERNAL CONTROL
The other key elements of the Group’s internal control CONCLUSIONS systems are described below:- For the Financial Year under review, after due and careful • Defined delegation of responsibilities to committees and inquiry and based on the information and assurance management of Head office and operating units, provided, the Board is satisfied that there were no material including authorization levels for various aspects of the losses as a result of weaknesses in the system of internal business which are set out in the Limits of Authority which control, that would require separate disclosure in the had been revised in 2005 in line with the changing Company’s Annual Report. Nevertheless, areas requiring business, operational and statutory reporting needs; attention are accorded with more regular monitoring to • Documented internal policies and procedures set out in ensure ongoing adequacy and effectiveness of internal the Group Policies and Procedures which also had been controls and safeguarding shareholders’ investment and the revised in 2005 to meet changing business, operational Group’s assets. and statutory reporting needs and certification by ISO 9001:2000 of the Quality System Procedures for the The statement is made in accordance with the resolution of Company and 2 major subsidiaries within the Group; the Board of Directors dated 26 July 2006. • Quarterly financial statements and the Group’s performance are deliberated by the BAC, which subsequently presents them to the Board for their review, consideration and approval. 92 RISK MANAGEMENT
PROTON HOLDINGS BERHAD
RISK Management
Balancing risk and reward is important but reward does not come without risk. PROTON has continued to implement a Risk Management Framework to ensure risks that are faced by the organization are effectively managed.
RISK MANAGEMENT FRAMEWORK PROTON Group has adopted a Risk Management Framework that consists of the following:-
• RISK POLICY & STRATEGY Risk policies had been developed in PROTON and its major subsidiaries to provide a basis to manage potential risk that arise from the business process and as a guide in its decision making process. 93
ANNUAL REPORT 2006
•RISK GOVERNANCE & CULTURE
BOARD OF DIRECTORS
Liaison BOARD RISK MANAGEMENT COMMITTEE (BRMC) GROUP RISK Reporting Flow Chart GROUP CEO/MANAGING DIRECTOR MANAGEMENT UNIT (GRMU) GROUP RISK MANAGEMENT COMMITTEE (GRMC) Liaison ALL BUSINESS UNITS & PROTON GROUP OF COMPANIES
Board Risk Management Committee Risk Management Units of major subsidiaries The Board Risk Management Committee that was formed in Risk Management Unit of major subsidiaries continues to report November 2003, continues to meet periodically to review to Group Risk Management Committee high risk events facing among others, the risk report updates, and oversee the their respective companies and its mitigation status, via the implementation and operation of the Risk Management Group Risk Management Unit. Group Risk Management Unit Framework. The Board Risk Management Committee consolidates the group significant risks and reports it to Group comprise of 5 non-executive directors. Risk Management Committee.
Group Risk Management Committee •RISK MEASUREMENT The Group Risk Management Committee that comprise A standard Risk Management methodology has been members of senior management has the responsibility developed and has been used for Risk Assessment among others, to identify and evaluate principal risks and purposes for identifying, rating and monitoring the evaluate the practicality of the proposed risk mitigation operational risk, market risk and project risk faced by actions. The Group Risk Management Committee met 6 times PROTON and its major subsidiaries. for the period of review. • RISK OPERATIONS & SYSTEM Group Risk Management Unit The Group Risk Management Unit is continuously The Group Risk Management Unit continues to inculcate the conducting training to ensure that reporting are done Risk Management culture within PROTON and its major using the standard risk reporting format. subsidiaries via the Risk Awareness and Profiling programs. Group Risk Management Unit together with the risk CHALLENGES champions of business operating units has undertaken a Moving forward, the challenge is to institutionalize Risk series of Risk Profiling programs namely risk related to Management culture within PROTON Group as a business projects, operations, quality and supplier. culture and to be able to use Risk Management tool to add value towards achieving PROTON’s business objectives and enhancing shareholders’ value. 94 CALENDAR OF EVENTS 2005-2006
PROTON HOLDINGS BERHAD
14-15 July 2005 24 July 2005 Savvy Analysts drive from KL to The 18th Annual General Meeting Kuantan, experiencing the driving of PROTON Workers Union. capability of the model.
Calendar of EVENTS’05-’06
26 July-4 August 2005 HR Week themed, “Living the Values”, in conjunction with the launch of Corporate Mantra.
10 August 2005 A visit by worldwide trade commissioners from MATRADE for a first-hand view of PROTON’s facilities. 95
ANNUAL REPORT 2006
10 September 2005 12-14 August 2005 A 10-year Service Award Ceremony The 15th National Skills Competition, was held to honour and acknowledge organised by PROTON and Works long-serving employees of PROTON. Ministry, to inculcate technical skills among apprentices.
28 September 2005 PROTON Holdings Berhad’s 2nd Annual General Meeting.
5 October 2005 Visit by the Minister for Housing & Urban Development, Punjab, Pakistan, 29 September 2005 H.E. Syed Raza Ali Gillani. Innovative and Creative Circle (ICC) Convention for PROTON vendors. 96 CALENDAR OF EVENTS 2005-2006
PROTON HOLDINGS BERHAD
15 November 2005 14 November 2005 Media preview of the Savvy AMT, Prize presentation to the winner of introducing a new technology to National Jersey Competition, in which local market. PROTON is one of the main sponsors.
15 November 2005 Official unveiling of Savvy AMT, handing over to its first batch of customers.
16 November 2005 Journalists from Qatar and Egypt visit PROTON.
21 November 2005 Handover Ceremony of official cars for 11th ASEAN Summit organised by the Ministry of Foreign Affairs. 97
ANNUAL REPORT 2006
24 November 2005 30 November 2005 The PROTON team emerged second runner- The prize presentation to the winners up at the National Level Innovation of PROTON 20-Year Campaign (P20Y). Convention Circle competition organised by the National Productivity Centre.
10-14 December 2005 PROTON showcased its products at the East-Asia Business Exhibition (EABEX ’05) held at Kuala Lumpur Convention Centre.
15 December 2005 Launch of the Proton Chancellor by the Deputy Minister of Transport, Tengku Dato’ Seri Azlan ibni Sultan Abu Bakar. 11 December 2005 The Drive Safe, Smart and Wise programme for Gen.2 Club members. 98 CALENDAR OF EVENTS 2005-2006
PROTON HOLDINGS BERHAD
15 December 2005 28 December 2005 Visit by representatives of Jinhua Youngman Visit by directors of PROTON Group’s Automobile Manufacturing, China. to Tanjung Malim plant.
4 January 2006 Media visit to Chancellor assembly line.
13 January 2006 Official launch of the Proton Waja Campro.
27 January 2006 PROTON officially sponsors A1 Team Malaysia in the inaugural A1 Grand Prix 2006. 99
ANNUAL REPORT 2006
3 February 2006 3-12 February 2006 14 February 2006 Signing ceremony of the PROTON participates “A Savvy Kind of Love” promotion Memorandum of Understanding as the Official Vehicle launched by Malaysian Idol’s 2005, between PROTON and Mitsubishi sponsor for Daniel Lee. Motors Corporation, witnessed the Le Tour De by the Minister of International Langkawi 2006. Trade & Industry, Y.B. Dato’ Seri Rafidah Aziz.
19 February 2006 Customers’ Appreciation Day held at PROTON Centre of Excellence, Subang Jaya.
17 March 2006 Charity program organised for Rumah Amal Limpahan Kasih, a home for underprivileged orphans and single mothers. 1 March 2006 Launch of Lotus Europa at Geneva Motorshow. 100 CALENDAR OF EVENTS 2005-2006
PROTON HOLDINGS BERHAD
4 April 2006 Haji Abdul Kadir Md. Kassim with Y.A.B. Dato’ Seri Mahadzir Kadir, the Menteri Besar of Kedah, 25-27 March 2006 during the handing over of boats Journalists and dealers to fishermen affected by the from Turkey visit PROTON. Tsunami in Kedah.
5 April 2006 Launch of the company-wide Quality Campaign.
25 April 2006 PROTON showcasing its R&D capabilities at the MIGHT Dialogue held at the Putrajaya Convention Centre.
28-30 April 2006 Langkawi Adventure Race 2006 organised by Kelab PROTON for its members. 101
ANNUAL REPORT 2006
30 April 2006 16-17 May 2006 25 May-4 June 2006 A1 Team Malaysia’s PROTON showcase PROTON’s showcasing range of podium finish at the at SMIDEX, exhibiting its concept cars and special editions held final round of A1 Grand exclusive components. at KL International Motorshow 2006. Prix 2006 in China.
23 May 2006 The Embassy’s fraternity visits PROTON Showroom at Mutiara Damansara enroute to Tanjung Malim plant.
16 June 2006 Launch of the new Satria Neo, by the Prime Minister of Malaysia, Datuk Seri Abdullah Haji Ahmad Badawi. 29 May 2006 “Majlis Anugerah Kecemerlangan” by Yayasan Proton to honour children of PROTON’s staff who performed with flying colours in PMR and SPM. STATUTORY Financial Statements PROTON Holdings Berhad contents
104 Directors’ Report 113 Cash Flow Statements 108 Income Statements 116 Notes to the Financial Statements 109 Balance Sheets 175 Statement by Directors 111 Consolidated Statement of Changes in Equity 175 Statutory Declaration 112 Company Statement of Changes in Equity 176 Report of the Auditors 104 DIRECTORS’ REPORT
PROTON HOLDINGS BERHAD
The Directors have pleasure in submitting their annual report to the members together with the audited financial statements of the Group and Company for the financial year ended 31 March 2006.
PRINCIPAL ACTIVITIES The Company is principally involved in investment holding activities.
The principal activities of the subsidiaries, jointly controlled entities and associated companies are set out in Notes 24 to 26 of the financial statements. There have been no significant changes in the activities of the Group and the Company during the financial year.
FINANCIAL RESULTS Group Company RM’000 RM’000
Profit after taxation 46,394 111,022 Minority interests 296 —
Net profit attributable to shareholders 46,690 111,022
DIVIDENDS The amount of dividends paid or declared by the Company since 31 March 2005 were as follows: RM’000
In respect of the financial year ended 31 March 2005:
Final tax exempt dividend of 10.0 sen per ordinary share, paid on 28 October 2005 54,921
The Directors now recommend the payment of a final tax exempt dividend of 5.0 sen per ordinary share on 549,213,002 ordinary shares amounting to RM27,460,650 for the financial year ended 31 March 2006, subject to the approval of members at the forthcoming Annual General Meeting of the Company. DIRECTORS’ REPORT (CONTINUED) 105
ANNUAL REPORT 2006
RESERVES AND PROVISIONS There were no material transfers to or from reserves and provisions during the financial year except as disclosed in the financial statements.
DIRECTORS The Directors who have held office during the period since the date of the last report are:
Dato’ Mohammed Azlan bin Hashim Syed Zainal Abidin bin Syed Mohamed Tahir (Appointed on 1.1.2006) Abdul Jabbar bin Abdul Majid Lt Gen (R) Dato’ Seri Mohamed Daud bin Abu Bakar Badrul Feisal bin Abdul Rahim Mohammad Zainal bin Shaari Haji Abdul Kadir bin Md Kassim Dato’ Ahmad bin Hj Hashim (Appointed on 26.10.2005) Datuk Kisai bin Rahmat (Appointed on 1.1.2006) Dato’ Haji Abd. Rahim bin Haji Abdul (Resigned on 2.9.2005) Tengku Tan Sri Dr Mahaleel bin Tengku Ariff (Resigned on 30.9.2005)
In accordance with Article 104 of the Company’s Articles of Association, Abdul Jabbar bin Abdul Majid and Dato’ Mohammed Azlan bin Hashim, retire at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election.
In accordance with Article 111 of the Company’s Articles of Association, Syed Zainal Abidin bin Syed Mohamed Tahir and Dato’ Ahmad bin Hj Hashim retire at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election.
In accordance with Section 129(2) of the Companies Act 1965, Lt Gen (R) Dato’ Seri Mohamed Daud bin Abu Bakar, having attained the age of 70, retires at the forthcoming Annual General Meeting and offers himself for reappointment under Section 129(6) of the Companies Act 1965.
Datuk Kisai bin Rahmat has tendered his resignation with effect from 31 July 2006.
DIRECTORS’ INTEREST IN SHARES AND DEBENTURES According to the register of Directors’ shareholdings, no Director in office at the end of the financial year held any interest in shares or debentures in the Company or its related corporations. 106 DIRECTORS’ REPORT (CONTINUED)
PROTON HOLDINGS BERHAD
STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS Before the income statements and balance sheets of the Group and Company were made out, the Directors took reasonable steps:
(a) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and
(b) to ensure that any current assets, other than debts, which were unlikely to realise in the ordinary course of business their values as shown in the accounting records of the Group and Company had been written down to an amount which they might be expected so to realise.
At the date of this report, the Directors are not aware of any circumstances:
(a) which would render the amounts written off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the Group and Company inadequate to any substantial extent; or
(b) which would render the values attributed to current assets in the financial statements of the Group and Company misleading; or
(c) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and Company misleading or inappropriate.
No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and 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 the 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 the 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 Group’s and Company’s operations during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature except as disclosed in Notes 4 and 43 to the financial statements; 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 the Company for the financial year in which this report is made. DIRECTORS’ REPORT (CONTINUED) 107
ANNUAL REPORT 2006
AUDITORS The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office.
Signed on behalf of the Board of Directors in accordance with their resolution dated 26 July 2006.
DATO’ MOHAMMED AZLAN BIN HASHIM Chairman
SYED ZAINAL ABIDIN BIN SYED MOHAMED TAHIR Director 108 INCOME STATEMENTS for the financial year ended 31 March 2006
PROTON HOLDINGS BERHAD
Group Company Restated Note 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Revenue 3 7,796,932 8,483,295 111,097 1,488,839 Cost of sales (6,895,091) (7,102,493) — —
Gross profit 901,841 1,380,802 111,097 1,488,839 Other operating income 230,544 148,572 836 — Distribution costs (439,754) (301,453) — — Administrative expenses (580,771) (409,057) (834) (1,320) Other operating expenses (78,834) (46,369) — (209)
Profit from operations 4 33,026 772,495 111,099 1,487,310 Finance cost 6 (43,878) (46,192) — — Share of results of associated companies 23,383 39,818 — — Share of results of jointly controlled entities – operating results 15,541 13,771 — — – goodwill impairment charge 26 — (367,577) — —
Profit before taxation 28,072 412,315 111,099 1,487,310
Taxation – Company — — (77) (364,203) – Subsidiary companies 28,409 43,161 — — – Share of taxation in associated companies (7,093) (8,396) — — – Share of taxation in jointly controlled entities (2,994) (4,638) — —
7 18,322 30,127 (77) (364,203)
Profit after taxation 46,394 442,442 111,022 1,123,107
Minority interests 296 — — —
Net profit attributable to shareholders 46,690 442,442 111,022 1,123,107
Earnings per share (sen) – basic 8 8.5 80.6 – diluted 8 N/A N/A
The notes on pages 116 to 174 form part of these financial statements. BALANCE SHEETS as at 31 March 2006 109
ANNUAL REPORT 2006
Group Company Restated Note 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
CURRENT ASSETS Inventories 10 1,389,005 967,080 — — Trade and other receivables 11 1,142,851 1,348,555 195 4,489 Amounts due from subsidiary companies 12 — — 68,041 6,315 Amounts due from associated companies 13 4,394 3,554 — — Amount due from jointly controlled entities 14 45,285 37,866 — 3,713 Tax recoverable 51,491 13,179 118 — Short term investments 15 211,965 201,535 — — Deposits, bank and cash balances 16 1,585,982 2,454,718 49,835 50,638
4,430,973 5,026,487 118,189 65,155
CURRENT LIABILITIES Trade and other payables 17 1,247,328 1,694,165 2,719 2,517 Provisions 18 217,062 239,888 — — Amounts due to subsidiary companies 19 — — 10,086 13,355 Amounts due to associated companies 20 34,904 5,034 — — Amount due to jointly controlled entities 21 20,138 40,395 — — Taxation 16,865 2,624 — — Short term borrowings 22 804,766 227,921 — —
2,341,063 2,210,027 12,805 15,872
NET CURRENT ASSETS 2,089,910 2,816,460 105,384 49,283
NON-CURRENT ASSETS Property, plant and equipment 23 3,330,946 3,313,352 — — Subsidiary companies 24 — — 1,465,659 1,465,659 Associated companies 25 155,702 161,963 13,600 17,600 Jointly controlled entities 26 249,963 255,457 — — Other long term investments 27 10,397 6,276 6,475 2,475 Deferred tax assets 28 105,786 38,479 — — Goodwill 29 29,008 29,008 — —
3,881,802 3,804,535 1,485,734 1,485,734 110 BALANCE SHEETS as at 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
Group Company Restated Note 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
NON-CURRENT LIABILITIES Long term liabilities 30 100,255 759,639 — — Deferred tax liabilities 28 805 1,074 — —
101,060 760,713 — —
5,870,652 5,860,282 1,591,118 1,535,017
FINANCED BY: Share capital 31 549,213 549,213 549,213 549,213 Reserves 32 5,321,439 5,310,736 1,041,905 985,804
SHAREHOLDERS’ FUNDS 5,870,652 5,859,949 1,591,118 1,535,017
MINORITY INTERESTS — 333 — —
5,870,652 5,860,282 1,591,118 1,535,017
The notes on pages 116 to 174 form part of these financial statements. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the financial year ended 31 March 2006 111
ANNUAL REPORT 2006
Issued and fully paid ordinary shares Non-distributable Distributable
Nominal Foreign Number value of Capital exchange Retained Note of shares RM1 each reserves Goodwill translation earnings Total ‘000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
At 1 April 2004 as previously stated 549,213 549,213 475,617 (359,597) (69,631) 4,942,385 5,537,987 Effect of change in accounting policy 43 — — — 359,597 — (330,589) 29,008
As restated 549,213 549,213 475,617 — (69,631) 4,611,796 5,566,995
Currency translation differences — — — — (12,185) — (12,185) Net profit attributable to shareholders — — — — — 442,442 442,442 Dividend for the financial year ended 31 March 2005 – interim 9 — — — — — (137,303) (137,303)
At 31 March 2005 549,213 549,213 475,617 — (81,816) 4,916,935 5,859,949
At 1 April 2005 as previously stated 549,213 549,213 475,617 (727,174) (81,816) 5,615,101 5,830,941 Effect of change in accounting policy 43 — — — 727,174 — (698,166) 29,008
As restated 549,213 549,213 475,617 — (81,816) 4,916,935 5,859,949
Currency translation differences — — — — 18,934 — 18,934 Net profit attributable to shareholders — — — — — 46,690 46,690 Dividend for the financial year ended 31 March 2005 – final 9 — — — — — (54,921) (54,921)
At 31 March 2006 549,213 549,213 475,617 — (62,882) 4,908,704 5,870,652
The notes on pages 116 to 174 form part of these financial statements. 112 COMPANY STATEMENT OF CHANGES IN EQUITY for the financial year ended 31 March 2006
PROTON HOLDINGS BERHAD
Issued and fully paid ordinary shares Distributable
Nominal Number value of Retained Note of shares RM1 each earnings Total ‘000 RM’000 RM’000 RM’000
At 1 April 2004 *#—#
Ordinary share issued 549,213 549,213 — 549,213 Net profit attributable to shareholders — — 1,123,107 1,123,107 Dividend for the financial year ended 31 March 2005 – interim ——(137,303) (137,303)
At 31 March 2005 549,213 549,213 985,804 1,535,017
At 1 April 2005 549,213 549,213 985,804 1,535,017 Net profit attributable to shareholders — — 111,022 111,022 Dividend for the financial year ended 31 March 2005 – final 9 — — (54,921) (54,921)
At 31 March 2006 549,213 549,213 1,041,905 1,591,118
* Number of share issued is 2 units. # Nominal value of share issued is RM2.
The notes on pages 116 to 174 form part of these financial statements. CASH FLOW STATEMENTS for the financial year ended 31 March 2006 113
ANNUAL REPORT 2006
Group Company Restated Note 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
CASH FLOWS FROM OPERATING ACTIVITIES Profit after taxation 46,394 442,442 111,022 1,123,107
Adjustments for: Taxation (18,322) (30,127) 77 364,203 Property, plant and equipment: – depreciation 351,409 312,428 — — – written off 82,857 135,643 — — – impairment 5,066 1,879 — — – (gain)/loss on disposal (218) 23,713 — — Allowance for inventories write down 46,865 18,527 — — Interest expense 43,878 46,192 — — Interest income (67,388) (87,910) (588) — Share of results of associated companies (23,383) (39,818) — — Share of results of jointly controlled entities (15,541) (13,771) — — Impairment of investment in associated company — 22,000 — — Impairment of goodwill — 367,577 — — (Write back)/diminution in value of short term investments (7,202) 7,202 — — Gain on disposal of short term investments (2,664) (11,106) — — Loss on dilution in interest of associated company 48 — — — Allowance for doubtful debts 117,923 9,983 — — Unrealised foreign exchange (gain)/loss (20,365) (6,208) — 224 Provision for warranties (net of expected reimbursement) 81,314 55,645 — — Dividend-in-specie — — — (1,300,724) Dividend income (9,525) (9,178) (111,097) (188,115)
Operating profit before working capital changes 611,146 1,245,113 (586) (1,305) 114 CASH FLOW STATEMENTS for the financial year ended 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
Group Company Restated Note 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
CASH FLOWS FROM OPERATING ACTIVITIES (CONTINUED) Changes in working capital:
Inventories (468,790) (184,016) — — Receivables – trade and other receivables 45,479 (441,182) 4,294 (4,713) – subsidiary companies — — (61,726) (6,315) – associated companies and jointly controlled entities (8,259) (35,488) 3,713 (3,713) Payables – trade and other payables (420,151) 233,318 222 2,517 – provisions for liabilities and charges (90,151) (87,706) — — – subsidiary companies — — (3,269) 13,355 – associated companies and jointly controlled entities 9,613 9,639 — —
Cash generated from operations (321,113) 739,678 (57,352) (174)
Taxation paid (62,687) (53,696) (98) — Interest received 76,835 94,704 568 — Interest paid (40,505) (43,844) — —
Net cash flow (used in)/from operating activities (347,470) 736,842 (56,882) (174)
CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (478,451) (895,206) — — Additional investment in jointly controlled entities — (510,232) — — Purchase of short term investments (207,817) (222,128) — — Proceeds from disposal of short term investments 207,253 206,477 — — Proceeds from disposal of property, plant and equipment 15,816 17,447 — — Dividends received 42,452 32,069 111,000 188,115 Redemption of preference shares in an associated company — 4,000 — —
Net cash flow (used in)/from investing activities (420,747) (1,367,573) 111,000 188,115 CASH FLOW STATEMENTS for the financial year ended 31 March 2006 (CONTINUED) 115
ANNUAL REPORT 2006
Group Company Restated Note 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (54,921) (137,303) (54,921) (137,303) Contribution by minority interest — 333 — — Proceeds from short term borrowings 326,582 778,353 — — Proceeds from new term loan — 344,155 — — Repayment of term loans (54,436) (52,342) — — Finance lease and hire purchase instalments paid — (10) — — Repayment of short term borrowings (326,688) (777,177) — — Fixed deposits pledged as security 39 (11,123) (396,838) — —
Net cash flows used in financing activities (120,586) (240,829) (54,921) (137,303)
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (888,803) (871,560) (803) 50,638
EXCHANGE RATE EFFECTS 5,070 513 — —
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL YEAR 1,576,925 2,447,972 50,638 —
CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 39 693,192 1,576,925 49,835 50,638
The notes on pages 116 to 174 form part of these financial statements. 116 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006
PROTON HOLDINGS BERHAD
1 GENERAL INFORMATION The Company is principally involved in investment holding activities.
The principal activities of the subsidiaries, jointly controlled entities and associated companies are set out in Notes 24 to 26 to the financial statements. There have been no significant changes in the activities of the Group and the Company during the financial year.
The Company was incorporated as a limited liability company, and is domiciled in Malaysia.
There were 11,159 (2005: 10,300) employees in the Group and no employee (2005: Nil) in the Company at the end of the financial year. The Company is managed by employees of Perusahaan Otomobil Nasional Sdn. Bhd.
The address of the registered office and the principal place of business of the Company is:
HICOM Industrial Estate Batu Tiga 40000 Shah Alam Selangor Darul Ehsan Malaysia
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation The financial statements of the Group and Company have been prepared under the historical cost convention (as modified by the revaluation of certain freehold land), unless otherwise indicated in the summary of significant accounting policies.
The financial statements comply with the MASB approved accounting standards in Malaysia and the provisions of the Companies Act, 1965. The preparation of financial statements in conformity with MASB approved accounting standards in Malaysia and the provisions of the Companies Act, 1965 require the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. These estimates are based on the Directors’ best knowledge of current events and actions. NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 117
ANNUAL REPORT 2006
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Basis of consolidation (i) Subsidiary companies Subsidiary companies are those companies in which the Group has power to exercise control over the financial and operating policies so as to obtain benefits from their activities.
Subsidiaries are consolidated using the acquisition method of accounting except for certain subsidiaries (as disclosed in Note 24), which were accounted for using the merger method arising from internal group reorganisation as defined in FRS 122 (2004): ‘Business Combinations’, where: – the ultimate shareholders remain the same, and the rights of each shareholder, relative to other are unchanged; and – the minorities’ share of net assets of the Group are not altered by the transfer.
Under the acquisition method of accounting, the results of subsidiaries acquired or disposed during the financial year are included from the date of acquisition up to the date of disposal. The cost of an acquisition is the amount of cash paid and the fair value at the date of acquisition of other purchase consideration. At the date of acquisition, the fair values of the subsidiaries’ net assets are determined and these values are reflected in the consolidated financial statements. The difference between the cost of acquisition over the Group’s share of the fair value of the identifiable net assets of the subsidiaries acquired at the date of acquisition is reflected as goodwill.
Minority interest is measured at the minorities’ share of the post acquisition fair values of the identifiable assets and liabilities of the acquiree. Separate disclosure is made of minority interest.
Under the merger method of accounting, the results of the subsidiaries are presented as if the merger had been effected throughout the current and previous financial periods. The cost of investment in a merger is recorded at the aggregate of the nominal value of equity shares issued, cash and cash equivalents and fair value of other consideration. On consolidation, the difference between the carrying value of the investment over the nominal value of the share acquired, if any, is taken to a non-distributable merger reserve or merger deficit.
Investments in subsidiaries are stated at cost. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. Refer to accounting policy Note 2(u) on impairment of assets.
(ii) Associated companies Associated companies are companies in which the Group exercises significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the associated companies but not control over those policies. Investments in associated companies are accounted for in the consolidated financial statements by the equity method of accounting. 118 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Basis of consolidation (continued) (ii) Associated companies (continued) The consolidated income statement includes the Group’s share of results of the associated companies based on its latest audited financial statements or management financial statements of the companies concerned.
In the consolidated balance sheet, the Group’s interest in the associated companies is stated at cost plus the Group’s share of post acquisition results and reserves.
Investments in associates are stated at cost. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. Refer to accounting policy Note 2(u) on impairment of assets.
(iii) Jointly controlled entities Jointly controlled entities are corporations, partnerships or other entities over which there is contractually agreed sharing of control by the Group with one or more parties. The Group’s interests in jointly controlled entities are accounted for in the consolidated financial statements by the equity method of accounting.
The consolidated income statement includes the Group’s share of results of the jointly controlled entities based on its latest audited financial statements or management financial statements of the companies concerned.
In the consolidated balance sheet, the Group’s interest in the jointly controlled entities is stated at cost plus the Group’s share of post acquisition results and reserves.
Investments in jointly controlled entities are stated at cost. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. Refer to accounting policy Note 2(u) on impairment of assets.
(c) Investments Investments in other non-current investments are shown at cost and an allowance for diminution in value is made where, in the opinion of the Directors, there is a decline other than temporary in the value of such investments. Where there has been a decline other than temporary in the value of an investment, such a decline is recognised as an expense in the financial year in which the decline is identified. Refer to accounting policy Note 2(u) on impairment of assets.
Short-term investments are carried at the lower of cost and market value, determined on an aggregate portfolio basis by category of investments. Market value is calculated by reference to stock exchange quoted selling prices at the close of business on the balance sheet date. Increases/decreases in the carrying amount of short term investments are credited/charged to the income statement.
On disposal of an investment, the difference between net disposal proceeds and its carrying amount is charged/credited to the income statement. NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 119
ANNUAL REPORT 2006
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) Goodwill Goodwill arising on consolidation represents the excess of the purchase price over the fair value of the net assets of subsidiary and associated companies and jointly controlled entities at the date of acquisition.
In prior financial years, goodwill on acquisition was written off and set off against reserves in the year of acquisition. In the current year, the Directors made the decision to change the accounting policy to recognise goodwill as an asset subject to annual impairment review (Refer to accounting policy Note 2(u) on impairment of assets). The Directors believe that this change in policy will result in better presentation of the financial statements and is in the line with developments in international standards on goodwill, namely FRS 3 ‘Business Combinations’ as it relates to goodwill accounting. The effect of the change in policy is detailed in Note 43 to the financial statements.
(e) Property, plant and equipment A piece of freehold land held by a subsidiary company is stated at Directors’ valuation based on a 1983 independent professional valuation of the open market value of the land on existing use basis. The surplus arising on revaluation was credited directly to capital reserves and subsequently utilised. This valuation has not been updated.
All other land held by the Group are stated at cost. Freehold land and work in progress are not amortised. All long leasehold land are amortised over the period of their lease term.
All other property, plant and equipment except for dies and jigs included under plant and machinery, held by the Group are stated at cost less accumulated depreciation and impairment losses. Depreciation is charged on a straight-line basis to write off the costs of the assets over the term of their estimated useful lives. Where an indication of impairment exists, the carrying amount of the assets is assessed and written down immediately to its recoverable amount. Refer to accounting policy Note 2(u) on impairment of assets.
The principal annual rates of depreciation used are as follows: Long leasehold land Over period of lease term of 98 years Buildings 2% – 5% Plant and machinery 10% – 50% Office equipment, furniture, fittings and vehicles 10% – 50%
Dies and jigs, included under plant and machinery are depreciated based on the unit of production basis to write off the cost of the assets over the term of their estimated useful lives which range from 5 to 6 years.
Work in progress is not depreciated. Upon completion, the related costs will be transferred to the respective category of assets. Depreciation on work in progress commences when the assets are ready for their intended use. 120 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (f) Land and development expenditure Land and development expenditure consists of land held for development and related development costs common to projects. Developed land is stated at the lower of cost and net realisable value.
All expenditure incurred on uncompleted projects are capitalised and are included in the balance sheet as development expenditure.
Upon completion of the projects, land and related development cost are reclassified as apartments for sale.
(g) Leases Finance leases are leases of property, plant and equipment where the Group assumes substantially all the benefits and risks of ownership.
Property, plant and equipment acquired under finance leases are included in tangible property, plant and equipment and are amortised in accordance with Note 2(e) above. Obligations under such agreements are treated as a liability and finance charges are allocated to the income statement over the lease periods to give a constant periodic rate of interest on the remaining lease liabilities.
Operating leases are leases of assets under which a significant portion of the risks and benefits of ownership are effectively retained by the lessor. Payments made under operating leases are charged to the income statement on a straight-line basis over the lease period.
(h) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on a first-in, first-out basis.
In the case of work-in-progress and finished vehicles, an appropriate proportion of production overheads are included in the costs.
(i) Trade and other receivables Trade and other receivables are carried at anticipated net realisable value. Allowances are made for doubtful debts based on specific review of outstanding balances at balance sheet date. General allowances are made to cover possible losses that are not specifically identified. Bad debts are written off to the income statement during the financial year in which they are identified.
(j) Research and development expenditure Research and development expenditure is recognised as an expense when incurred. Costs incurred on development projects are capitalised to the extent that such expenditure is reasonably certain to generate future economic benefits. Expenditure that have been capitalised are depreciated over the useful lives of the product. Development costs initially recognised as an expense are not recognised as an asset in a subsequent period. NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 121
ANNUAL REPORT 2006
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (k) Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.
Provision for warranties Provision is made for the estimated liability on all products under warranty in addition to claims already received. Warranties are provided for a period of between one to three years for vehicles sold. The provision is based on experienced levels of claims arising during the period of warranty. When the Group expects warranties to be reimbursed from suppliers, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.
(l) Employee benefits (i) Short term employee benefits Salaries, wages, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group.
(ii) Post employment benefits The Group has various post-employment benefit schemes in accordance with the local conditions and practices in the countries in which it operates. The Group has both defined contribution and defined benefit plans.
Defined contribution plans The Group’s contributions to defined contribution plans are charged to the income statement in the period to which they relate. Once the contributions have been paid, the Group has no further payment obligations.
Defined benefit plans The liability in respect of a defined benefit plan is the present value of the defined benefit obligation at the balance sheet date minus the fair value of plan assets, together with adjustments for actuarial gains/losses and past service cost. The Group determines the present value of the defined benefit obligation and the fair value of any plan assets with sufficient regularity such that the amounts recognised in the financial statements do not differ materially from the amounts that would be determined at the balance sheet date.
The defined benefit obligation, calculated using the projected unit credit method, is determined by independent actuaries on the basis of triennial valuations. Assumptions were made in relation to the annual investment returns, annual salary increases and annual increases in pension payments.
Plan assets in excess of the defined benefit obligation are subject to the asset limitation specified in FRS 119 (2004). 122 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Employee benefits (continued) (ii) Post employment benefits (continued) Defined benefit plans (continued) Actuarial gains and losses arise from experience adjustments and changes in actuarial assumptions. The amount of net actuarial gains and losses recognised in the income statement is determined by the corridor method in accordance with FRS 119 (2004) and is charged or credited to income over the average remaining service lives of the related employees participating in the defined benefit plan.
Upon initial adoption of FRS 119 (2004) effective on 1 April 2003, the increase in defined benefit liability is recognised as an expense on a straight-line basis over 5 years in accordance with the transitional provision of the Standard.
(iii) Termination benefits Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value.
(m) Income taxes Current tax expense is determined according to the tax laws of each jurisdiction in which the Group operates and include all taxes based upon the taxable profits, including withholding taxes payable by a foreign subsidiary company on distributions of retained earnings to companies in the Group.
Deferred tax is recognised in full, 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.
Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences or unused tax losses can be utilised.
Deferred tax is recognised on temporary differences arising on investments in subsidiaries, associates and joint ventures except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred tax. NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 123
ANNUAL REPORT 2006
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (n) Foreign currency transactions and translation Transactions in foreign currencies during the financial year are translated into Ringgit Malaysia at exchange rates ruling at the transaction dates. Foreign currency monetary assets and liabilities at the balance sheet date are translated into Ringgit Malaysia at the exchange rates ruling at that date. Exchange differences arising from the settlement of foreign currency transactions and from the translation of foreign currency monetary assets and liabilities are included in the income statement.
Results of foreign subsidiary and associated companies are translated into Ringgit Malaysia at average rates of exchange for the financial year. Assets and liabilities are translated into Ringgit Malaysia, at the rates of exchange ruling at the balance sheet date. Exchange differences arising from the translation of the results for the financial year at average rates and assets and liabilities at year end rates and the restatement at year end rates of the opening net investments in foreign subsidiary and associated companies are taken to a foreign exchange translation account as a component of shareholders’ funds.
The principal closing rates used in translation of foreign currency amounts were as follows:
Foreign currency 31.3.2006 31.3.2005 RM RM
1 USD 3.69 3.80 1 GBP 6.43 7.14 1 AUD 2.64 2.93 1 EURO 4.48 4.92 100 JPY 3.14 3.54
(o) Cash and cash equivalents Cash and cash equivalents comprise cash in hand, bank balances, bank deposits, bank overdrafts and short term, highly liquid investments that are readily convertible to known amounts of cash which are subject to insignificant risk of changes in value.
(p) Revenue recognition Revenue from sales of vehicles, spare parts and accessories are recognised upon delivery.
Revenue from sale of completed apartments is recognised when the Sale and Purchase Agreements are signed.
Revenue for rendering of services on long term engineering contracts is recognised on the basis of the stage of completion of such contracts at the financial year end, where the contractual outcome can be assessed with reasonable certainty. Full provision is made for all foreseeable losses on contracts entered into or commenced prior to the financial year end. Amounts are included within receivables and prepayments to recognise timing differences arising between amounts invoiced and amounts recognised in the income statement on individual engineering contracts. 124 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (p) Revenue recognition (continued) Other revenue comprises mainly revenue from rental and royalty, which are recognised on an accrual basis.
Dividends are recognised when the company’s right to receive payment is established.
(q) Financial instruments (i) Description A financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise.
A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable, or an equity instrument of another enterprise.
A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprise, or to exchange financial instruments with another enterprise under conditions that are potentially unfavourable.
(ii) Financial instruments recognised on the balance sheet The particular recognition method adopted for financial instruments recognised on the balance sheet is disclosed in the individual policy statements associated with each item.
(iii) Financial instruments not recognised on the balance sheet Foreign currency forward contracts The Group enters into foreign currency forward contracts to protect the Group from movements in exchange rates by establishing the rate at which a foreign currency asset or liability will be settled.
Exchange gains and losses arising on contracts entered into as hedges of anticipated future transactions are deferred until the date of such transaction, at which time they are included in the measurement of such transactions.
All other exchange gains and losses relating to hedge instruments are recognised in the income statement in the same period as the exchange differences on the underlying hedged items. Gains and losses on contracts which are no longer designated as hedges are included in the income statement.
(iv) Fair value estimation for disclosure purposes The fair value of publicly traded derivatives and securities is based on quoted market prices at the balance sheet date.
The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date. NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 125
ANNUAL REPORT 2006
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (q) Financial instruments (continued) (iv) Fair value estimation for disclosure purposes (continued) In assessing the fair value of non-traded derivatives and financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Unquoted long term investments are valued based on quoted investments with similar features. The fair value for long term debts is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar instruments.
The face values, less any estimated credit adjustments, for financial assets and liabilities classified as current are assumed to approximate their fair values.
(r) Borrowings Classification Borrowings are initially recognised based on the proceeds received, net of transaction costs incurred. Subsequently, borrowings are stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings.
Interest, dividends, losses and gains relating to a financial instrument, or a component part, classified as a liability is reported within finance cost in the income statement.
Capitalisation of borrowings cost Borrowings cost incurred on specific and identifiable borrowings used to finance property development and construction contract is capitalised until the properties are ready for their intended use.
(s) Share capital Ordinary shares are classified as equity. External cost directly attributable to the issue of new shares are expensed off in the income statement.
Final dividends payable on ordinary shares are recognised as liabilities when formally approved.
(t) Contingent liabilities and contingent assets The Group does not recognise a contingent liability but discloses its existence in the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by 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 circumstance where there is a liability that cannot be recognised because it cannot be measured reliably.
A contingent asset is a possible asset that arises from past events whose existence will be confirmed by uncertain future events beyond the control of the Group. The Group does not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but not virtually certain. 126 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (u) Impairment of assets Property, plant and equipment and other non-current assets, including intangible assets, are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 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 net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there is separately identifiable cash flows.
The impairment loss is charged to the income statement unless it reverses a previous revaluation in which case it is charged to the revaluation surplus. Any subsequent increase in recoverable amount is recognised in the income statement unless it reverses an impairment loss on a revalued asset in which case it is taken to revaluation surplus.
3 REVENUE Revenue represents the invoiced value of goods sold and services provided and is net of commission paid to dealers and related taxes. Revenue comprises:
Group Company 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Sale of vehicles, spare parts and accessories 7,645,963 8,141,045 — — Gross dividend income — — 111,097 1,488,839 Rendering of services 142,957 333,493 — — Others 8,012 8,757 — —
7,796,932 8,483,295 111,097 1,488,839 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 127
ANNUAL REPORT 2006
4 PROFIT FROM OPERATIONS Group Company Restated 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
The following items have been charged/(credited) in arriving at profit from operations: – Gross dividends receivable from: – subsidiary company, unquoted being dividend-in-specie — — — (1,300,724) – subsidiary company, unquoted — — (109,843) (187,303) – associated companies, unquoted — — (1,254) (812) – others, quoted (9,525) (8,136) — — – others, unquoted — (1,042) — — Property, plant and equipment: – depreciation 351,409 312,428 — — – written off 82,857 135,643 — — – impairment 5,066 1,879 — — – (gain)/loss on disposal (218) 23,713 — — Research and development expenditure 271,661 347,193 — — Provision for warranties (net of expected reimbursement) 81,314 55,645 — — Allowance for doubtful debts 117,923 9,983 — — Impairment of investment in associated companies — 22,000 — — Impairment of goodwill — 367,577 — — (Write back)/diminution in value of short term investments (7,202) 7,202 — — Loss on disposal of a jointly controlled entity 5,113 — — — Gain on disposal of short term investments (2,664) (11,106) — — Group audit fees to PricewaterhouseCoopers – Malaysia – current year 514 572 87 105 – underprovision of prior year 200 — — — – firms of worldwide organisation 966 1,217 — — Non-audit service fees to PricewaterhouseCoopers – Malaysia 1,934 87 — — – firms of worldwide organisation 362 1,682 — — Operating lease rental 7,644 3,956 — — Hire of plant, machinery and equipment — 580 — — Rental of premises 12,722 21,044 — — Foreign exchange (gain)/loss: – transactions (3,695) (2,238) (223) (15) – translation (20,365) (6,208) — 224 Rental income on land and buildings (1,307) (383) — — Interest income (67,388) (87,910) (588) — Allowance for inventories write down 46,865 18,527 — — Recovery of insurance claims on Medium Volume Factory Fire (46,737) — — — 128 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
5STAFF COST Group Company 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Wages, salaries and bonuses 501,823 590,051 180 707 Termination benefits 1,839 28,680 — — Pension cost – defined contribution plan 31,818 19,749 — — – defined benefit plan 45,065 22,551 — — Other employee benefits 58,874 45,568 16 91 Reversal of overprovision of defined benefit plan — (22,052) — —
639,419 684,547 196 798
Prior to 31 March 2002, retirement benefit contributions by a subsidiary company were paid to the Hicom Retirement Benefit Scheme, an approved independent fund. With effect from 1 April 2002, the subsidiary converted the defined benefit scheme to a defined contribution plan with the Employees Provident Fund (‘EPF’). Accrued benefits under the earlier scheme were transferred to the EPF.
As at 31 March 2002, the shortfall in the defined scheme was estimated by the subsidiary. The actual shortfall was determined in the previous financial year, resulting in the reversal of over provisions previously made.
Directors’ remuneration The aggregate amount of emoluments receivable by the Directors of the Company during the financial year was as follows:
Group Company 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Non-executive Directors: – fees 514 500 514 412 – estimated money value of benefits-in-kind 24 40 24 32 – other employee benefits 178 — 178 — Executive Directors: – salaries and bonuses 955 707 180 707 – estimated money value of benefits-in-kind 57 15 16 15 – other employee benefits 128 76 — 76
1,856 1,338 912 1,242
Details of the defined contribution and defined benefit plans of the Group and Company are set out in Note 33. NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 129
ANNUAL REPORT 2006
6 FINANCE COST Group 2006 2005 RM’000 RM’000
Interest expense on: Long term loans 29,105 26,512 Short term borrowings 13,791 18,117 Others 982 1,563
43,878 46,192
Included in other operating income of the Group is interest income amounting to RM67,388,000 (2005: RM87,910,000).
7TAXATION Group Company 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Taxation in Malaysia Current taxation: – charge for the financial year 35,557 96,175 169 364,203 – under/(over) accrual in respect of prior years 2,005 (152,480) (92) — Taxation on share of profits of associated companies 2,798 2,270 — — Taxation on share of profits of jointly controlled entities 2,454 4,027 — —
Taxation outside Malaysia Current taxation: – charge for the financial year 2,173 2,074 — — – (over)/under accrual in respect of prior years (568) 2,941 — — Taxation on share of profits of associated companies 4,295 6,126 — — Taxation on share of profits of jointly controlled entities 540 611 — —
Deferred taxation (Note 28) Origination and reversal of temporary differences (67,576) 8,129 — —
(18,322) (30,127) 77 364,203 130 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
7TAXATION (CONTINUED) Group Company 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Total Taxation for Company and subsidiaries (28,409) (43,161) 77 364,203 Share of taxation in associated companies 7,093 8,396 — — Share of taxation in jointly controlled entities 2,994 4,638 — —
(18,322) (30,127) 77 364,203
Numerical reconciliation between the average effective tax rate and the Malaysian tax rate.
Group Company Restated 2006 2005 2006 2005 %%%%
Malaysian tax rate 28 28 28 28
Tax effects of: – double deduction and allowance incentive on qualified expenditure (249) (30) — — – expenses not deductible for tax purposes 139 33 — — – income not subject to tax (91) (2) (28) (4) – current year tax losses not recognised 101 2 — — – under/(over) accrual in respect of prior years 5 (34) — — – others 2 (4) — —
Average effective tax rate (65) (7) — 24 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 131
ANNUAL REPORT 2006
7TAXATION (CONTINUED) Group Company 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Disclosure items:
Current year tax losses utilised during the financial year 1,057 2,864 — — Tax savings arising from such tax losses 298 858 — —
Previously unrecognised tax losses utilised during the financial year 6,675 5,014 — — Tax savings arising from such tax losses 1,869 1,467 — —
Unutilised tax losses carried forward 614,461 803,175 — — Unutilised reinvestment allowance 1,421,028 1,118,500 — —
8 EARNINGS PER SHARE Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the financial year.
Group Restated 2006 2005
Net profit attributable to shareholders (RM’000) 46,690 442,442
Weighted average number of ordinary shares in issue (‘000) 549,213 549,213
Basic earnings per share (sen) 8.5 80.6
Diluted earnings per share is not presented in the financial statements since there are no dilutive potential ordinary shares. 132 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
9 DIVIDENDS Dividends declared or proposed in respect of the financial year ended 31 March 2006 are as follows:
Group 2006 2005 RM’000 RM’000
Final dividend proposed for the financial year ended 31 March 2006: Tax exempt dividend of 5.0 sen (2005: 10.0 sen) per ordinary share 27,461 54,921
Interim dividend paid for the financial year ended 31 March 2006: RM Nil (2005: tax exempt dividend of 25.0 sen) per ordinary share — 137,303
27,461 192,224
At the forthcoming Annual General Meeting, a final gross dividend of 5.0 sen per share (tax exempt) amounting to RM27,461,000 will be proposed for shareholders’ approval. The financial statements do not reflect this final dividend, which will only be accrued as a liability when approved by shareholders.
10 INVENTORIES Group 2006 2005 RM’000 RM’000
At cost Raw materials: – completely knocked-down packs of vehicles 262,996 155,635 – others 148,174 111,986 Parts, accessories and general stores 91,139 87,393 Work-in-progress 102,933 102,209 Finished vehicles 651,574 389,709 Goods-in-transit 65,988 36,604 Apartments for sale 171 9,482
Balance carried forward 1,322,975 893,018 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 133
ANNUAL REPORT 2006
10 INVENTORIES (CONTINUED) Group 2006 2005 RM’000 RM’000
Balance brought forward 1,322,975 893,018
At net realisable value Raw materials: – completely knocked-down packs of vehicles 1,924 2,492 Parts, accessories and general stores 118 1,718 Finished vehicles 47,357 58,709 Apartments for sale 16,631 11,143
66,030 74,062
1,389,005 967,080
11 TRADE AND OTHER RECEIVABLES Group Company 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Trade receivables 969,300 1,067,824 — — Allowance for doubtful debts (52,662) (19,861) — —
916,638 1,047,963 — —
Other receivables 143,778 118,790 195 45 Allowance for doubtful debts (86,333) (1,211) — —
57,445 117,579 195 45
Warranty claims recoverable (Note 18) 125,835 146,261 — — Prepayments 28,709 23,796 — 4,444 Deposits 14,224 12,956 — —
1,142,851 1,348,555 195 4,489 134 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
11 TRADE AND OTHER RECEIVABLES (CONTINUED) The currency exposure profile of trade and other receivables are as follows:
Currency exposure at 31.3.2006 Ringgit Pound US Malaysia Sterling Dollar Euro Others Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Group Functional currency Ringgit Malaysia 958,916 113 60,673 3,697 249 1,023,648 Pound Sterling — 61,349 14,459 14,015 8,964 98,787 Others ——270 4 20,142 20,416
958,916 61,462 75,402 17,716 29,355 1,142,851
Company Functional currency Ringgit Malaysia 195————195
Currency exposure at 31.3.2005 Ringgit Pound US Malaysia Sterling Dollar Euro Others Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Group Functional currency Ringgit Malaysia 1,034,819 — 62,629 91,649 13,607 1,202,704 Pound Sterling — 58,352 31,500 23,858 10,838 124,548 Others — — — 5 21,298 21,303
1,034,819 58,352 94,129 115,512 45,743 1,348,555
Company Functional currency Ringgit Malaysia 45———4,444 4,489 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 135
ANNUAL REPORT 2006
11 TRADE AND OTHER RECEIVABLES (CONTINUED) Credit terms of trade receivable for the Group ranges from 14 days to 360 days (2005: 14 days to 360 days). However, the majority of the Group trade receivables have a credit term between 14 days to 60 days (2005: 14 days to 60 days).
Group sales are concentrated in Malaysia with one major third party customer in Malaysia making up 31% (2005: 28%) of total Group revenue.
12 AMOUNTS DUE FROM SUBSIDIARY COMPANIES The amounts due from subsidiary companies are denominated in Ringgit Malaysia, interest free and has no fixed terms of payment.
13 AMOUNTS DUE FROM ASSOCIATED COMPANIES The amounts due from associated companies arose from normal trade transactions. These amounts have credit terms ranging from 30 to 60 days (2005: 30 to 60 days).
Currency exposure at 31.3.2006 Ringgit Pound Malaysia Sterling Total RM’000 RM’000 RM’000
Group Functional currency Ringgit Malaysia 3,043 — 3,043 Pound Sterling — 1,351 1,351
3,043 1,351 4,394
Currency exposure at 31.3.2005 Ringgit Pound Malaysia Sterling Total RM’000 RM’000 RM’000
Group Functional currency Ringgit Malaysia 1,784 — 1,784 Pound Sterling — 1,770 1,770
1,784 1,770 3,554 136 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
14 AMOUNTS DUE FROM JOINTLY CONTROLLED ENTITIES Group Company 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Amounts due from jointly controlled entities 45,285 17,937 — 3,713 Advances to a jointly controlled entity — 19,929 — —
45,285 37,866 — 3,713
The amounts due from jointly controlled entities arose from normal trade transactions. These amounts have credit terms ranging from 30 to 45 days (2005: 30 to 45 days).
Advances to a jointly controlled entity in 2005 were due within 180 days and interest of 7.23% was charged.
Currency exposure at 31.3.2006 Ringgit Japanese US Malaysia Euro Yen Dollar Total RM’000 RM’000 RM’000 RM’000 RM’000
Group Functional currency Ringgit Malaysia 45,198 74 — — 45,272 Pound Sterling —13——13
45,198 87 — — 45,285
Currency exposure at 31.3.2005 Ringgit Japanese US Malaysia Euro Yen Dollar Total RM’000 RM’000 RM’000 RM’000 RM’000
Group Functional currency Ringgit Malaysia 9,512 — 3,713 4,712 17,937 Pound Sterling — 19,929 — — 19,929
9,512 19,929 3,713 4,712 37,866
Company The amount due from a jointly controlled entity in the previous financial year was denominated in Japanese Yen. NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 137
ANNUAL REPORT 2006
15 SHORT TERM INVESTMENTS Group 2006 2005 RM’000 RM’000
Quoted investments in Malaysia: Cost: Shares 116,736 120,177 Commercial paper and corporate debt 584 584
117,320 120,761 Unquoted investments in Malaysia: Cost: Commercial paper and corporate debt 94,645 87,976
211,965 208,737 Allowance for diminution in value — (7,202)
211,965 201,535
Market value of investments: Shares 121,868 112,975 Commercial paper and corporate debt 98,996 91,898
220,864 204,873 138 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
16 DEPOSITS, BANK AND CASH BALANCES Group Company 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Short term funds deposited with: Licensed banks 1,168,787 2,063,539 49,000 — Discount houses 227,470 112,816 — — Other financial institutions 57,465 48,268 — —
1,453,722 2,224,623 49,000 — Bank and cash balances 132,260 230,095 835 50,638
1,585,982 2,454,718 49,835 50,638
Included in deposits are fixed deposits of RM716,841,000 (2005: RM705,718,000) pledged as restricted cash security the term loans obtained by subsidiary companies as explained in Note 30(b).
The deposits have the following maturity profiles:
Group Company 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
0 – 1 month 626,287 558,172 49,000 — 2 – 3 months 83,386 113,724 — — 4 – 6 months 90,500 90,932 — — 6 – 12 months 353,549 1,161,795 — — More than 12 months 300,000 300,000 — —
1,453,722 2,224,623 49,000 —
Bank balances are deposits held at call with banks. NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 139
ANNUAL REPORT 2006
16 DEPOSITS, BANK AND CASH BALANCES (CONTINUED) The currency exposure profile of deposits, bank and cash balances are as follows:
Currency exposure at 31.3.2006 Ringgit Pound US Australian Malaysia Sterling Dollar Dollar Others Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Group Functional currency Ringgit Malaysia 1,483,290 1,312 15,549 789 4,057 1,504,997 Pound Sterling — 14,807 10,154 — 2,992 27,953 Australian Dollar ———34,570 — 34,570 Others ————18,462 18,462
1,483,290 16,119 25,703 35,359 25,511 1,585,982
Currency exposure at 31.3.2005 Ringgit Pound US Australian Malaysia Sterling Dollar Dollar Others Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Group Functional currency Ringgit Malaysia 2,193,509 69,599 17,956 26,312 17,788 2,325,164 Pound Sterling — 62,123 22,533 — 6,756 91,412 Australian Dollar — — — 18,838 — 18,838 Others ————19,304 19,304
2,193,509 131,722 40,489 45,150 43,848 2,454,718
Deposits, bank and cash balances in the Company as at 31 March 2006 and 2005 are denominated in Ringgit Malaysia.
The weighted average effective interest rates of deposits at the balance sheet date were 3.10% (2005: 2.87%) per annum for the Group and 2.73% (2005: Not applicable) for the Company. 140 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
17 TRADE AND OTHER PAYABLES Group Company Restated 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Trade payables 250,129 461,026 617 381 Other payables 350,118 204,957 2,102 2,136 Accruals 625,743 1,028,178 — — Amounts due to related parties 21,338 — — — Leasing and hire purchase creditors – current portion — 4 — —
1,247,328 1,694,165 2,719 2,517
The currency exposure profile of the trade and other payables are as follows:
Currency exposure at 31.3.2006 Ringgit Pound US Japanese Malaysia Sterling Dollar Yen Others Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Group Functional currency Ringgit Malaysia 960,123 4,514 16,678 28,133 95,767 1,105,215 Pound Sterling — 103,949 15,371 1,273 8,641 129,234 Others ——357 — 12,522 12,879
960,123 108,463 32,406 29,406 116,930 1,247,328
Company Functional currency Ringgit Malaysia 2,658———612,719 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 141
ANNUAL REPORT 2006
17 TRADE AND OTHER PAYABLES (CONTINUED) Currency exposure at 31.3.2005 (Restated) Ringgit Pound US Japanese Malaysia Sterling Dollar Yen Others Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Group Functional currency Ringgit Malaysia 1,289,762 894 87,196 40,413 34,384 1,452,649 Pound Sterling — 204,434 14,750 129 12,017 231,330 Others ————10,186 10,186
1,289,762 205,328 101,946 40,542 56,587 1,694,165
Company Functional currency Ringgit Malaysia 845 48 10 1,418 196 2,517
Terms of trade payables granted to the Group and Company varies up to 60 days (2005: 60 days) credit days and no credit (2005: Not applicable) respectively.
18 PROVISIONS Group Warranties 2006 2005 RM’000 RM’000
At 1 April 239,888 237,636 Exchange differences (5,043) 1,315
Charged to income statement 81,314 55,645 Warranties receivable (8,946) 33,473
Additional provision for the financial year 72,368 89,118 Utilised during the financial year (90,151) (88,181)
At 31 March 217,062 239,888
The Group expects to receive reimbursement from suppliers in respect of warranties amounting to RM125,835,000 (2005: RM146,261,000) as disclosed in Note 11. 142 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
19 AMOUNTS DUE TO SUBSIDIARY COMPANIES Amounts due to subsidiary companies are unsecured, denominated in Ringgit Malaysia, interest free and have no fixed repayment terms.
20 AMOUNTS DUE TO ASSOCIATED COMPANIES Amounts due to associated companies arose from normal trade transactions, denominated in Ringgit Malaysia and are payable within 60 days.
21 AMOUNTS DUE TO JOINTLY CONTROLLED ENTITIES Amounts due to jointly controlled entities arose from normal trade transactions and are due between 30 days to 45 days (2005: 30 days to 45 days).
The currency exposure profile of the amounts due to jointly controlled entities is as follows:
Currency exposure at 31.3.2006 Ringgit Pound US Malaysia Sterling Dollar Total RM’000 RM’000 RM’000 RM’000
Group Functional currency Ringgit Malaysia 20,063 75 — 20,138
Currency exposure at 31.3.2005 Ringgit Pound US Malaysia Sterling Dollar Total RM’000 RM’000 RM’000 RM’000
Group Functional currency Ringgit Malaysia 39,097 596 — 39,693 Others ——702 702
39,097 596 702 40,395 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 143
ANNUAL REPORT 2006
22 SHORT TERM BORROWINGS Group 2006 2005 RM’000 RM’000
Unsecured: Long term loan – current portion (Note 30) 56,613 54,436 Bankers acceptance 1,304 1,410 Bank overdrafts 58,260 172,075
116,177 227,921
Secured: Bank Overdrafts 117,689 — Long term loan – current portion (Note 30) 570,900 —
688,589 —
804,766 227,921
The interest rate charged for bank overdrafts during the financial year ranged from 5.50% to 6.86% (2005: 5.50% to 6.83%) per annum.
The bankers acceptance was drawn in Ringgit Malaysia and payable within 60 days. No interest was charged to the amount drawn (2005: Nil).
The currency exposure profile of the short-term borrowings is as follows:
Currency exposure at 31.3.2006 Ringgit Pound Malaysia Sterling USD Euro Others Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Group Functional currency Ringgit Malaysia 57,917 — — 313,740 — 371,657 Pound Sterling — 332,193 67,504 5,169 28,243 433,109
57,917 332,193 67,504 318,909 28,243 804,766 144 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
22 SHORT TERM BORROWINGS (CONTINUED) Currency exposure at 31.3.2005 Ringgit Pound Malaysia Sterling USD Others Total RM’000 RM’000 RM’000 RM’000 RM’000
Group Functional currency Ringgit Malaysia 55,846———55,846 Pound Sterling — 106,653 52,705 12,717 172,075
55,846 106,653 52,705 12,717 227,921
23 PROPERTY, PLANT AND EQUIPMENT Office equipment, Land Plant furniture, Long term and fittings and Work-in- Note Freehold leasehold Buildings machinery vehicles progress Total Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
2006 Cost/valuation At 1 April 2005 243,464 12,045 1,181,676 3,718,608 1,014,993 468,451 6,639,237
Currency translation differences (1,525) (106) (20,977) (23,401) (19,405) (137) (65,551) Additions 14,070 — 5,626 14,041 69,766 374,948 478,451 Disposals — (950) (8,840) (6,887) (29,565) (114) (46,356) Written off ———(12,656) (6,217) (77,034) (95,907) Reclassification ——122,349 392,706 82,203 (597,258) —
At 31 March 2006 256,009 10,989 1,279,834 4,082,411 1,111,775 168,856 6,909,874 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 145
ANNUAL REPORT 2006
23 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Office equipment, Land Plant furniture, Long term and fittings and Work-in- Note Freehold leasehold Buildings machinery vehicles progress Total Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
2006 Accumulated depreciation At 1 April 2005 — 821 331,834 2,090,916 576,354 — 2,999,925
Currency translation differences ——(4,250) (13,383) (9,530) — (27,163) Charge for the financial year — 112 19,702 205,133 126,462 — 351,409 Disposals ——(2,156) (4,989) (13,866) — (21,011) Written off ———(6,835) (6,215) — (13,050)
At 31 March 2006 — 933 345,130 2,270,842 673,205 — 3,290,110
Accumulated impairment losses At 1 April 2005 14,879 1,056 158,616 89,079 62,330 — 325,960
Currency translation differences (1,497) (106) (15,916) (8,827) (6,115) — (32,461) Charge for the financial year 289 — 2,699 2,062 16 — 5,066 Disposals — (950) (6,686) (1,878) (233) — (9,747)
At 31 March 2006 13,671 — 138,713 80,436 55,998 — 288,818
Net book value At 31 March 2006 242,338 10,056 795,991 1,731,133 382,572 168,856 3,330,946 146 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
23 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Office equipment, Land Plant furniture, Long term and fittings and Work-in- Note Freehold leasehold Buildings machinery vehicles progress Total Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
2005 Cost/valuation At 1 April 2004 241,914 12,015 1,186,424 3,390,743 855,213 307,195 5,993,504
Currency translation differences 431 30 6,070 7,244 5,137 5 18,917 Additions 1,148 — 4,102 18,149 60,648 811,159 895,206 Disposals (29) — (14,929) (99,191) (14,536) — (128,685) Written off — — — (273) (3,796) (135,636) (139,705) Capitalisation of work-in-progress — — 9 401,936 112,327 (514,272) —
At 31 March 2005 243,464 12,045 1,181,676 3,718,608 1,014,993 468,451 6,639,237
Accumulated depreciation At 1 April 2004 — 723 315,242 1,961,218 489,262 — 2,766,445
Currency translation differences — — 1,307 4,591 2,688 — 8,586 Charge for the financial year — 98 19,921 197,192 95,217 — 312,428 Disposals — — (4,636) (71,824) (8,159) — (84,619) Written off — — — (261) (2,654) — (2,915)
At 31 March 2005 — 821 331,834 2,090,916 576,354 — 2,999,925 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 147
ANNUAL REPORT 2006
23 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Office equipment, Land Plant furniture, Long term and fittings and Work-in- Note Freehold leasehold Buildings machinery vehicles progress Total Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
2005 Accumulated impairment losses At 1 April 2004 14,448 1,025 156,585 85,186 61,408 — 318,652
Currency translation differences 431 31 4,672 2,541 1,795 — 9,470 Charge for the financial year — — 253 1,358 268 — 1,879 Disposals — — (2,894) — — — (2,894) Written off — — — (6) (1,141) — (1,147)
At 31 March 2005 14,879 1,056 158,616 89,079 62,330 — 325,960
Net book value At 31 March 2005 228,585 10,168 691,226 1,538,613 376,309 468,451 3,313,352
A piece of a subsidiary company’s freehold land was revalued on 5 September 1983 based on an independent professional valuation. The surplus of RM36,881,980 arising on the revaluation was credited to the capital reserves and subsequently utilised.
Had the freehold land been carried at historical cost, the net book value of freehold land that would have been included in the financial statements at the end of the financial year would be RM22,448,000 (2005: RM22,448,000).
The long term leasehold land comprise 2 parcels of land held by certain subsidiary companies which have unexpired leases of 91 and 70 years respectively as at 31 March 2006 (2005: 92 and 71 years respectively). A leasehold land with unexpired lease period of 137 years was disposed during the year.
The title deed to the land of the Group amounting to net book value of RM72,258,000 (2005: RM52,260,000) has not been transferred pending subdivision of the master title. 148 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
24 SUBSIDIARY COMPANIES Company 2006 2005 RM’000 RM’000
Unquoted shares at cost: At 1 April 1,465,659 * Acquisition of subsidiary companies — 1,465,659
At 31 March 1,465,659 1,465,659
* The cost of investment in subsidiary companies is RM8.
The details of the subsidiary companies are as follows:
Country of Group’s effective Name Principal activities incorporation interest 2006 2005
Perusahaan Otomobil Manufacture, assemble and sale of Malaysia 100% 100% Nasional Sdn. Bhd.^ motor vehicles and related products
Proton Tanjung Malim Sdn. Bhd.^ Assembly of motor vehicles and Malaysia 100% 100% related products
Proton Marketing Sdn. Bhd. Investment holding Malaysia 100% 100%
Lotus Advance Technologies Sdn. Bhd. Investment holding Malaysia 100% 100%
Proton Hartanah Sdn. Bhd. Investment holding Malaysia 100% 100%
Proton Capital Sdn. Bhd. Investment holding Malaysia 100% 100%
Subsidiary of Perusahaan Otomobil Nasional Sdn. Bhd. Proton Automobiles (China) Ltd.^ Investment holding British Virgin 100% 100% Dormant Islands NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 149
ANNUAL REPORT 2006
24 SUBSIDIARY COMPANIES (CONTINUED) Country of Group’s effective Name Principal activities incorporation interest 2006 2005
Subsidiary of Proton Marketing Sdn. Bhd. Proton Corporation Sdn. Bhd.^ Dormant Malaysia 100% 100%
Proton Cars (UK) Ltd.*^ Distributor of Proton vehicles in England 100% 100% United Kingdom
Proton Cars Australia Pty. Ltd.*^ Importation and distribution of Australia 100% 100% motor vehicles and related products
Proton Cars Benelux NV. SA*^ Dormant Belgium 100% 100%
Lotus Cars Asia Pacific Sdn. Bhd.^ Dormant Malaysia 100% 100%
Auto Compound and Dormant Malaysia 100% 100% Distribution Centre Sdn. Bhd.^
Proton Edar Sdn. Bhd.^ Sale of motor vehicles, related spare Malaysia 100% 100% parts and accessories
Subsidiaries of Lotus Advance Technologies Sdn. Bhd. Proton Engineering Research Provision of Engineering Services Malaysia 100% 100% Technology Sdn. Bhd.^
Lotus Group International Ltd.*^ Investment holding England 100% 100%
Subsidiaries of Proton Hartanah Sdn. Bhd. Proton Properties Sdn. Bhd.^ Property development and management Malaysia 100% 100% 150 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
24 SUBSIDIARY COMPANIES (CONTINUED) Country of Group’s effective Name Principal activities incorporation interest 2006 2005
Subsidiary of Proton Cars (UK) Ltd. Smith & Sons Motors Ltd.*^ Dormant England 100% 100%
Proton Direct Ltd.+^ Motor dealership England 100% 100%
Proton Cars (Imports) Ltd.*^ Dormant England 100% 100%
Proton Cars Direct Limited*^ Dormant England 100% 100%
Subsidiary of Proton Edar Sdn. Bhd. Proton Singapore Pte. Ltd.*^ Sale of motor vehicles, related spare Singapore 100% 100% parts and accessories
Proton Edar Resources Sdn. Bhd.^ Repair and maintenance of motor Malaysia 100% 100% vehicles (previously dormant)
Proton Edar Ventures Sdn. Bhd.^ Dormant Malaysia 100% 100%
PT Proton Edar Indonesia* Sale of motor vehicles, related spare Indonesia 95% 95% parts and accessories
Subsidiary of Proton Engineering Research Technology Sdn. Bhd. Marco Acquisition Corporation*^ Leasing of Equipment and Asset United States of 100% 100% America
Subsidiary of Lotus Group International Ltd. Group Lotus plc*^ Holds intellectual property England 100% 100% NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 151
ANNUAL REPORT 2006
24 SUBSIDIARY COMPANIES (CONTINUED) Country of Group’s effective Name Principal activities incorporation interest 2006 2005
Subsidiaries of Group Lotus plc Lotus Cars Ltd.*^ Car manufacture and England 100% 100% engineering consultancy
Lotus Body Engineering Ltd.*^ Dormant England 100% 100%
Lotus Motorsports Ltd.*^ Dormant England 100% 100%
Lotus Holdings Inc.*^ Holding company for operations in United States of 100% 100% North America America
Subsidiary of Lotus Cars Ltd. Lotus Engineering Ltd.*^ Carries out specific engineering England 100% 100% contracts
Subsidiary of Lotus Engineering Ltd. Lotus Engineering (Malaysia) Engineering consultancy Malaysia 100% 100% Sdn. Bhd.^
Subsidiary of Lotus Holdings Inc. Lotus Engineering Inc.*^ Engineering consultancy United States of 100% 100% in North America America
Lotus Cars USA Inc.*^ Car sales and servicing United States of 100% 100% America
Subsidiary of Proton Cars Australia Pty Ltd. Lotus Cars Australia Pty. Ltd.* Sale of cars Australia 100% 100%
* Audited by a member firm of PricewaterhouseCoopers International Limited which is a separate and independent legal entity from PricewaterhouseCoopers, Malaysia + Not audited by PricewaterhouseCoopers ^ Consolidated by merger method of accounting 152 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
25 ASSOCIATED COMPANIES Group Company 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Unquoted shares at cost 50,298 54,288 13,600 17,600 Accumulated impairment losses (22,000) (22,000) — —
28,298 32,288 13,600 17,600 Share of post acquisition reserves 127,404 129,675 — —
155,702 161,963 13,600 17,600
Group 2006 2005 RM’000 RM’000
Interest in associated companies are represented by:
Group’s share of net tangible assets 151,865 157,799 Group’s share of intangible assets 3,837 4,164
155,702 161,963
The details of the associated companies are as follows:
Country of Group’s effective Name Principal activities incorporation interest 2006 2005
PHN Industry Sdn. Bhd. Manufacture and sales of stamped Malaysia 35% 35% parts and sub-assembly of automotive metal components
Aluminium Alloy Industries Development, manufacture and sale Malaysia — 25% Sdn. Bhd.# of aluminium alloy casting products NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 153
ANNUAL REPORT 2006
25 ASSOCIATED COMPANIES (CONTINUED) Country of Group’s effective Name Principal activities incorporation interest 2006 2005
Marutech Elastomer Manufacture and production Malaysia 25% 25% Industries Sdn. Bhd. of moulded products, extruded and rubber hoses for motor vehicles, motorcycle and other related products
Exedy (Malaysia) Sdn. Bhd. Manufacture and assembly of Malaysia 45% 45% manual clutch and automatic transmission parts
Associated company of Perusahaan Otomobil Nasional Sdn. Bhd. Vina Star Motors Corporation Import, assembly and distribution Socialist Republic 25% 25% of vehicles of Vietnam
Associated company of Proton Hartanah Sdn. Bhd. Proton City Development Property developer and project Malaysia 40% 40% Corporation Sdn. Bhd. management
Associated company of Proton Cars (UK) Ltd. Proton Finance Ltd. Provide dealer and customer finance England 49.99% 49.99%
Associated company of Proton Edar Sdn. Bhd. Netstar Advance Systems Engaged in the manufacture, assembly Malaysia 40% 40% Sdn. Bhd. and sale of vehicle tracking devices
Associated company of Proton Automobile China Ltd. Goldstar Proton Automobiles Production of automobile tools and People’s Republic 49% 49% Co. Ltd. components of China
# The investment in this company was reduced to 19% and as such it was reclassified to long term investment. 154 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
26 JOINTLY CONTROLLED ENTITIES Group Restated 2006 2005 RM’000 RM’000
Unquoted shares at cost 181,088 548,665 Accumulated impairment losses (1,114) (1,114)
179,974 547,551 Share of post-acquisition reserves 69,989 75,483 Goodwill impairment charge during the year — (367,577)
249,963 255,457
In November 2004, the Group via its wholly owned subsidiary, Proton Capital Sdn. Bhd., acquired 57.75% interest in MV Agusta Motor S.p.A. The goodwill arising from this acquisition amounting to RM367,577,000 was written off to reserves in accordance with the accounting policy in the previous financial year.
During the current financial year, the accounting policy on goodwill was changed as explained in Notes 2(d) and 43. This had resulted in the restatement of goodwill of RM367,577,000 on the balance sheet at the date of acquisition, which was subsequently impaired at 31 March 2005 based on the Directors’ assessment of the carrying amount of its investment in the jointly controlled entity.
The Group’s share of the assets, liabilities, revenue and expenses of the jointly controlled entities are as follows:
Group 2006 2005 RM’000 RM’000
Non-current assets 231,168 158,988 Current assets 159,594 228,119 Current liabilities (140,799) (131,650)
Net assets 249,963 255,457 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 155
ANNUAL REPORT 2006
26 JOINTLY CONTROLLED ENTITIES (CONTINUED) Group 2006 2005 RM’000 RM’000
Revenue 195,321 203,461 Expenses (excluding tax) (179,780) (189,690)
Profit from ordinary activities before taxation 15,541 13,771 Taxation (Note 7) (2,994) (4,638)
Profit from ordinary activities after taxation 12,547 9,133
The Group had excluded RM23,474,000 that would otherwise have been accounted for in respect of previous financial year, share of losses after taxation of a jointly controlled entity from the financial statements following discontinuation of the equity accounting for the results of the entity upon the carrying amounts of the investment having been fully eroded. The Group had no obligation to finance those losses. The Group’s investment in the related jointly controlled entity has been disposed during the financial year.
The details of the jointly controlled entities are as follows:
Country of Group’s effective Name Principal activities incorporation interest 2006 2005
Advanced Engine Research Dormant Malaysia 0% 50% Sdn. Bhd.^
Jointly controlled entity of Proton Marketing Sdn. Bhd. Proton Parts Centre Sdn. Bhd.# Trading of motor vehicle components, Malaysia 55% 55% spare parts and accessories
Proton Cars (Europe) Ltd.# Dormant England 56% 56%
Jointly controlled entity of Lotus Advance Technology Miyazu (Malaysia) Sdn. Bhd.# Development, marketing and Malaysia 51% 51% sale of products and services relating to dies, moulds and jigs 156 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
26 JOINTLY CONTROLLED ENTITIES (CONTINUED) Country of Group’s effective Name Principal activities incorporation interest 2006 2005
Jointly controlled entity of Perusahaan Otomobil Nasional Sdn. Bhd. PT Proton Tracoma Motors Manufacturing and sales of Indonesia 51% 51% (Indonesia)# motor vehicles
Jointly controlled entity of Proton Capital Sdn. Bhd. MV Agusta Motor SpA#^ Manufacture and marketing of Italy 0% 58% motorcycles and related product
Jointly controlled entity of Group Lotus plc Lotus Finance Ltd. Motor vehicles financing England 49.9% 49.9%
Jointly controlled entity of Proton Edar Sdn. Bhd. Proton Commerce Sdn. Bhd. Motor vehicles financing Malaysia 50% 50%
# Companies in which the Group owns more than one half of the voting power. However, as the Group has joint control over the financial and operating policies, these investments are treated as jointly controlled entities. ^ Disposed during the financial year.
27 OTHER LONG TERM INVESTMENTS Group Company 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Unquoted investments in Malaysia: At cost 13,347 9,226 8,575 4,575 Allowance for diminution in value (2,950) (2,950) (2,100) (2,100)
10,397 6,276 6,475 2,475 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 157
ANNUAL REPORT 2006
28 DEFERRED TAXATION Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts, determined after appropriate offsetting, are shown in the balance sheet:
Group Company 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Subject to income tax:
Deferred tax assets 105,786 38,479 — — Deferred tax liabilities (805) (1,074) — —
104,981 37,405 — —
Movement of deferred tax At start of financial year 37,405 45,534 — — (Charged)/credited to income statement: (Note 7) – property, plant and equipment 54,237 (15,985) — — – inventories 589 6,940 — — – allowances and provisions 9,296 1,713 — — – receivables 3,454 (797) — —
67,576 (8,129) — —
At end of financial year 104,981 37,405 — —
Deferred tax assets (before offsetting) – property, plant and equipment 46,290 — — — – inventories 18,987 18,398 — — – allowances and provisions 61,361 52,065 — —
126,638 70,463 — — Offset of deferred tax liabilities (20,852) (31,984) — —
Deferred tax assets (after offsetting) 105,786 38,479 — — 158 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
28 DEFERRED TAXATION (CONTINUED) Group Company 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Deferred tax liabilities (before offsetting) – property, plant and equipment (7,178) (15,125) — — – receivables (14,479) (17,933) — —
(21,657) (33,058) — — Offset against deferred tax assets 20,852 31,984 — —
Deferred tax liabilities (after offsetting) (805) (1,074) — —
The amount of liability not offset relates to deferred tax liabilities arising in an overseas subsidiary for which there is no available asset for offset.
The tax effect of deductible temporary differences and unused tax losses (both of which have no expiry date) for which no deferred tax asset is recognised in the balance sheet are as follows:
Group 2006 2005 RM’000 RM’000
Deductible temporary differences of which no deferred tax assets is recognised Unrecognised tax losses 184,214 241,107 Unabsorbed capital allowances 47,395 52,041 Unrecognised reinvestment allowances 397,888 313,180 Other temporary differences 4,661 9,466
Taxable temporary differences of which no deferred tax liabilities is recognised Surplus from land revaluation 11,572 12,860
As at 31 March 2006, there is no temporary differences associated with unremitted earnings of subsidiaries for the recognition of deferred tax liabilities (2005: Nil). NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 159
ANNUAL REPORT 2006
29 GOODWILL Group RM’000
At 1 April 2004/1 April 2005, as previously stated — Effect of change in policy (Note 43) 29,008
At 31 March 2005, as restated/At 31 March 2006 29,008
30 LONG TERM LIABILITIES Group Restated 2006 2005 RM’000 RM’000
Unsecured: Long term loans (Note a) 115,490 169,926 Portion repayable within twelve months (Note 22) (56,613) (54,436)
58,877 115,490
Secured: Long term loans (Note b) 570,900 629,936 Portion repayable within twelve months (Note 22) (570,900) —
— 629,936
Finance lease and hire purchase creditors – secured (Note c) — 4 Portion repayable within twelve months — (4)
— —
Employee retirement benefits (Note d) 41,378 14,213
100,255 759,639 160 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
30 LONG TERM LIABILITIES (CONTINUED) (a) Long term loans – unsecured Group Restated 2006 2005 RM’000 RM’000
The long term loans are repayable as follows:
Within one year 56,613 54,436 Between one and two years 58,877 56,613 Between two and five years — 58,877
115,490 169,926
The term loans are repayable by 5 annual instalments over a 5-year period. The loan balance comprises of two separate tranches of RM21.6 million (2005: RM31.7 million) and RM93.9 million (2005: RM138.2 million) respectively. The final payment of the first tranche of the loan is due on 22 June 2007 and the second tranche is due on 30 September 2007. Both tranches of the loan bears a fixed interest rate of 4% per annum and is repayable in Ringgit Malaysia.
(b) Long term loans – secured The secured long term loans obtained by certain subsidiary companies are:
(i) A term loan of £40 million was obtained by a foreign subsidiary company in October 2005. Interest is payable at a fixed rate of 4.94% per annum and the loan is repayable in full in October 2006. The loan is secured against another subsidiary’s cash deposit in a bank in Malaysia (Note 39).
During the financial year, the loan was reclassified as short term as it falls due within the next twelve months.
(ii) A term loan of Euro 70 million was obtained by a Malaysian subsidiary company. The loan was drawn to finance an investment in a jointly controlled entity. The loan was drawn in Euro, secured against another subsidiary’s cash deposit in a bank in Malaysia (Note 39) and repayable in full on 26 November 2009. Interest is payable at a fixed rate of 3.275% per annum on a half yearly basis.
During the financial year, the loan was reclassified as short term as the related investment was disposed and the loan will be paid within the next twelve months. NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 161
ANNUAL REPORT 2006
30 LONG TERM LIABILITIES (CONTINUED) (c) Leasing and hire purchase creditors The leasing and hire purchase arrangements obtained by subsidiary companies are secured against the assets of the respective subsidiary companies.
(d) Employee retirement benefits The employee retirement benefits represents the scheme operated by Lotus Group International Ltd, as disclosed in Note 33.
31 SHARE CAPITAL Company 2006 2005 RM’000 RM’000
Authorised: 1,000,000 1,000,000
Issued and fully paid: At beginning of financial year 549,213 * Issuance of ordinary shares of RM1 each during the financial year — 549,213
At end of financial year 549,213 549,213
*2 units subscribers’ shares amounted to RM2 was issued and fully paid.
32 RESERVES The Company has sufficient tax credits under Section 108(6) of the Income Tax Act, 1967 to frank approximately RM936.8 million (2005: RM936.3 million) of its retained profits as at 31 March 2006 if paid out as dividends. The extent of the retained earnings not covered at that date amounted to RM105.1 million (2005: RM49.5 million).
In addition, the Company has tax exempt income as at 31 March 2006 amounting to approximately RM56.6 million (2005: RM0.8 million) available for distribution as tax exempt dividends to shareholders. This tax exempt income is subject to the agreement by the Inland Revenue Board.
Capital Reserves – Group The reserves arose as a result of the Group reorganisation. Following the share for share exchange, the Company has no share premium. Accordingly, the amount of share premium previously recognised on consolidation has been designated as capital reserve. 162 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
33 EMPLOYEE RETIREMENT BENEFITS (a) Defined contribution plan Group companies incorporated in Malaysia contribute to the Employees Provident Fund, the national defined contribution plan. Once the contributions are paid, the Group has no further payment obligations.
(b) Defined benefit plan Lotus Group Scheme – defined benefit scheme Lotus Group International Ltd. and its subsidiaries (‘Lotus Group’), operate a defined benefit pension scheme, the Lotus Pension Plan. The assets are held in separate trustee administered funds. In addition, it provides life assurance cover for all employees.
Contributions to the scheme are charged to the income statement so as to spread the cost of pensions over employees’ working lives with the Lotus Group. The contributions are determined by a qualified actuary on the basis of triennial valuations. The latest actuarial valuation of the plan was carried out on 31 December 2002, using the Projected Unit method, updated to 31 March 2006.
The movements during the financial year in the amount recognised in the consolidated balance sheet is as follows:
Group 2006 2005 RM’000 RM’000
At 1 April 14,213 10,757 Currency translation differences (3,364) 724 Charged to income statement 45,065 22,551 Contributions and benefits paid (14,536) (19,819)
At 31 March 41,378 14,213 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 163
ANNUAL REPORT 2006
33 EMPLOYEE RETIREMENT BENEFITS (CONTINUED) The amounts recognised in the consolidated balance sheet is analysed as follows:
Group 2006 2005 RM’000 RM’000
Present value of obligation 370,548 299,940 Fair value of plan assets (309,543) (255,652)
Shortfall of funded plan 61,005 44,288 Unrecognised actuarial gain/(losses) 8,455 (19,322) Unrecognised transitional liability (28,082) (10,753)
Liability in balance sheet 41,378 14,213
The expense recognised in the consolidated income statement is analysed as follows:
Group 2006 2005 RM’000 RM’000
Current service cost 11,996 16,333 Interest cost 15,159 15,680 Expected return on plan assets (16,750) (14,038) Actuarial (gain)/losses recognised (2,670) 1,052 Amortisation of transitional liability 37,330 3,524
Total, included in staff costs within administrative expenses (Note 5) 45,065 22,551
Actual return on plan assets 65,290 25,720 164 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
33 EMPLOYEE RETIREMENT BENEFITS (CONTINUED) The principal actuarial assumptions used in respect of the Group’s defined benefit plan were as follows:
Group 2006 2005 %%
Discount rates 5.00 5.40 Expected return on plan assets – equities 7.25 7.50 – bonds 4.50 5.00 – others 4.00 3.75 Expected rate of salary increase 3.85 3.75 Expected rate of pension payment increase 2.85 2.75 Inflation 2.85 2.75
34 SEGMENTAL INFORMATION The Group is principally engaged in the automobile industry namely manufacturing, assembling, trading and provision of engineering and other services in respect of motor vehicles and related products. Accordingly, no segmental information is considered necessary for analysis by industry segments.
Intersegment sales comprise of sales of cars, parts and engineering services to companies in different geographical locations.
Analysis of the Group’s revenue, results and other information by geographical locations of the assets are as follows:
Malaysia Other countries Elimination Total
Restated Restated 2006 2005 2006 2005 2006 2005 2006 2005 RM’million RM’million RM’million RM’million RM’million RM’million RM’million RM’million
Revenue External sales 6,654.6 7,299.6 1,142.3 1,183.7 — — 7,796.9 8,483.3 Inter-segment sales 129.9 114.7 149.6 280.1 (279.5) (394.8) — —
Total revenue 6,784.5 7,414.3 1,291.9 1,463.8 (279.5) (394.8) 7,796.9 8,483.3 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 165
ANNUAL REPORT 2006
34 SEGMENTAL INFORMATION (CONTINUED) Malaysia Other countries Elimination Total
Restated Restated 2006 2005 2006 2005 2006 2005 2006 2005 RM’million RM’million RM’million RM’million RM’million RM’million RM’million RM’million
Result Segment operating profit/(loss) 58.6 797.5 (118.1) (21.4) 5.4 (85.5) (54.1) 690.6 Unallocated expenses 9.9 (18.1) Unallocated income 9.5 12.0 Interest expense (43.9) (46.2) Interest income 67.8 87.9 Share of net results of associated companies and jointly controlled entities 21.3 (347.2) 7.5 20.2 — — 28.8 (327.0) Taxation 28.4 43.2
Profit after taxation 46.4 442.4
Other information Segment assets 6,907.1 7,443.8 620.4 723.5 — — 7,527.5 8,167.3 Unallocated assets 785.3 663.7
Total assets 8,312.8 8,831.0
Segment liabilities 1,282.1 1,665.1 278.7 328.6 — — 1,560.8 1,993.7 Unallocated liabilities 881.3 977.0
Total liabilities 2,442.1 2,970.7
Capital expenditure 455.4 855.5 23.1 39.7 — — 478.5 895.2 Depreciation and amortisation 336.3 293.9 15.1 18.5 — — 351.4 312.4 Assets written off 82.9 135.6 — — — — 82.9 135.6 Impairment — 1.9 5.1 — — — 5.1 1.9 Other non-cash items 269.2 77.9 59.5 28.3 — — 328.7 106.2 166 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
34 SEGMENTAL INFORMATION (CONTINUED) Unallocated income includes dividend from other investments, gain on disposal of short-term investments and writeback of provision for diminution in value of short-term investments. Unallocated costs represent losses on short-term investments, both realised and unrealised. Segment assets consist primarily of property, plant and equipment, inventories, receivables and operating cash, and exclude investments in associates, joint venture, long term investments, short term investments and deferred tax assets. Segment liabilities comprise operating liabilities and exclude items such as taxation and borrowings.
Capital expenditure mainly comprises additions to property, plant and equipment (Note 23).
Secondary reporting format The primary reporting format is based on geographical locations of the assets. The industry segmentation is considered unnecessary as the Group is principally engaged in automobile industry. Therefore, only sales to external customer based on customer location is presented.
Malaysia Other countries Elimination Total
2006 2005 2006 2005 2006 2005 2006 2005 RM’million RM’million RM’million RM’million RM’million RM’million RM’million RM’million
Revenue External sales 6,441.0 7,052.0 1,355.9 1,431.3 — — 7,796.9 8,483.3 Inter segment sales 129.9 114.7 149.6 280.1 (279.5) (394.8) — —
Total revenue 6,570.9 7,166.7 1,505.5 1,711.4 (279.5) (394.8) 7,796.9 8,483.3
35 CAPITAL AND OTHER COMMITMENTS Group 2006 2005 RM’000 RM’000
Capital commitments Capital expenditure for property, plant and equipment approved by the Board not provided for in the financial statements:
Contracted for 267,727 717,455 Not contracted for 3,900,523 2,724,111
4,168,250 3,441,566 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 167
ANNUAL REPORT 2006
36 OPERATING LEASES As at 31 March 2006, the Group was committed to making the following payments in respect of operating leases expiring:
Group Land and Plant and Land and Plant and buildings machinery Total buildings machinery Total 2006 2006 2006 2005 2005 2005 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000
Within one year 1,246 2,212 3,458 1,100 2,815 3,915 Between one and five years 5,753 1,884 7,637 5,844 2,552 8,396 After five years ———622 115 737
6,999 4,096 11,095 7,566 5,482 13,048
37 SIGNIFICANT RELATED PARTY TRANSACTIONS DISCLOSURES In the normal course of business, the Group and Company undertake a variety of transactions at mutually agreed terms with subsidiaries, associated companies, jointly controlled entities and other related parties. The related parties with whom the Group and Company transact with, include the following companies:
Related parties Relationship
PEPS-JV (M) Sdn. Bhd. Equity investment Technomeiji Rubber Industries Sdn. Bhd. Equity investment Aluminium Alloy Industries Sdn. Bhd. Equity investment
In addition to related parties disclosures mentioned elsewhere in the financial statements, set out below are other significant related party transactions. The related party transactions described below were carried out on terms and conditions obtainable in transactions with unrelated parties unless otherwise stated. 168 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
37 SIGNIFICANT RELATED PARTY TRANSACTIONS DISCLOSURES (CONTINUED) Group 2006 2005 RM’000 RM’000
(a) Sales of goods and services Sales of goods – Jointly controlled entities 18,650 22,034 – Tenmaz Sdn. Bhd. * 7,012 – Tenmaz Engineering (M) Sdn. Bhd. * 175
(b) Purchases of goods and services from: – Mitsubishi Corporation, Japan — 1,002,033 – Associated companies 157,536 156,749 – Jointly controlled entities 165,940 182,316 – Technomeiji Rubber Industries Sdn. Bhd. 13,597 12,444 – PEPS-JV (M) Sdn. Bhd. 186,259 176,170 – Aluminium Alloy Industries Sdn. Bhd. 16,601 —
(c) Advances to a jointly controlled entity — 19,929
* Not applicable for the current financial year as these companies ceased to be related party.
38 CONTINGENT LIABILITIES A supplier had obtained a judgement in default against a subsidiary company for RM12.2 million after failing to reach a formal agreement. Management had obtained legal opinion that the claims are without basis and action has been taken to set aside the judgement. NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 169
ANNUAL REPORT 2006
39 CASH AND CASH EQUIVALENTS Group Company 2006 2005 2006 2005 RM’000 RM’000 RM’000 RM’000
Licensed banks 1,168,787 2,063,539 49,000 — Discount houses 227,470 112,816 — — Other licensed financial institutions 57,465 48,268 — —
1,453,722 2,224,623 49,000 — Bank and cash balances 132,260 230,095 835 50,638 Bank overdrafts (175,949) (172,075) — — Fixed deposit pledged as security (Note 30) (716,841) (705,718) — —
693,192 1,576,925 49,835 50,638
40 FINANCIAL INSTRUMENTS (a) Financial risk management objectives and policies The Group’s activities are exposed to a variety of financial risks, including foreign currency exchange risk, interest rate risk, market risk, credit risk, liquidity and cash flow risk. The Group focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Financial risk management is carried out through risks 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 treasury policies, which covers the management of these risks.
The Group uses derivative financial instruments such as foreign exchange contracts and interest rate instruments to hedge certain exposures. It does not trade in financial instruments.
(i) Foreign currency exchange risk The Group is exposed to currency risk as a result of the foreign currency transactions entered into by the Company and subsidiaries in currencies other than their functional currency. The Group enters into forward foreign currency exchange contracts to limit the exposure on foreign currency receivables and payables, and on cash flows generated from anticipated transactions denominated in foreign currencies.
(ii) Interest rate risk The Group’s income and operating cash flows are not substantially affected by changes in market interest rates except for interest from bank deposits. Derivative financial instruments are used, where appropriate, to generate the desired interest rate profile. 170 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
40 FINANCIAL INSTRUMENTS (CONTINUED) (a) Financial risk management objectives and policies (continued) (iii) Market risk The Group does not face significant exposure from the risk from changes in debt and equity prices.
(iv) Credit risk The Group seeks to invest cash assets safely and profitably. The Group considers the risk of material loss in the event of non-performance by a financial counter party to be unlikely in view of the financial strength of those counter-parties.
The Group seeks to control customers credit risk by ensuring that significant sales of product and services are made to customers with an appropriate credit history.
(v) Liquidity and cash flow risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions.
(b) Forward foreign exchange contracts Forward foreign exchange contracts are entered into by the Group in currencies other than the functional currency to manage exposure to fluctuations in foreign currency exchange rates on specific transactions.
As at 31 March 2006, the outstanding notional principal amount of the Group foreign exchange contracts are as follows:
Group 2006 2005 RM’000 RM’000
Maturity Less than 6 months 45,873 327,518 Between 6 months and 1 year 41,986 78,948
87,859 406,466 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 171
ANNUAL REPORT 2006
40 FINANCIAL INSTRUMENTS (CONTINUED) (b) Forward foreign exchange contracts (continued) The foreign currency amounts to be received and the contractual exchange rates of the Group‘s outstanding contracts are as follows:
Currency to Currency RM’000 Average Hedged item be received to be paid equivalent contracted rate
2006 Group Future purchase of raw materials over the following 6 months
Forecasted receivables – the following 6 months GBP USD 45,873 1 USD = GBP 1.7701 – 6 to 12 months GBP USD 41,986 1 USD = GBP 1.7571
87,859
2005 Group Future purchase of raw materials over the following 6 months JPY USD 145,280 1 USD = JPY 104.39 EUR USD 28,115 1 USD = EUR 1.3037 GBP USD 14,901 1 USD = GBP 1.8735 GBP AUD 11,611 1 GBP = AUD 0.4070 Forecasted receivables – the following 6 months GBP USD 127,611 1 USD = GBP 1.8875 – 6 to 12 months GBP USD 78,948 1 USD = GBP 1.8875
406,466 172 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
40 FINANCIAL INSTRUMENTS (CONTINUED) (c) Fair values The carrying amounts of financial assets and liabilities of the Group and Company at the balance sheet date approximated their fair values except as set out below:
Group Company Carrying Carrying Note amount Fair value amount Fair value RM’000 RM’000 RM’000 RM’000
2006 Recognised on the balance sheet Short term investments 15 211,965 220,864 — — Other long term investments 27 10,397 * 6,475 * Long term loans – unsecured 30 (115,490) (115,078) — —
2005 Recognised on the balance sheet Short term investments 15 201,535 204,873 — — Other long term investments 27 6,276 * 2,475 * Long term loans – unsecured 30 (169,926) (169,123) — — – secured 30 (629,936) (631,324) — —
Not recognised on the balance sheet Foreign exchange hedge instruments — (5,041) — —
* It was not practicable within the constraints of timeliness and cost to estimate the fair values of the unquoted shares reliably. The Group and Company share of the net tangible worth of the investments at the balance sheet date is RM14,956,000 (2005: RM9,510,000). NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED) 173
ANNUAL REPORT 2006
41 SIGNIFICANT DISPOSAL On 24 December 2005, Proton Capital Sdn. Bhd., a wholly owned subsidiary of PROTON Holdings Berhad, entered into a Share Purchase & Investment Agreement with GEVI S.p.A, a company organised and existing under the laws of Italy, in relation to a proposed disposal involving the disposal of 57,750,000 Class A shares representing 57.75% of the corporate capital of MV Agusta Motor S.p.A for a cash consideration of Euro 1.00 (‘The Disposal’). The Disposal did not have any significant effect on the earnings, net assets, share capital nor shareholdings of the PROTON Group.
With the Disposal completed on 1 March 2006, the loan of EUR70 million taken to acquire MV Agusta Motor S.p.A was repaid on 26 May 2006 by utilising the restricted cash security as explained in Notes 30(b) and 39.
42 SUBSEQUENT EVENTS Subsequent to the year end, the Group undertook a recapitalisation exercise to address the deficit in shareholders’ funds and strengthen the operations of its overseas subsidiaries, Proton Cars (UK) Ltd and Proton Cars Australia Pty. Ltd via partial waiver of intercompany balances and settlement of the remaining balances following the waiver.
This recapitalisation exercise requires the approval of the Boards of Directors of the respective entities and Bank Negara Malaysia for additional overseas investment and the waiver of export trade debts. The proposal was approved by Bank Negara Malaysia on 29 June 2006.
43 COMPARATIVES Certain figures for the year ended 31 March 2005 presented have been reclassified or adjusted, as compared to the original statutory accounts, due to the reasons below:
– Consistent presentation with the financial statements disclosure requirements for the financial year ended 31 March 2006; and
– Prior year adjustments arising from certain changes in accounting policies as described in Notes 2(d) and Note 26 as summarised below.
The goodwill balance as at 31 March 2005 arising from the acquisition of a subsidiary company had been restated upon the change in accounting policy as stated in Note 2(d). The goodwill arising from the investment in a jointly controlled entity was restated as detailed in Note 26. The consequence of the change in goodwill policy was also the classification of reserves between goodwill reserves and retained earnings. 174 NOTES TO THE FINANCIAL STATEMENTS – 31 March 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
43 COMPARATIVES (CONTINUED) The effect of the change in accounting policy and the reclassification described above are as detailed below:
As previously stated Adjustments As restated RM’000 RM’000 RM’000
Income statement Profit after tax 810,019 (367,577) 442,442
Balance sheet Retained earnings 5,615,101 (698,166) 4,916,935 Goodwill reserve (727,174) 727,174 — Goodwill — 29,008 29,008
As previously Reclassifi- stated cations As restated RM’000 RM’000 RM’000
Balance sheet Trade and other payables (1,708,378) 14,213 (1,694,165) Long term liabilities (745,426) (14,213) (759,639)
44 APPROVAL OF FINANCIAL STATEMENTS The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 26 July 2006. STATEMENT BY DIRECTORS pursuant to Section 169(15) of the Companies Act, 1965 175
ANNUAL REPORT 2006
We, Dato’ Mohammed Azlan bin Hashim and Syed Zainal Abidin bin Syed Mohamed Tahir, two of the Directors of PROTON Holdings Berhad, state that, in the opinion of the Directors, the financial statements set out on pages 108 to 174 are drawn up so as to give a true and fair view of the state of affairs of the Group and the Company as at 31 March 2006 and of the results and cash flows of the Group and the Company for the financial year ended on that date in accordance with the provisions of the Companies Act, 1965 and the MASB approved accounting standards in Malaysia.
Signed on behalf of the Board of Directors in accordance with their resolution dated 26 July 2006.
DATO’ MOHAMMED AZLAN BIN HASHIM SYED ZAINAL ABIDIN BIN SYED MOHAMED TAHIR Chairman Director
STATUTORY DECLARATION pursuant to Section 169(16) of the Companies Act, 1965
I, Tan Chun Weng, the officer primarily responsible for the financial management of PROTON Holdings Berhad, do solemnly and sincerely declare that the financial statements set out on pages 108 to 174 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.
TAN CHUN WENG
Subscribed and solemnly declared by the abovenamed Tan Chun Weng at Shah Alam in Malaysia on 26 July 2006, before me.
COMMISSIONER FOR OATHS 176 REPORT OF THE AUDITORS to the Members of PROTON Holdings Berhad (Company No. 623177 A)
PROTON HOLDINGS BERHAD
We have audited the financial statements set out on pages 108 to 174. These financial statements are the responsibility of the Company’s Directors. It is our responsibility to form an independent opinion, based on our audit, on these financial statements and to report our opinion to you, as a body, in accordance with section 174 of the Companies Act 1965 and for no other purpose. We do not assume responsibility to any other person for the content of this report.
We conducted our audit in accordance with approved auditing standards in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion:
(a) the financial statements have been prepared in accordance with the provisions of the Companies Act, 1965 and MASB approved accounting standards in Malaysia so as to give a true and fair view of: (i) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements; and (ii) the state of affairs of the Group and of the Company as at 31 March 2006 and of the results and cash flows of the Group and Company for the financial year ended on that date; and (b) the accounting and other records and the registers required by the Act to be kept by the Company and by the subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act.
The names of the subsidiary companies of which we have not acted as auditors are indicated in Note 24 to the financial statements. We have considered the financial statements of these subsidiaries and the auditors’ reports thereon.
We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Company’s financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes.
The auditors’ reports on the financial statements of the subsidiaries were not subject to any qualification and did not include any comment made under subsection (3) of section 174 of the Act.
PRICEWATERHOUSECOOPERS DATO’ AHMAD JOHAN BIN MOHAMMAD RASLAN (No. AF: 1146) (No. 1867/09/06 (J)) Chartered Accountants Partner of the Firm
Kuala Lumpur 26 July 2006 SHAREHOLDINGS STATISTICS as at 20 July 2006 177
ANNUAL REPORT 2006
ANALYSIS OF SHAREHOLDINGS Share Capital Authorised Share Capital RM1,000,000,000/- Issued and Fully Paid Up Capital RM549,213,002/- Class of Shares Ordinary Shares of RM1/- each Voting Rights One (1) Voting Right for one (1) Ordinary Share
ANALYSIS OF SHAREHOLDINGS BY RANGE GROUPS No. of % Over Total No. of % Over Total Shares Shares Shareholders Shareholders
1 – 100 769 0.00 78 1.45 101 – 1,000 3,129,826 0.57 3,333 62.07 1,001 – 10,000 5,030,112 0.92 1,450 27.00 10,001 – 100,000 10,666,820 1.94 308 5.74 100,001 – 27,460,649 224,207,102 40.82 198 3.69 27,460,650 and Above 306,178,373 55.75 3 0.05
549,213,002 100.00 5,370 100.00
DISTRIBUTION OF SHAREHOLDINGS Malaysian Foreign Malaysian Foreign Malaysian Foreign Malaysian Foreign No. of No. of % Over % Over No. of No. of % Over Total % Over Total Shares Shares Total Share Total Share Shareholders Shareholders Shareholders Shareholders
1 – 100 686 83 0.00 0.00 75 3 1.40 0.05 101 – 1,000 3,041,296 88,530 0.55 0.02 3,225 108 60.06 2.01 1,001 – 10,000 4,454,561 575,551 0.81 0.10 1,316 134 24.51 2.49 10,001 – 100,000 6,904,700 3,762,120 1.26 0.69 214 94 3.99 1.75 100,001 – 27,460,649 122,706,127 101,500,975 22.34 18.48 90 108 1.68 2.01 27,460,650 and Above 306,178,373 0 55.75 0.00 3 0 0.05 0.00
443,285,743 105,927,259 80.71 19.29 4,923 447 91.69 8.31
549,213,002 100.00 5,370 100.00 178 SHAREHOLDINGS STATISTICS as at 20 July 2006 (CONTINUED)
PROTON HOLDINGS BERHAD
SUBSTANTIAL SHAREHOLDERS (5% AND ABOVE)
Name Shareholding %
1 KHAZANAH NASIONAL BERHAD 210,484,693 38.32 2 EMPLOYEES PROVIDENT FUND BOARD 60,017,000 10.93 3 PETROLIAM NASIONAL BERHAD 35,676,680 6.50
THIRTY LARGEST SHAREHOLDERS Name of Shareholders No. of Shares %
1. KHAZANAH NASIONAL BERHAD 210,484,693 38.32 2. EMPLOYEES PROVIDENT FUND BOARD 60,017,000 10.93 3. RHB NOMINEES (TEMPATAN) SDN. BHD. 35,676,680 6.50 PETROLIAM NASIONAL BERHAD 4. CIMSEC NOMINEES (TEMPATAN) SDN. BHD. 24,250,000 4.42 SECURITY TRUSTEE (KCW ISSUE 2) 5. LEMBAGA TABUNG HAJI 16,820,427 3.06 6. CARTABAN NOMINEES (ASING) SDN. BHD. 14,185,300 2.58 GOVERNMENT OF SINGAPORE INVESTMENT CORPORATION PTE. LTD. FOR GOVERNMENT OF SINGAPORE (C) 7. PERMODALAN NASIONAL BERHAD 8,838,000 1.61 8. CARTABAN NOMINEES (TEMPATAN) SDN. BHD. 8,094,900 1.47 AMANAH SSCM NOMINEES (TEMPATAN) SDN. BHD. FOR EMPLOYEES PROVIDENT FUND BOARD (JF404) 9. PERECOM INDUSTRIES SDN. BHD. 7,444,000 1.36 10. HSBC NOMINEES (ASING) SDN. BHD. 6,835,998 1.24 TNTC FOR SAUDI ARABIAN MONETARY AGENCY 11. CARTABAN NOMINEES (ASING) SDN. BHD. 5,960,200 1.09 GOVERNMENT OF SINGAPORE INVESTMENT CORPORATION PTE. LTD. FOR MONETARY AUTHORITY OF SINGAPORE (H) 12. MALAYSIA NOMINEES (TEMPATAN) SENDIRIAN BERHAD 4,268,400 0.78 AMANAH SSCM ASSET MANAGEMENT BERHAD FOR AMANAH MILLENIA FUND BERHAD (JM730) 13. CARTABAN NOMINEES (ASING) SDN. BHD. 3,686,500 0.67 SSBT FUND NDS6 FOR NORTHROP GRUMMAN PENSION MASTER TRUST 14. HSBC NOMINEES (ASING) SDN. BHD. 3,658,200 0.67 TNTC FOR BRANDES INSTITUTIONAL EQUITY TRUST 15. CITIGROUP NOMINEES (ASING) SDN. BHD. 3,534,500 0.64 EXEMPT AN FOR AMERICAN INTERNATIONAL ASSURANCE COMPANY LIMITED SHAREHOLDINGS STATISTICS as at 20 July 2006 (CONTINUED) 179
ANNUAL REPORT 2006
THIRTY LARGEST SHAREHOLDERS (CONTINUED) Name of Shareholders No. of Shares %
16. AMANAH RAYA NOMINEES (TEMPATAN) SDN. BHD. 3,471,800 0.63 AMANAH SAHAM MALAYSIA 17. CITIGROUP NOMINEES (ASING) SDN. BHD. 3,112,500 0.57 CBNY FOR DFA EMERGING MARKETS FUND 18. CITIGROUP NOMINEES (ASING) SDN. BHD. 2,929,200 0.53 MELLON BANK, N.A. FOR WEST VIRGINIA INVESTMENT MANAGEMENT BOARD 19. CARTABAN NOMINEES (TEMPATAN) SDN. BHD. 2,888,200 0.53 EXEMPT AN FOR AMANAH SSCM NOMINEES (TEMPATAN) SDN. BHD. (ACCOUNT 1) 20. HSBC NOMINEES (ASING) SDN. BHD. 2,862,300 0.52 EXEMPT AN FOR JPMORGAN CHASE BANK, NATIONAL ASSOCIATION (AUSTRALIA) 21. HSBC NOMINEES (ASING) SDN. BHD. 2,354,176 0.43 TNTC FOR UTAH STATE RETIREMENT SYSTEMS 22. CARTABAN NOMINEES (ASING) SDN. BHD. 2,231,566 0.41 SSBT FUND NXW3 FOR BRANDES GLOBAL SMALL CAP EQUITY FUND 23. CARTABAN NOMINEES (ASING) SDN. BHD. 1,995,300 0.36 INVESTORS BANK AND TRUST COMPANY FOR ISHARES, INC. 24. HSBC NOMINEES (ASING) SDN. BHD. 1,986,100 0.36 TNTC FOR POLAR CAPITAL FUNDS PLC (ASIA EX JAPAN F) 25. HSBC NOMINEES (ASING) SDN. BHD. 1,953,575 0.36 EXEMPT AN FOR FORTIS BANQUE LUXEMBOURG (OPCVM A/C) 26. HSBC NOMINEES (ASING) SDN. BHD. 1,903,014 0.35 BNY BRUSSELS FOR ING EMERGING COUNTRIES FUND 27. MAYBAN NOMINEES (TEMPATAN) SDN. BHD. 1,865,400 0.34 AVENUE INVEST BERHAD FOR KUMPULAN WANG AMANAH PENCEN (E00170-220136) 28. BANK SIMPANAN NASIONAL 1,853,000 0.34 29. BANK SIMPANAN NASIONAL 1,852,000 0.34 30. BANK SIMPANAN NASIONAL 1,852,000 0.34
TOTAL 448,864,929 81.75 180 PROPERTIES OWNED BY PROTON GROUP
PROTON HOLDINGS BERHAD
Date of Acquisition/ Age of Net Book Value Location Description and Existing Use Tenure Revaluation Building RM Million
PROPERTIES OWNED BY PERUSAHAAN OTOMOBIL NASIONAL SDN. BHD.
No. H.S.(D) 71311, No. P.T. 82 Land with an area of 6,231,080 Freehold 05.09.1983 21 Years Land: 68.4 Mukim of Damansara, sq. ft. with main office, main Buildings: 146.5 District of Petaling, factory, engine factory, medium Selangor Darul Ehsan. volume factory, canteen (Formerly, HICOM Industrial Estate buildings, sports facilities, car park encompassing part of Lots 563, for production cars and 564, 568, 570 and Lot 15, additional R&D laboratories Mukim of Damansara, building. Total built-up area is District of Petaling, 2,594,603 sq. ft. Selangor Darul Ehsan).
HICOM Industrial Estate 3 units of flats currently Freehold 09.04.1986 21 Years Flats: 0.05 encompassing Lot 572, rented out Mukim of Damansara, District of Petaling, Selangor Darul Ehsan.
No. H.S.(D) 71309, No. P.T. 80, Land having an area of Freehold 19.11.1993 — Land: 2.6 Mukim of Damansara, 158,107 sq. ft. used as the car District of Petaling, park for staff Selangor Darul Ehsan. (Formerly, HICOM Industrial Estate encompassing Lot 568 Grant No. 5941, H.S.(D) 22208 No. P.T. 5115, H.S.(D) 22207, No. P.T. 5116, Mukim of Damansara, District of Petaling, Selangor Darul Ehsan). PROPERTIES OWNED BY PROTON GROUP (CONTINUED) 181
ANNUAL REPORT 2006
Date of Acquisition/ Age of Net Book Value Location Description and Existing Use Tenure Revaluation Building RM Million
PROPERTIES OWNED BY PERUSAHAAN OTOMOBIL NASIONAL SDN. BHD. (CONTINUED)
Lot 25, HICOM Glenmarie Land with an area of 1,036,728 Freehold 30.12.1992 12 Years Land: 20.6 Industrial Park, sq. ft. with office, factory and Buildings: 44.2 Mukim of Damansara, canteen buildings and sports District of Petaling, facilities used for the Casting Selangor Darul Ehsan. Plant. Total built-up area is 194,579 sq. ft.
No. H.S.(D) 86554, No. P.T. 257 Land with an area of 2,396,727 Freehold 18.04.1994 12 Years Land: 54.9 encompassing Lot 54, 60 and 62, sq. ft. adjoining the Company’s Track & Sime UEP Industrial Park, northern boundary housing the Buildings: 27 Mukim of Damansara, semi-high speed test track and District of Petaling, control building. Total built-up Selangor Darul Ehsan. area is 2,102,731 sq. ft.
No. H.S.(D) B.P. 5653 and 5654 Land with an area of Freehold 03.02.1999 3 Years Land: 1.0 Bil P.T. 16162 and 10163, 55,444,116 sq. ft. with Building: 405 District of Batang Padang, a second automobile plant. Mukim of Ulu Bernam Timur, Total built-up area is Perak Darul Ridzuan. 3,374,577 sq. ft. 182 PROPERTIES OWNED BY PROTON GROUP (CONTINUED)
PROTON HOLDINGS BERHAD
Date of Acquisition/ Age of Net Book Value Location Description and Existing Use Tenure Revaluation Building RM Million
PROPERTIES OWNED BY PROTON PROPERTIES SDN. BHD.
No. H.S.(D) No. 71662, 6 units of 3-bedroom Seri Freehold 15.06.1995 12 Years Apartments: 1.0 No. P.T. 439, Hijauan apartments with a total Mukim of Damansara, built-up area of 6,522 sq. ft. District of Petaling, D-3-17 of East Wing, Selangor Darul Ehsan. D-5-24 of East Wing, B-4-01 of West Wing, B-5-01 of West Wing, A-10-01 of North Wing, A-11-01 of North Wing
PROPERTIES OWNED BY PROTON CARS (UK) LTD.
Ref. AV 915, Units 1-3, Land with an area of 162,479 Freehold 31.03.1994 30 Years Land: 6.5 Crawley Way, Avonmouth, sq. ft. with a parts warehouse Buildings: 1.9 Bristol Avon BS11 9YR, England. building
PROPERTY OWNED BY PROTON PARTS CENTRE SDN. BHD.
Lot 91, HICOM Glenmarie Land with an area of 512,266 Freehold 01.01.1993 13 Years Land: 10.2 Industrial Park, sq. ft. with office and Buildings: 21.8 Mukim of Damansara, warehouse. Total built-up area is District of Petaling, 220,000 sq. ft. Selangor Darul Ehsan. PROPERTIES OWNED BY PROTON GROUP (CONTINUED) 183
ANNUAL REPORT 2006
Date of Acquisition/ Age of Net Book Value Location Description and Existing Use Tenure Revaluation Building RM Million
PROPERTY OWNED BY PROTON EDAR SDN. BHD.
Vehicle Preparation Centre (VPC) Vehicle Preparation Centre and Freehold 01.12.2000 5 Years Building: 5.2 No. H.S.(D) 86555, P.T. No. 258 stock control building with total and H.S.(D) 86557, P.T. No. 260, built-up area of 101,956 sq. ft. TP 2 Road, Sime UEP Industrial Park, 47600 Subang Jaya, Selangor Darul Ehsan.
Centre of Excellence (COE) & Administration & Operation Freehold 01.03.2001 5 Years Land: 35.7 Pre-Delivery and Inspection Office and Pre-Delivery & Building: 141.3 Centre (PDI) Inspection Centre with total No H.S.(D) 86596, P.T. No. 299 built-up area of 30,212 sq. ft. and H.S.(D) 86597, P.T. No. 300, TP 2 Road, Sime UEP Industrial Park, 47600 Subang Jaya, Selangor Darul Ehsan.
No. 2, Lrg. Samarinda 6A Off 3 storey shop units which Freehold 10.05.2002 4 Years Building: 0.7 Jalan Kebun H.S.(D) 60042, approximately 2,475.7 sq. ft. P.T. No. 64566, Mukim of Klang, Selangor Darul Ehsan
Lot 859, Block 16 Kuching Central Land with an area of Freehold 29.04.2002 4 Years Land: 2.8
Land District, Stampin 41⁄2 Mile, 48,383.73 sq. ft. to be Penrissen Road Kuching, used for sales outlet Sarawak. and service centre
No. 218089, Mukim of Plentong, Land with an area of 87,120 Freehold 29.04.2002 4 Years Land: 8.1 District of Johor Bahru, sq. ft. to be used for sales Johor Darul Takzim. outlet and service centre 184 PROPERTIES OWNED BY PROTON GROUP (CONTINUED)
PROTON HOLDINGS BERHAD
Date of Acquisition/ Age of Net Book Value Location Description and Existing Use Tenure Revaluation Building RM Million
PROPERTY OWNED BY PROTON EDAR SDN. BHD. (CONTINUED)
H.S.(D) 63313, P.T. No. 9671 Land with an area of 79,949 Freehold 19.07.2002 31⁄2 Years Land: 3.1 Mukim of Ampangan sq. ft. used for sales outlet and 29.09.2003 2 Years Building: 3.1 District of Seremban, service centre is 7,175 sq. ft. Negeri Sembilan Darul Khusus.
H.S.(D) 318392, PTD 81816, Land with an area of 57,267 Freehold 06.08.2002 31⁄2 Years Land: 5.1 Mukim of Pulai, sq. ft. used for sales outlet and District of Johor Bahru, service centre Jahor Darul Takzim.
Part of Lot 45, Held under Master Land with an area of 87,120 Freehold 01.08.2002 31⁄2 Years Land: 9.7 Title geran 29164 Lot 5458, sq. ft. used for sales outlet and Mukim & District of Petaling, service centre Selangor Darul Ehsan.
Lot P.T. 22489, Mukim of Batu, Land with an area of 87,120 Freehold 26.08.2002 31⁄2 Years Land: 7.6 District of Gombak, sq. ft. used for sales outlet and Selangor Darul Ehsan. service centre
Lot P.T. 4352, Mukim of Kuah, Land with an area of 51,979 Freehold 13.09.2002 31⁄2 Years Land: 1.4 District of Langkawi, sq. ft. used for sales outlet and Kedah Darul Aman. service centre
H.S.(D) 144330, P.T. 40019 Land with an area of 61,524 Freehold 02.09.2002 31⁄2 Years Land: 9.3 Mukim of Sungai Buloh, sq. ft. used for sales outlet and 01.03.2004 2 Years Building: 6.9 District of Petaling, service centre Selangor Darul Ehsan. PROPERTIES OWNED BY PROTON GROUP (CONTINUED) 185
ANNUAL REPORT 2006
Date of Acquisition/ Age of Net Book Value Location Description and Existing Use Tenure Revaluation Building RM Million
PROPERTY OWNED BY PROTON EDAR SDN. BHD. (CONTINUED)
H.S.(D) 159654, Land with an area of 99,862 Freehold 24.08.2005 7 Months Land: 13.5 P.T. 1 Jalan Kemajuan, sq. ft. used for sales outlet District of Petaling Jaya, and service centre Selangor Darul Ehsan.
No. H.S.(D) 86596, P.T. No. 302, Land with an area of 123,853 Freehold 05.12.2005 — Land: 0.6 TP 5 Road, Sime UEP Industrial sq. ft. used for stockyard area Park, 47600 Subang Jaya, Selangor Darul Ehsan.
PROPERTIES OWNED BY PROTON EDAR VENTURES SDN. BHD.
No. H.S.(D) 588, No. P.T. 2361, Land with an area of 1,373,925 Freehold 11.12.1990 — Land: 1.7 Mukim of Gelung, sq. ft. used as site for industrial District of Kubang Pasu, building Kedah Darul Aman.
Lot 1229, Mergong Industrial Land with an area of 45,025 Long 15.05.1977 29 Years Land: 0.3
Estate Phase 11, sq. ft. with a 11⁄2 storey building leasehold Building: 0.3 Mukim of Mergong, leased to Proton Edar Sdn. (Year District of Kota Setar, Bhd., used as Pre-Delivery of expiry: Kedah Darul Aman. inspection and service centre 2076) 186 PROPERTIES OWNED BY PROTON GROUP (CONTINUED)
PROTON HOLDINGS BERHAD
Date of Acquisition/ Age of Net Book Value Location Description and Existing Use Tenure Revaluation Building RM Million
PROPERTY OWNED BY PROTON CORPORATION SDN. BHD.
Lot No. 23 & 24, Industrial land with an area of Long 25.02.1998 — Land: 10.5 Section 7, Phase 1A, approximately 671,204 sq. ft. leasehold Pulau Indah Industrial Park, used to warehouse production of 99 years Westport, Pelabuhan Klang, export car (Year of Selangor Darul Ehsan. expiry: 2097)
PROPERTIES OWNED BY LOTUS CARS LTD. (UK)
(i) Lotus Cars Limited, Two parcels of land with a total Freehold 26.09.1968 39 Years Land: 6.3 Land adjacent to Potash area of 6,286,550 sq. ft. with the Building: 86.2 Lane, Hethel, Norwich, Norfolk factory, engineering facilities, NR 14 8EZ, England. offices and test track of Lotus (ii) Land North of Browick Road, Group International Ltd. Total Hethel, Norwich, Norfolk NR14 built-up area is 515,500 sq. ft. 8EZ, England.
Group Lotus Plc. R&D building rented to group Freehold 01.03.2000 7 Years Building: 7 Potash Lane Hethel, Norwich, companies. Total built-up area Norfolk NR14 8EZ, England. is 86,600 sq. ft.
PROPERTY OWNED BY MARCO ACQUISITION CORPORATION
1254 North Main St, Land with an area of Freehold 24.02.2000 Office: Land: 0.9 Ann Arbor, Michigan USA. approximately 165,528 sq. ft. 86 Years Building: 7.9 with office and workshop. Total built-up area is 73,000 sq. ft. Workshop: 40 Years SHARE PRICE AND VOLUME TRADED 187
ANNUAL REPORT 2006
Volume (’000) Price (RM) 10 8 6 4 5,000 7,500 10,000 12,500 2 2,500 0 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar AprMay Jun Jul 05 05 06 06
Volume Opening Highest Lowest Closing (’000) 188 NOTICE OF ANNUAL GENERAL MEETING
PROTON HOLDINGS BERHAD
NOTICE IS HEREBY GIVEN that the Third (3rd) Annual General Meeting of the Company will be held at the Auditorium, PROTON Centre of Excellence, KM 33.8, Westbound Shah Alam Expressway, 47600 Subang Jaya, Selangor Darul Ehsan, Malaysia on Friday, 8 September 2006 at 3.30 p.m. for the following purposes:
1. To lay the Reports of the Directors and Auditors and the Audited Statement of Accounts for the year ended 31 March 2006.
2. To approve the payment of a final (tax exempt) dividend of 5 sen per ordinary share. RESOLUTION 1
3. To elect the following Directors who retire in accordance with the Company’s Articles of Association:- Article 104 (i) Dato’ Mohammed Azlan bin Hashim RESOLUTION 2 (ii) Abdul Jabbar bin Abdul Majid RESOLUTION 3 Article 111 (i) Dato’ Ahmad bin Haji Hashim RESOLUTION 4 (ii) Syed Zainal Abidin bin Syed Mohamed Tahir RESOLUTION 5
4. To elect the following Director who retires in accordance with Section 129 of the Companies Act, 1965 (“CA”) (i) Lt. Gen (R) Dato’ Seri Mohamed Daud bin Abu Bakar RESOLUTION 6
5. To approve the Directors’ fees for the year ended 31 March 2006. RESOLUTION 7
6. To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company and to authorise the RESOLUTION 8 Directors to fix their remuneration.
7. To transact any other ordinary business for which due notice has been given. RESOLUTION 9
8. AS SPECIAL BUSINESS To consider and, if thought fit, to pass the following resolution as Ordinary Resolution:- RESOLUTION 10 That subject always to the provisions of the Companies Act, 1965, the Articles of Association of the Company and the approval of the relevant authorities and pursuant to Section 132D of the Companies Act, 1965, the Directors be and are hereby authorized to issue and allot shares in the Company from time to time at such price, upon such terms and conditions, for such purposes and to such person or persons whomsoever as the Directors may deem fit, provided that the aggregate number of shares to be issued pursuant to this resolution does not exceed 10 percent (%) of the issued share capital of the Company for the time being and that such authority shall continue to be in force until the conclusion of the next Annual General Meeting of the Company”. NOTICE OF ANNUAL GENERAL MEETING (CONTINUED) 189
ANNUAL REPORT 2006
NOTICE OF BOOK CLOSURE AND DIVIDEND PAYMENT NOTICE IS HEREBY GIVEN THAT the Register of Members of the Company will be closed on 14 September 2006 to determine shareholders’ entitlement to a final (tax exempt) dividend of 5 sen for the financial year ended 31 March 2006.
The dividend, if approved by the shareholders at the Company’s Third (3rd) Annual General Meeting, will be paid on 18 October 2006 to shareholders whose names appear in the Record of Depositors on 14 September 2006.
FURTHER NOTICE IS ALSO HEREBY GIVEN THAT a Depositor shall qualify for entitlement to the dividend only in respect of:- (a) securities deposited into the Depositor’s Securities Account on or before 4.00 p.m. on 14 September 2006 in respect of securities which are exempted from mandatory deposit; (b) securities transferred into the Depositors’ Securities Account before 4.00 p.m. on 14 September 2006 in respect of ordinary transfer; (c) securities bought on Bursa Malaysia Securities Berhad on a cum entitlement basis according to the Rules of Bursa Malaysia Securities Berhad.
NOTES:- By Order of the Board 1. A member of the Company entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend and vote in his stead. A proxy may but need not be a member of the Company and the provision of Section 149(1)(b) of the Companies Act, 1965 shall not apply. 2. The instrument appointing a proxy must be in writing under the hands of the appointor or his attorney duly authorised in writing or, if such appointor is a corporation, under its common seal or MOHD NIZAMUDDIN BIN MOKHTAR the hand of an officer or attorney duly authorised. (LS NO. 006128) 3. The maximum number of proxies that may be appointed is two. Where a member appoints more Company Secretary than one proxy, the appointment shall be invalid unless he specifies the proportion of his shareholdings to be represented by each proxy. Shah Alam 4. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, it may appoint at least one proxy in respect of each 17 August 2006 securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. Every appointment submitted by an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, must specify the CDS Account Number. 5. The instrument appointing the proxy must be deposited at the office of the Registrar, Tenaga Koperat Sdn Bhd, 20th Floor, Plaza Permata, Jalan Kampar, Off Jalan Tun Razak, 50400 Kuala Lumpur not less than forty eight (48) hours before the time appointed for the meeting. 6. For the purpose of determining a member who shall be entitled to attend the Meeting, the Company shall be requesting Bursa Malaysia Depository Sdn Bhd, in accordance with Article 67(b) of the Company’s Articles of Association and Section 34(1) of the Securities Industry (Central Depositories) Act, 1991 to issue a General Meeting Record of Depositors as at 30 August 2006. Only a depositor whose name appears on the General Meeting Record of Depositors as at 30 August 2006 shall be entitled to attend the said meeting or appoint proxies to attend and/or vote in his stead.
EXPLANATORY NOTES TO THE SPECIAL BUSINESS:- The Ordinary Resolution No. 10, if passed, will give the Directors of the Company the authority to issue shares in the Company up to an amount not exceeding in total 10% of the issued and paid up capital of the Company for such purposes as the Directors consider would be in the interest of the Company. This would avoid any delay and cost involved in convening a general meeting to specifically approve such an issue of shares. This authority, unless revoked or varied at a general meeting, will expire at the next Annual General Meeting of the Company. 190 STATEMENT ACCOMPANYING THE NOTICE OF ANNUAL GENERAL MEETING
PROTON HOLDINGS BERHAD
STATEMENT ACCOMPANYING THE NOTICE OF THE THIRD (3RD) ANNUAL GENERAL MEETING Pursuant to Paragraph 8.28(2) of the Listing Requirements of Bursa Malaysia Securities Berhad, appended hereunder are:
DIRECTORS STANDING FOR RE-ELECTION Directors who are standing for re-election at the Third (3rd) Annual General Meeting of the Company which will be held at the Auditorium, PROTON Centre of Excellence, KM 33.8, Westbound Shah Alam Expressway, 47600 Subang Jaya, Selangor Darul Ehsan, Malaysia on Friday, 8 September 2006 at 3.30 p.m. pursuant to the Company’s Articles of Association and Section 129 of the Companies Act, 1965 are as follows:-
Article 104 Dato’ Mohammed Azlan bin Hashim Refer to Page 14 of the Annual Report Abdul Jabbar bin Abdul Majid Refer to Page 17 of the Annual Report
Article 111 Dato’ Ahmad bin Haji Hashim Refer to Page 21 of the Annual Report Syed Zainal Abidin bin Syed Mohamed Tahir Refer to Page 15 of the Annual Report
Section 129 of the Companies Act Lt. Gen (R) Dato’ Seri Mohamed Daud bin Abu Bakar Refer to Page 16 of the Annual Report FORM OF PROXY PROTON Holdings Berhad Company No: 623177-A
No. of Shares held CDS Account No. of Authorised Nominee
I/We (name of shareholder as per NRIC, in capital letters)
NRIC No. (new) (old) ID No./Company No.
of (full address) being a member/members of Proton Holdings
Berhad, hereby appoint (name of proxy as per NRIC, in
capital letters) NRIC No. (new) (old) or failing him/her
(name of proxy as per NRIC, in capital letters) NRIC No. (new) (old) or failing him/her, the CHAIRMAN OF THE MEETING as my/our proxy to vote for me/us on my/our behalf at the Third (3rd) Annual General Meeting of the Company to be held at the Auditorium, PROTON Centre of Excellence, KM 33.8, Westbound Shah Alam Expressway, 47600 Subang Jaya, Selangor Darul Ehsan, Malaysia on Friday, 8 September 2006 at 3.30 p.m. and at any adjournment thereof. My/Our proxy is to vote as indicated below:- ORDINARY RESOLUTIONS FOR AGAINST 1. To approve the payment of a final (tax exempt) dividend of 5 sen per ordinary share. Resolution 1 2. To elect the following Directors who retire in accordance with the Company’s Articles of Association:- Article 104 i. Dato’ Mohammed Azlan bin Hashim Resolution 2 ii. Abdul Jabbar bin Abdul Majid Resolution 3 Article 111 iii. Dato’ Ahmad bin Haji Hashim Resolution 4 iv. Syed Zainal Abidin bin Syed Mohamed Tahir Resolution 5 3. To elect the following Director who retires in accordance with Section 129 of the Companies Act, 1965 (“CA”) i. Lt. Gen (R) Dato’ Seri Mohamed Daud bin Abu Bakar Resolution 6 4. To approve the Directors’ fees for the year ended 31 March 2006. Resolution 7 5. To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company and to authorise the Directors to fix their remuneration. Resolution 8 6. To transact any other ordinary business for which due notice has been given. Resolution 9 AS SPECIAL BUSINESS 7. To approve authority to Directors to allot and issue shares pursuant to Section 132D of the Companies Act, 1965. Resolution 10 (Please indicate with an “X” in the spaces provided how you wish your vote to be cast. If you do not do so, the proxy will vote or abstain from voting at his/her discretion.) For appointment of more than one proxy, number of shares and Dated this day of 2006. percentage of shareholdings to be represented by the proxies:- No. of shares Percentage
✂ Proxy 1 %
Proxy 2 % Signature/Common Seal of Appointer NOTES:- 1. A member of the Company entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend and vote in his stead. A proxy may but need not be a member of the Company and the provision of Section 149(1)(b) of the Companies Act, 1965 shall not apply. 2. The instrument appointing a proxy must be in writing under the hands of the appointor or his attorney duly authorised in writing or, if such appointor is a corporation, under its common seal or the hand of an officer or attorney duly authorised. 3. The maximum number of proxies that may be appointed is two. Where a member appoints more than one proxy, the appointment shall be invalid unless he specifies the proportion of his shareholdings to be represented by each proxy. 4. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, it may appoint at least one proxy in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. Every appointment submitted by an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, must specify the CDS Account Number. 5. The instrument appointing the proxy must be deposited at the office of the Registrar, Tenaga Koperat Sdn Bhd, 20th Floor, Plaza Permata, Jalan Kampar, Off Jalan Tun Razak, 50400 Kuala Lumpur not less than forty eight (48) hours before the time appointed for the meeting. 6. For the purpose of determining a member who shall be entitled to attend the Meeting, the Company shall be requesting Bursa Malaysia Depository Sdn Bhd, in accordance with Article 67(b) of the Company’s Articles of Association and Section 34(1) of the Securities Industry (Central Depositories) Act, 1991 to issue a General Meeting Record of Depositors as at 30 August 2006. Only a depositor whose name appears on the General Meeting Record of Depositors as at 30 August 2006 shall be entitled to attend the said meeting or appoint proxies to attend and/or vote in his stead.
Fold Here
STAMP
TENAGA KOPERAT SDN. BHD. 20th Floor, Plaza Permata Jalan Kampar, Off Jalan Tun Razak 50400 Kuala Lumpur
Fold Here Registered Office HICOM Industrial Estate PROTON Holdings Berhad Batu Tiga, 40000 Shah Alam, Selangor Darul Ehsan (Company No. 623177-A) Tel: +603 8026 9741 • Fax: +603 8026 9744 www.proton.com (Company No: 623177-A) PROTON Holdings Berhad
ANNUAL REPORT 2006
ourHERITAGE ourBRANDS ourFUTURE ANNUAL REPORT 2006