DRB-HICOM Be rh a d (203430-W)

Performance Review

Chairman’s Statement 25

Group Managing Director’s Review of Operations 30

• Automotive 31

• Services 39

• Property & Infrastructure 43

• Defence 47

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Chairman’s Statement

Dear Shareholders, It is my honour to present, on behalf of the Board of Directors, the Annual Report and the audited financial statements of DRB-HICOM Berhad for the financial year ended 31 March 2006. It gives me great pleasure to address you for the first time since my appointment as Chairman of DRB-HICOM Berhad on 28 October 2005. The financial year under review marked a period of change for the Group with the entry of a new controlling shareholder and a new Management team. As we turn a new chapter in the history of DRB-HICOM, much has already been achieved to take us into a period of long-term growth and sustainability.

Overview The theme of change and challenges presently form a common thread across corporate . Today’s operating climate has become fiercely competitive and globalisation has become a primary imperative for the survival of most companies. The DRB-HICOM Group is keenly aware of the industry’s evolving landscape and competitive environment. Strategically, we are moving with greater agility to provide our list of growing customers with the widest breadth of products and services. Toward this end, DRB-HICOM is aggressively broadening its business platform by identifying and focusing on areas that hold the most promise.

We have successfully enriched our product mix, forged new partnerships and strengthened existing alliances to build the Group’s presence in the domestic market.

Ladies and gentlemen, The year under review was significant for many reasons, in particular the expansion of our defence business, which has emerged as a new pillar of growth for the Group. DRB-HICOM Defence Technologies Sdn. Bhd.

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Chairman’s Statement

(DEFTECH), which is spearheading the Group’s venture in the military . DaimlerChrysler also widened its assembly operations in Pekan to business, has strengthened its position as the country’s leading land- include the Actros trucks and bus chassis. Another subsidiary, Automotive based supplier of defence vehicles. It secured its first overseas contract Manufacturers (Malaysia) Sdn. Bhd., began mass assembly of two new to supply 69 units of HICOM Handalan II to the Royal Brunei Armed models for and expects to commence the assembly of the Forces, and also 108 units of HICOM Handalan to the Malaysian Army. Swift model in 2007. The nation’s largest automotive distributor, Edaran DEFTECH is strategically positioned to tap regional markets to boost Otomobil Nasional Berhad (EON), remains committed to its core business, its exports and diversify its income base, and is expected to contribute as Super Dealer for Perusahaan Otomobil Nasional Berhad (PROTON) but significantly to DRB-HICOM Berhad’s revenue in the coming years. it has widened its reach in an effort to diversify and maximise its earnings potential. EON began distributing the Mitsubishi marque with the sales The roll-out of the country’s National Automotive Policy (NAP) in March of Colt, Lancer 1.6, Lancer Evo, L200, Grandis and Outlander models 2006 marked an exciting development for the industry and for DRB- in July 2005, and expects to boost its platform to include the Audi and HICOM Berhad which is the country’s single largest integrated automotive Hyundai brands. Another unit, Honda Malaysia Sdn. Bhd., marked company. The NAP offers immense opportunities for both local and a bumper year as sales hit a record high in 2005. It launched new models foreign automotive players to enhance and deepen their foothold in and expanded exports of its Constant Velocity Joint (CVJ) components to Malaysia, which remains the top passenger car market in Southeast Asia. the United Kingdom and Turkey in September 2005. Companies under the Group’s automotive sector stand to benefit from incentives to enhance local capabilities, increase exports and promote The Group’s Services sector also turned in an encouraging performance, automotive components and parts manufacturing. generating RM1.3 billion for the year under review, contributing 37% to the Group’s total revenue. Companies within this segment expanded The NAP has also earmarked Pekan, Pahang, as one of five automotive their scope with new branches and products, implemented continuous hubs in the country. This will be a strong impetus to attract foreign cost-cutting measures and leveraged on new technologies to boost investors to assemble their vehicles in Pekan, particularly in the Group’s operational efficiency to tide through a difficult operating climate. plant. Despite a tough marketplace characterised by stiff competition, the automotive sector remained the Group’s No. 1 revenue earner, Meanwhile, the Group’s Property and Infrastructure sector was resilient contributing RM2.1 billion for the financial year ended 31 March 2006, despite a second year of construction slump. The Group repositioned and accounting for 58% of total Group revenue. its hotel in Glenmarie as the “Holiday Inn Glenmarie ” in October 2005 while its Rebak Marina Resort in Langkawi will be During the year, the Group expanded its product line-up and built its branded as a “Taj Hotel” in November 2006 after refurbishing works multi-brand business for Honda, Suzuki, India’s Mahindra and Mahindra, are completed. The Proton City project, the Group’s largest property and Isuzu. Its assembly plant in Pekan received a further development project, expanded rapidly during the year with residential boost following the appointment of Malaysian Truck & Bus Sdn. Bhd. and commercial development activities and is on track to evolve into a as the first assembler in Asia for the new S-Class Mercedes luxury self-sufficient township.

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Financial Highlights where the effects of the global economic pendulum and other external For the financial year under review, DRB-HICOM has taken proactive factors have affected us, but we have bounced back with renewed zeal measures to review its overall operations, assets and investments, with and enthusiasm and expect to do so again. The losses incurred mainly the aim of realigning its core businesses and to focus on the way forward. reflect an adjustment to values and do not have impact on DRB-HICOM’s In assessing its long-term business strategy, DRB-HICOM has made cash-flow position. Hence, DRB-HICOM has recommended a first and final certain adjustments for non-operational items that have impacted the gross dividend of 2 sen per share for the financial year under review. Group’s earnings. As a result, DRB-HICOM Group incurred a loss before tax of RM134 million for the financial year ended 31 March 2006, on the back of revenue of RM3.5 billion. Key Initiatives DRB-HICOM is pleased to reach an amicable settlement with the Government A significant portion of the losses was due to reversal of profits amounting on the Electrified Double Track Project variation orders in May 2006. to RM149.5 million that were previously recognised in respect of the DRB-HICOM is thankful that the long-drawn episode has obtained the Electrified Double Track (EDT) Project. The Group has also wrote-off support and understanding of the Government, the relevant Ministries, preliminary expenses in respect of others sectors of the EDT Project authorities and KTMB. We record our appreciation to the consultants and totalling RM19 million. The Group also took cognisance of asset sub-contractors for their patience and understanding. impairment on its non-core property investments namely Rebak Marina Resort in Langkawi, Kenyir Lakeview Resort in Terengganu and Tekka DRB-HICOM has also taken aggressive measures to improve its future Mall in Singapore. The impairment charge of RM157 million arose from landscape. The Group, through its wholly owned subsidiary DRB-HICOM differences in existing net book values and the estimated current market Auto Solutions Sdn. Bhd., has now obtained Approved Permits (AP) to price of the above properties. In addition, DRB-HICOM had undertaken a directly import all makes and models of vehicles for the Group’s franchise Voluntary Separation Scheme (VSS) in March 2006 at the Corporate Office and distribution. Steps have been taken to manage our operational costs costing RM22 million as part of efforts in rightsizing its human capital. and trim excesses to create a leaner and more efficient organisation. We continue to tap on technological advancements to increase our work Had these prudent measures and adjustments not been taken, the competency and boost our yields. We have completed our IT Business DRB-HICOM Group would have recorded an operational profit before tax Continuity Planning programme that allows us to handle any disaster of RM214 million for the financial year under review. affecting our IT infrastructure and ensuring stability in the Group’s operations. We also successfully implemented the Corporate Secretarial Overall, the headline result is not reflective of the Group’s activities and Information System that will significantly boost efficiency in generating underlying business improvement that occurred during the year. We see and retrieving forms, documents and information as well as showing the overall Group loss as a bump along the road and remain confident greater transparency. of overcoming this fairly rapidly. We have had a history of turbulences

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Chairman’s Statement

Human Resource Development basic home facilities for flashflood victims in Shah Alam. On the education front, DRB-HICOM has participated in the New Straits Times School In March 2006, DRB-HICOM Berhad implemented the Voluntary Separation Sponsorship Programme as well as The Star F1F4 pullout programme, Scheme (VSS) exercise for employees at the Corporate Office with the which provides Mathematic and Science workbooks for 150 rural schools. aim of rightsizing its human capital. With the VSS, we have consolidated DRB-HICOM and the Group also support other educational projects by our operational structure to create a more efficient, leaner and dynamic donating in kind to the Institute Al-Quran and various orphanages. setup. The Group’s headcount at the end of the financial year under review stood at 29,834. Our strong foundation and new cohesiveness will brace us for future challenges. Outlook & Prospects For the new financial year, we have made good progress in many areas Safety, health and environment (SHE) remain key features of the Group’s but there is still a lot to be done. The DRB-HICOM Group is mindful that operation. The Group is proud to have achieved various international significant challenges remain ahead of us but we will stay focused and certifications including the ISO 14001 Environment Management System committed to creating a strong and sustainable performance structure and OHSAS 18001. The manufacturing arm is further strengthened by that will generate value and drive operational excellence. With the the adoption of quality initiatives, the most prominent being the VDA economy expected to grow at a faster pace of 6% in 2006, compared 6.3 Quality Audit Practise and the TS 16949 Quality Assurance System to 5.3% in 2005, DRB-HICOM is confident of positive results in the that have improved our competitiveness. Regular workplace audits and forthcoming financial year. SHE-related trainings have become a corporate norm that will further validate our pursuit of a safe and healthy workplace, and compliance to The 9th Malaysia Plan is also an advantage to the corporate sector as regulatory requirements. it outlines a wide array of economic activities that will facilitate the country’s growth till the end of the decade. Overall, the Group’s mix of businesses gives it considerable resilience and we will press ahead to Helping the Society invest for the future and increase our business focus to deliver premium At DRB-HICOM, corporate social responsibility is weaved into our business returns and growth for our shareholders. ethics and the Group consistently supports social and welfare activities in the community it operates within. DRB-HICOM is actively involved in a We will seek to enhance our prosperity by making DRB-HICOM a more wide range of activities that encompass various levels of society. integrated group by improving existing operations and forging strategic linkages. Over the long term, the Group is in an excellent position to grow. We have the people, the products and services that customers want. During the financial year under review, DRB-HICOM, through a joint DRB-HICOM looks forward to an exciting and successful new chapter in project with BAKTI, donated 2 Mitsubishi Spacegear vans, which were the Group’s history as we step closer to our goal of becoming a thriving converted into mobile clinics to provide medical aid for rural villagers conglomerate with the influence to shape markets and deliver superior in Felda settlements. DRB-HICOM also sponsored the Malaysian Medical and consistent stakeholder returns. Team to assist the Kashmir Earthquake Disaster victims and donated

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Acknowledgements Ladies and Gentlemen, The Board of DRB-HICOM Berhad has experienced its fair share of On behalf of the Board, I would also like to thank all our employees change during the year under review. I would like to pay a warm tribute across the Group for their commitment, loyalty and perseverance. As we to my predecessor, Tan Sri Dato’ Seri Mohd Saleh Sulong, who retired move into the new financial year, let us stand united and work as a team after 23 years of service, having helmed and led the Company through to take DRB-HICOM to new heights. some very turbulent times. My appreciation and gratitude also goes to Dato’ Hj. Mohamad Nor bin Mohamad, Mr Low Nyap Heng, Mr Lee Last but not least, our appreciation also goes to our shareholders, valued Yoon Min, Maj. Gen. Rtd. Dato’ Amir bin Baharudin and Dato’ Syed Md. customers, bankers, business associates and the various Government Amin bin Syed Jan Aljeffri for their valuable contributions and support Authorities for their continued confidence and support to DRB-HICOM during their tenure as members of the Board until their resignation on Group. Our number one priority is to achieve the improved operational 28 October 2005. results we expect to see and ensure solid growth and profits over the long-term. We would also like to welcome Datuk Haji Abdul Rahman bin Mohd Ramli, Dato’ Syed Mohamad bin Syed Murtaza and Mr Ong Ie Cheong Thank you. who joined the Board of DRB-HICOM Berhad on 28 October 2005. Our appreciation also goes to Dato’ Hajjah Safiah bt Basrah and En Ibrahim bin Taib, for their continual advice and guidance. Further appreciation and Y.A.M. Tan Sri Dato’ Seri Syed Anwar Jamalullail gratitude also goes to Datuk Haji Mohd Khamil bin Jamil and Tan Sri Ab. Chairman Rahman bin Omar who joined DRB-HICOM Berhad on 19 July 2005 and 16 December 2005 respectively.

We have assembled a Board of well-qualified, resourceful, dynamic and committed professionals, passionately engaged in strengthening the Group’s strategy and enhancing services to the local community. The new Management team, headed by Datuk Haji Mohd Khamil bin Jamil, blends in new strengths and acumen that will help the Group to successfully complete its business plans as it evolves further.

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Group Managing Director’s Review of Operations

Overview It has been a momentous financial year for DRB-HICOM Berhad and its Group of companies. I am pleased to submit to you a comprehensive review of the Group’s operations for the financial year ended 31 March 2006, against a background of change and exciting developments. The entry of a new major shareholder, has led to a revamp of the Group’s top Management and to my appointment as Group Managing Director on 1 March 2006.

During the financial year under review, the DRB-HICOM Group forged ahead with its transition towards integration and renewed competitiveness. We added a fourth pillar to the Group’s growth following the development and expansion of our defence business. We strengthened our internal processes and achieved new strategic successes in the other three main segments of our business – Automotive, Services and Property & Infrastructure – as we enhanced old links and build new platforms to generate growth for the years ahead.

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Driven by the engines of a changing global market, the momentum to stay ahead of the competition remains on an accelerated course. DRB-HICOM Be rh a d (203430-W)

Automotive

Automotive Distribution & Manufacturing HICOMOBIL Sdn. Bhd. (HICOMOBIL) launched the Chevrolet Optra 5 five-door hatchback model on 18 April 2005, adding another model for the Optra series which included the Chevrolet Optra 1.6L and Chevrolet Optra 1.8L mid-size sedan. With the latest addition, HICOMOBIL could offer wider range of products to its customers from the Chevrolet Spark in the mini-segment to the popular compact Chevrolet Aveo 1.5L.

With several changes to the duty structure that took place for the CBU vehicles during the year under review, the demand for CBU, which included the Chevrolet range of vehicles, has begun to soften. HICOMOBIL’s sales reached 3,123 units with a sales turnover of RM261.8 million. Nevertheless with several countermeasures and plans that have been put in place, the company sees improved prospects especially with the introduction of several new models that will enhance further its brand image and create excitement in the market place.

During the Kuala Lumpur International Motor Show (KLIMS) in May 2006, HICOMOBIL launched the sporty family wagon, the Chevrolet Optra Estate 1.6L thus completing the range of Chevrolet Optra for the Malaysian market. There are now 48 sales and 27 authorised service centres nationwide to assist HICOMOBIL to garner bigger share of the Malaysian passenger car market.

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Suzuki Malaysia Automobile Sdn. Bhd. (Suzuki Malaysia) was established With more than two decades of experience in Malaysia’s automotive on 27 December 2004 to undertake the marketing, assembly and business and backed by comprehensive dealers and after-sales network, distribution of Suzuki four-wheeled vehicles and related component and USF-HICOM is set to maintain its presence as a key player in the motor parts in Malaysia. Subsequent to this, DRB-HICOM has also signed a trading industry. License Agreement with Suzuki Motors Corporation of Japan to undertake the CKD assembly of the Suzuki Swift in Malaysia. The mini hatchback Meanwhile, the nation’s largest automotive distributor and a member Swift was first introduced on 16 May 2005. Adding to its model line was of the DRB-HICOM family, Berhad (EON), the 1.6L Suzuki APV, which was launched on 13 July 2005, followed by the accelerated its business transformation in 2005 with an increased focus 2.0L Suzuki Grand Vitara on 13 August 2005. on its multi-brand dealerships and after sales service. EON began distributing the Mitsubishi marque with the sales of Colt, Lancer 1.6, Suzuki Malaysia will be introducing the much sought after model, Suzuki Lancer Evo, L200, Grandis and Outlander models in July 2005. It is also Swift Sport in the third quarter of 2006, followed by the mini-MPV model, building up its other multi-brand businesses including the Audi and SX4 by the end of 2006. To date, there are 33 dealers in operation, of which Hyundai Inokom brands. 18 dealers provide integrated Sales, Service and Spare-parts (3S), services. At the same time, EON remains committed to its core business as Super USF-HICOM (Malaysia) Sdn. Bhd. (USF-HICOM) expanded its dealership Dealer for the national car, Proton. It worked closely with Proton Edar Sdn. in June 2005 to distribute the WALD models, which include SsangYong, Bhd. during the year to implement various marketing strategies to boost Impul and G-Power products. USF-HICOM is also the exclusive distributor sales. As the result of various innovative activities, EON won the International for India’s top multi-utility vehicle maker Mahindra & Mahindra Limited. In Association of Business Communicators (IABC) Silver Quill Awards for May 2005, USF-HICOM launched the 7-seater Mahindra Scorpio Petrol 4x2 Customer Relations, Customer Service, Employee Relations, Best Workplace vehicle and subsequently the Mahindra Diesel 2.5L sports utility vehicle. and was declared overall winner of the IABC Silver Quill Awards.

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Automotive

Going forward, EON will take more aggressive measures to cut cost and the same time, Honda expanded export of its Constant Velocity Joint raise productivity to remain competitive in an increasingly challenging (CVJ) components or drive shafts to the United Kingdom and Turkey in marketplace. Although competition is expected to increase, the NAP will September 2005. CVJ production, which began in 2003, has now doubled complement PROTON and other national car manufacturers and prepare to 360,000 car sets a year, with more than 95% exported and the rest them for imminent market liberalisation. The recent price reductions for for local consumption. Other export markets are Thailand, Indonesia, Proton as well as its range of fuel efficient cars augur well for sales, Philippines, India and Pakistan. During the year, Honda spent another especially in light of higher petrol prices. RM47 million in buildings, machines and equipment to upgrade its CVJ plant in Alor Gajah, Melaka. Another key performer in the Group is Honda Malaysia Sdn. Bhd. (Honda Malaysia), which has strengthened its foothold in the . As testimony to its strong brand and superior quality, Honda cars won 2005 was a record breaking year for Honda Malaysia as it achieved a accolades in the Autocar ASEAN Car of the Year award in May 2005. Its record sales of 27,460 units, up 11% compared to 2004. Honda City previous Honda City 1.5 VTEC model, launched in July 2004, took the remained the best-selling model, making up 42% of total sales while the Small Sedan of the Year award, Honda Stream was named Mid-size MPV Accord obtained No.1 market share in its segment. of the Year while the Honda Odyssey won in the Large MPV of the Year category. In the New Straits Times-Mastercard Car of the Year Awards in During the year, Honda Malaysia launched the new Honda City 1.5 November 2005, the new Honda City was named Family Car of the Year litre 1-DSI and VTEC models in October 2005, followed by the all new while Honda Odyssey once again won the MPV of the Year award. 8th generation Civic 1.8-litre and 2-litre i-VTEC cars in March 2006. At

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Automotive Corporation (Malaysia) Sdn. Bhd. (ACM), a leading commercial production targeted to commence in 2007. It is also exploring more volume vehicle distributor with a 35% market share in the light duty truck category, for contract assembly from new franchises such as and made new strides into the big truck market with the introduction of its SsangYong Motor Company. Isuzu heavy-duty truck model Super FTR32R (GVW 18 tons), targeting the cargo transportation and haulage business segment during the year Motosikal dan Enjin Nasional Sdn. Bhd. () posted a turnover of under review. The company also re-launched various cargo truck models, RM363.9 million against that of RM461 million last year. During the financial namely the FSR33P (GVW 11 tons), Super FTR33R (GVW 16 tons) and year under review, sales of MODENAS motorcycles and scooters fell by GVR23 (GVW 26 tons) under the new “FORWARD” series on 3 March 2006. 16.9% to 97,080 units, accounting for 19.6 % of the domestic market. ACM is targeting to sell about 100 units of the new Super FTR32R truck to capture a fair share of the market in the current year.

Malaysian Truck & Bus Sdn. Bhd. (MTB), a manufacturer and contract assembler for passenger cars and commercial vehicles for product lines of HICOM Perkasa, Isuzu, Mitsubishi FUSO and Mercedes-Benz, turned in a sales figure of RM226 million during the year under review. As a sign of confidence in the company’s strength, DaimlerChrysler Malaysia in May 2005, expanded its assembly models in MTB’s plant in Pekan to include the Actros trucks and bus chassis, in addition to the existing line-up of Mercedes-Benz C-Class and E-Class passenger cars. Subsequently in March 2006, MTB commenced its assembly operations of the new Mercedes-Benz S-Class luxury car, making the company the first assembler for such model in Asia. Under Isuzu deals, assembly operations for Isuzu D-Max pick-up trucks was launched in May 2005 and plans are also on track for MTB to assemble other Isuzu vehicles from 2007.

Automotive Manufacturers (Malaysia) Sdn. Bhd. (AMM), a contract assembler for passenger and commercial vehicles, commenced mass production of two new models during the financial year. The company also inked agreements with several other parties to contract assemble vehicles ranging from SUVs and trucks, with work scheduled to begin by the second half of 2006. AMM has also finalised negotiations with Suzuki Malaysia Automobile Sdn. Bhd. to assemble the popular Suzuki Swift model, with

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Automotive

On the export front, sales to Indonesia, Greece, Turkey, Cambodia and segment. The company has embarked on incentive programmes for both Iran have increased to reach 7,531 units while sales of OEM components dealers and end-customers to further augment sales. For the upcoming to Thailand and Taiwan have also strengthened MODENAS’ position. year, EMOS plans to introduce three new models in the 4-stroke moped segment, the first being the 120cc model followed by a 130cc variant. Two new models were launched during the year under review, namely the MODENAS also plans to unveil a new 110cc model in the upcoming Modenas Elit Sports, which was unveiled in August 2005, and the Modenas financial year. Passion in December 2005. The Modenas Elit Sports, powered by a 4-stroke 150cc engine, is designed to deliver more power, higher torque, better pick-up and acceleration. The 125cc Modenas Passion meanwhile, Automotive Components & Engineering will help the national motorcycle and scooter company achieve a greater In the financial year ended 31 March 2006, most vendor companies under share of the domestic scooter market and boost its exports. the Group received international accreditation for process, environment and safety standards including the ISO/TS 16949, ISO 14001 and OHSAS Edaran Modenas Sdn. Bhd. (EMOS), the distribution arm of MODENAS 18001. During the period, the Group’s component companies intensified posted a total sales of 89,548 units with a revenue of RM334.4 million. efforts to diversify their customer base to non-national cars and foreign Some 300 units of Modenas Elit Sports are now sold each month, Original Equipment Manufacturer (OEMs) to cushion the impact in the capturing 6% of the domestic scooter market. Sales of Modenas Passion reduction of national cars’ market share. were even more encouraging at 1,000 units a month or 19% of the scooter

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HICOM-Teck See Manufacturing Malaysia Sdn Bhd, (HICOM-Teck See), Oriental Summit Industries Sdn. Bhd. (Oriental Summit), a Tier-I producer the largest Malaysian automotive plastic parts OEM manufacturer, of metal stamping based products and sub-assemblies for domestic secured a contract in 2005 to supply three million door handles and automotive makers and assemblers namely PROTON, , ASSB bracket assembly sets for export to Germany. Production is scheduled Toyota and Volvo SMA, recently inked a Technical Assistance Agreement to commence in October 2006, which will provide HICOM-Teck See with with Japan’s Akashi Kikai for technical support to develop the lower a solid platform to expand its business at a global level. Its fully-owned arm for new Perodua models which is expected to be launched in early manufacturing plant in Rayong, Thailand is churning steady revenue, 2007. It is also in negotiation to export components to an international supplying bumpers, trunk lid handles, door fuel fillers and garnish Tier-1 company in Germany that will pave the way for new potential radiator grilles for several OEMs in Thailand since late 2003. In Malaysia, businesses abroad. HICOM-Teck See’s main customers include PROTON, PERODUA, NAZA and ASSB Toyota. PHN Industry Sdn. Bhd. (PHN), is involved in producing press and stamped parts, as well as sub-assemblies of automotive components. HICOM Diecastings Sdn. Bhd. (HICOM Diecastings), the high-pressure The main customers for the Tier-1 supplier of metal-based components, aluminum diecast auto part manufacturer, evolved into a Tier-1 vendor to which has diversified into making and stamping dies, include PROTON, PROTON and PERODUA when it was awarded the TS16949 and ISO14001 PERODUA and Honda Malaysia. The expansion of PHN to include other certifications at the end of 2005. HICOM Diecastings also supplies car makes beside PROTON has also begun to show positive results. specialised steering housing components and compressor casing to other international Tier-1 companies such as Kayaba, TNK, ZF Steerings and HICOM-HONDA Manufacturing Malaysia Sdn. Bhd. (HICOM-Honda), Sanden. In the coming year, sales will be augmented with new export benefited from the strong and popular demand for Honda motorcycles business to supply to NSK Japan and Ford Philippines. in the domestic market. In 2005, HICOM-Honda sustained exports of

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Automotive

engine components to regional Honda assemblers in the Philippines and The performance of other joint ventures with European companies - Indonesia. It also became the first component company in the Group to Siemens VDO Instruments MY Sdn. Bhd., ZF Steerings (Malaysia) Sdn. Bhd. obtain a complete set of international standard accreditation (TS16949, and TRW Steering & Suspension (Malaysia) Sdn. Bhd. – was encouraging ISO14001 and OHSAS18001). With its new status, HICOM-Honda stands in as its customer base expanded domestically as well as internationally. In good stead for regional and global growth as a Tier-1 supplier to Honda addition, exports to parent companies in Europe surged to higher levels in motorcycle assembly companies. 2005, driving growth further and countering a drop in local customers.

HICOM-Yamaha Manufacturing Malaysia Sdn. Bhd. (HICOM-Yamaha), which manufactures engines for Yamaha motorcycles, achieved a 21% increase in annual revenue during the year under review, thanks to strong Yamaha motorcycles sales in the domestic market. In October 2005, HICOM-Yamaha began exporting engine components to Minarelli, Italy. With continuous technical assistance and support from its principal, Yamaha Motor Corporation, HICOM-Yamaha is aggressively gearing itself to supply replacement parts for regional markets.

38 A n n u a l R e p o r t 2 0 0 6 Services An underlying conviction towards excellence, relevance and responsibility is at the heart of our commitment towards the benchmark of standards, delivery and performance. DRB-HICOM Be rh a d (203430-W)

Services

The services sector, underpinned by strong private consumption, remained During the year, Uni.Asia General launched several exciting products to spur the second pillar of growth for DRB-HICOM during the year under review. sales and create brand awareness. This included the AutoStar, a branded Companies within the Group were resilient despite uncertainties and new comprehensive motor insurance plan that offers a host of motoring benefits challenges in the marketplace. Continuous cost-cutting measures and to customers including complimentary towing, roadside assistance services efforts to boost productivity and operational efficiency through technology and discounts by participating merchants. Other innovative products that upgrades have helped the subsidiary companies navigate the difficult have hit the market were the Zero Interest Installment Plan for Motor terrain and achieve solid results. The services sector posted a turnover Insurance and the Double Protector Plan. Moving forward, Uni.Asia General of RM1.3 billion for the year ended 31 March 2006, contributing 37% to aims to increase its returns to shareholders by continuing to provide the Group’s total revenue. superior products and services to its customers.

Uni.Asia General Insurance Bhd. (Uni.Asia General) consolidated its Meanwhile, 2005 has been an exciting and fruitful year for Uni.Asia Life position as one of the major general insurance companies in Malaysia Assurance Berhad (Uni.Asia Life). The company managed to successfully during the year under review. Motor insurance sales contributed 77% to turnaround its operation in the just concluded financial year and the its revenue, while fire insurance sales accounted for 13%. During the year, improvement is mainly due to higher sales and better investment returns. new measures were taken to further develop the bancassurance business. As a result, premium contribution rose sharply by 37% to RM58 million, Its total new business premiums reached RM223 million following the with bancassurance accounting for 16% of its overall earnings. In the main launch of five investment linked funds, including an offshore fund. The Uni business stream, the traditional agency channel continued to grow at a Aggressive Fund, Uni Strategic Fund, Uni AsiaEquity Fund, Uni Income Fund steady rate of 13% to return a premium contribution of RM99 million. and Uni Bond Fund have performed well and achieved targeted returns

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for customers with the Uni Aggressive and Uni AsiaEquity Funds ranking handling about 6,000 tonnes of waste daily for 24 local authorities in consistently among the top three in the recent Bloomberg survey. Pahang, Selangor and Kuala Lumpur. Nationwide, the privatisation of solid waste management is expected to be realised under the 9th Malaysia Plan. Uni.Asia Life also continued to stamp its mark in the life insurance Alam Flora is optimistic of considerable improvements in its operating segment with sales of regular premium surging 53.6% in 2005, way above revenue and profitability upon full privatisation of solid waste management. the industry’s 8.4% growth, the highest ever recorded in the industry. This The company is also positioned to enhance shareholders value by gearing achievement was made possible with strong cooperation from its bank towards long-term sustainability and growth in earnings. partners namely UOB Malaysia, EON Bank Berhad and its agency force. Uni.Asia Life is currently ranked No.9 out of 16 companies in Malaysia. KL Airport Services Sdn. Bhd. (KLAS), the independent ground-handling Going forward, it plans to aggressively expand and enhance its presence to provider at the Kuala Lumpur International Airport (KLIA) and Penang become a leading insurer in the marketplace. International Airport, achieved a remarkable turnaround despite a volatile operating environment. During the financial year under review, KLAS During the year under review, EON Capital Group (EON Capital), has managed to retain a total customer base of 36 airlines despite the highly expanded its branch network with the opening of five new branches, competitive business environment and low cargo growth. It added to namely, Sarikei in Sarawak, Bandar Sri Petaling and Taman Connaught its list of customers another five airlines, which helped to offset a in Wilayah Persekutuan, Bukit Tinggi in Pahang and Kluang in Johor, to reduction in flights or cessation of services into KLIA. KLAS will continue gain wider customer reach. EON Bank Berhad has been selected, as one to work with its airline customers to establish smart partnerships and of the four banks, to be the recipient of the 11th CGC Top SMI Supporter boost its performance. Award 2005. SME financing registered an impressive growth of 25.7% to RM3.1 billion as at end 2005 and it constituted 14.4% of the EON Capital Pusat Pemeriksaan Kenderaan Berkomputer Sdn. Bhd. (PUSPAKOM), Group’s total loan portfolio. enjoyed strong growth as a leader in vehicle safety and pollution

EON Capital Group’s merchant banking subsidiary, Malaysian International Merchant Bankers Berhad (MIMB) received three prestigious international awards for its role in lead arranging Jimah Energy Ventures’ RM5.1 billion Structured Islamic Financing Facilities. The awards are the 2005 Malaysia Best Deal Award from The Asset, the 2005 Asia Pacific Bond Deal of the Year Award from Project Finance International and the 2005 Asia Project Bond Deal of the Year Award from Euromoney Project Finance. On the local front, MIMB was also awarded the 2005 Malaysia Best Corporate Finance Deal from The Edge.

Alam Flora Sdn. Bhd. (Alam Flora), remains the largest integrated solid waste management company in Malaysia. It entered the ninth year of service as the sole waste management concessionaire for the central and eastern regions of Peninsular Malaysia under an interim arrangement,

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Services

control certification. During the year under review, a total of 2.4 million GD Midea Air-conditioning Equipment Co. Ltd. (Midea) to distribute the commercial and private vehicles nationwide went through the company’s Midea brand of air-conditioners and home appliances in Malaysia. Midea inspection processes. is currently the world’s 2nd largest manufacturer of air-conditioners. Following that, SEE sealed another agreement in October 2005 with TCL A key reason for the company’s success is its commitment to continuously Electronics (Malaysia) Sdn. Bhd. (TCL), which is a subsidiary of China’s improve its level of services. PUSPAKOM has aggressively expanded during TCL Overseas Holdings Ltd. - the world’s largest television manufacturer, the year to grow its network to 60 branches nationwide. Most of its branches as sole distributor for the ‘TCL’ brand of colour televisions, plasma display have received the MS ISO9001:2000 certification. PUSPAKOM expects to panels, LCDs and audio visual products in Malaysia. increase the number of inspection to 3.7 million this year, especially with participation from other market segments such as insurance. It has been High demand for marine engines and generator sets contributed to the Scott and English (Malaysia) Sdn. Bhd. recognised as the outsource agency by 16 finance companies to verify strong sales of (Scott and English) during the year under review. The Industrial Division, which sells mainly vehicle status and roadworthiness prior to loan disbursement. the TCM Forklift Trucks and the Sullair Compressors, is expected to continue performing well. The Automotive division, however continues to Globally, PUSPAKOM has ventured into new markets and has been appointed incur losses due to the depressed market condition of the sectors they as a consultant to companies involved in vehicle inspection projects in are operating in. Brazil, Sri Lanka and Brunei. This will open new doors for the company to expand in the future and widen its revenue stream. The company anticipates both the Power and Industrial divisions to continue to perform strongly. This, coupled with the implementation of a turnaround The year under review marked a new phase for Scott & English Electronics plan for the Automotive division, will greatly enhance the performance of Sdn. Bhd. (SEE). In September 2005, SEE signed an agreement with China’s the company in the new financial year.

42 A n n u a l R e p o r t 2 0 0 6 Property & Infrastructure Remaining steadfast to a demanding property and housing market, quality and locality becomes key in building the cornerstone of our success. DRB-HICOM Be rh a d (203430-W)

Property & Infrastructure

The property and Infrastructure sector is the third pillar of growth for DRB-HICOM, earning RM161.7 million during the year under review.

The Group, through Horsedale Development Berhad (Horsedale), expanded development at Glenhill Saujana, an exclusive enclave located on a 27-acre plot of freehold land in the Saujana neighbourhood. It launched 50 units of semi-detached houses with 8 design options and built-up area ranging from 3,800 to 4,000 square feet during the year. To date, 100% of the units have been sold. Horsedale also launched a commercial project at Phase 4C known as Glenmarie Accentra, fronting Persiaran Kerjaya in Glenmarie. Sales of 30 units of 3-storey shop offices, were overwhelming with all the units snapped up soon after its launch. In the new financial year 2006/2007, Horsedale plans to launch 100 units of link houses located in the neighbourhood of TTDI Jaya, and focus on sales of bungalow houses and lots in the niche residential enclaves of Glenmarie Residences and Glenhill Saujana respectively.

On 19 August 2005, Horsedale entered into a Management Agreement with the Six Continents Hotels Inc. to manage its hotel in Glenmarie. The hotel was renamed “Holiday Inn Glenmarie Kuala Lumpur” from 1 October 2005,

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marking the re-entry of this world-renown brand into Malaysia after a long in higher income for the golf resort and position the club competitively absence. In order to enhance and promote its products and services in the against other golf courses in the Klang Valley. The response from coming financial year, Holiday Inn Glenmarie will commence refurbishment members and the public has been encouraging, and the upgrading and of its guest rooms, restaurants and public area. renovation programme will enable the Glenmarie Golf & Country Club to retain its position as one of the premier courses in Malaysia. Glenmarie Residences, another exclusive gated and guarded residential joint development project by HICOM Properties Sdn. Bhd. (HICOM Meanwhile, proud owners of 96 units of semi-detached houses and 45 Properties) and Horsedale enjoyed overwhelming sales with about 60% bungalow units in Phase 1 of the prestigious Glenmarie Cove riverfront of the bungalows taken up during the financial year under review. The resort development in Klang are scheduled to receive their keys during project consists of 75 bungalow lots on a 20-acre site where green the coming year. The developer, Glenmarie Cove Development Sdn. Bhd. tropical landscaping provides a tranquil, cool and secured environment. Its (Glenmarie Cove), has also launched the remaining riverfront bungalow unique design and concepts, competitive pricing and a host of recreational lots and 30 units of shop offices under Phase 2. Sales have been and entertainment facilities within easy reach were winning factors that encouraging, with all units in the sub-phases and semi-detached homes helped garner strong response for the project. The project, which fronts in this exclusive, freehold and gated area expected to be taken up soon. the Holiday Inn Glenmarie Resort and the Glenmarie Golf & Country Club, Glenmarie Cove is optimistic the project will be completed by 2010 as is expected to be completed by the second quarter of 2007. scheduled, and that this riverfront lifestyle living concept will be well The Glenmarie Golf & Country Club (GGCC), has opened its 18-hole received by both locals and expatriates seeking the unique lifestyle the Garden Course fully to golfers following the completion of upgrading development offers. This is also inline with the Malaysian Government's and green renovation works in October 2005. This is expected to bring effort to promote Malaysia as the second home for foreigners.

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Property & Infrastructure

Comtrac Sdn. Bhd. (Comtrac), which manages Glenmarie Cove, will focus With the rapid expansion of PROTON plant and supporting vendor industry, on firmly establishing the Glenmarie brand name in conjunction with the Proton City Development Corporation Sdn. Bhd. commenced development other property development units of the Group. It will soon hand over of new residential and commercial parcels that will offer a total of 1,537 keys to owners of its maiden development project in Cheras, comprising residential units upon completion. This includes 133 units of medium cost 675 units of medium-cost apartment and 29 units of shop offices in the single and double-storey link houses, which have all been sold out, as development known as Glenview Villas. well as a grand launch in November 2005 for the Cadence bungalows and Avenca semi-detached homes. All 22 units of double-storey shop offices DRB-HICOM’s largest property development project, the 4,000-acre Proton and 12 units of single-storey shops have been taken up and the Warisan City in Tanjung Malim, Perak, continued to flourish during the year. Avenue Mall is now 40% occupied. Proton City is on track to evolve into Industries and residential development accelerated to put on track growth a self-sufficient township, making the project a key source of income for of the country’s first Eco-Friendly Automotive City. A total of 1,200 acres DRB-HICOM in the long-term. have been earmarked for PROTON’s second manufacturing plant, which has a capacity of producing up to a million cars a year upon full completion Another DRB-HICOM company, Imatex Berhad (Imatex), sold all factories and is expected to be the main nucleus of Proton City’s growth. The new in its development in Mak Mandin, Penang and handed over keys to Universiti Pendidikan Sultan Idris is the second largest component, covering buyers during the year. The property division is also managing the joint an area of 822.62 acres. Ten blocks of apartments have been constructed venture development of 9 acres of land in Tropicana, Selangor –“Mutiara as hostel accommodation for 3,000 students while the main campus is Tropicana”. The project, which comprises residential and commercial still in planning stage. A Vendor Park spread over a 300-acre site now units, was launched in May 2006. Sales have been encouraging due to its accommodates a total of nine automotive component manufacturers, seven strategic location and competitive pricing structure. of which are already operational and supplying their products to PROTON while another two are still in the construction stage.

46 A n n u a l R e p o r t 2 0 0 6 Defence Poised to be a major growth area with immense potential, the propelling surge to be a force of greater reckoning is within sight. DRB-HICOM Be rh a d (203430-W)

Defence

The defence sector represents a new growth area for DRB-HICOM and is to undertake technology transfer. The companies are MOWAG GmbH of the fourth pillar of growth in the financial year under review. Its venture Switzerland, Ruag Land Systems of Switzerland, Thales Communications into this highly promising sector is spearheaded by DRB-HICOM Defence of France, FN-Herstal of Belgium and FNNS Defence System of Turkey. Technologies Sdn. Bhd. (DEFTECH), which successfully diversified into The collaboration with these companies is set to enhance DEFTECH’s the commercial sectors during the year. DEFTECH supplied 86 units of manufacturing and technology capabilities. the HICOM Handalan to the Fire Department (BOMBA) and a number of specialist vehicles for Polis DiRaja Malaysia, Securiforce and other On 6 June 2006, DEFTECH signed a Sale & Purchase (S&P) Agreement Government agencies. The company also successfully refurbished 42 to purchase a 70% equity interest in MMC Defence Sdn. Bhd. (MMCD). buses for Syarikat Prasarana Negara Berhad. (SPNB). MMCD is principally involved in engineering services that include total refurbishment, upgrading and, research and development work for At the same time, DEFTECH strengthened its position as the country’s armoured vehicles and armaments. The proposed acquisition is expected leading supplier of defence vehicles. It secured its first overseas to bring synergistic benefits to DRB-HICOM by strengthening its position contract to supply 69 units of HICOM Handalan II to the Royal Brunei to offer better products and services, enabling it to secure new defence Armed Forces, as well as 108 units of the HICOM Handalan to the contracts and contributing to future earnings. Malaysian Army.

The future looks promising for DEFTECH’s businesses. The Group expects to participate in competitive bidding for procurement of defence contracts under the 9th Malaysia Plan. At the Defence Services Asia (DSA) Exhibition recently, DEFTECH signed Memorandum of Agreement (MOA) and Memorandum of Understanding (MOU) with 5 overseas companies to secure the supply of field vehicles, weapon systems, spare parts and

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DEFTECH is emerging as one of the key players in Malaysia’s defence endeavours under the 9th Malaysia Plan. I am confident that the new industry, particularly in the supply of land-based vehicles to the Government Management is prepared to tackle future challenges and turn them into and the refurbishment and maintenance of armoured vehicles. A number of opportunities for the Company. There is a lot of hard work ahead but proposals have been submitted to Ministry of Defence, which will generate DRB-HICOM is ready for its next stage of growth and development and new growth and revenue in the years to come. DEFTECH also plans to explore looks forward to a new dynamic phase in its operations. opportunities to export its products and further widen its income base.

Conclusion Acknowledgements Overall, DRB-HICOM has undergone a challenging phase in its history On behalf of the Management, I take this opportunity to thank all DRB- and emerged stronger and more resilient than ever. The transition to new HICOM staff, for their contributions, dedication and support, without which changes within the Group has been smooth, seamless and professionally our achievements would not have been possible. To all our stakeholders executed. The inclusion of Defence sector as the fourth pillar of growth who have stood by us and remained faithful to our Company, I assure you has brought about a new thrust in the Company, especially since it opens that your commitment and perseverance will pay off as we gear towards doors for the Group to secure new defence contracts and opportunities even more sustained and measurable growth in the current financial year. being offered under the 9th Malaysia Plan. However, we remain focused I would also like to express my gratitude to the Members of the Board as the leading integrated automotive and actively seek new partnerships of Directors for their wise counsel and guidance. Let us move forward to strengthen our forte while strengthening existing alliances. The services collectively to meet the challenges in building the DRB-HICOM Group as and property sectors will also remain as the Company’s core businesses. a leading conglomerate. At DRB-HICOM, “We Help Make Things Better”. Operations in these sectors will continue to be consolidated to achieve the optimum yields and improve productivity, and be consistently upgraded to Thank you. meet the needs in a demanding operating climate. Datuk Haji Mohd Khamil bin Jamil DRB-HICOM has made strong efforts to ensure accountability to all Group Managing Director our stakeholders and is in a sound position to undertake new business

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