60 PROTON 2007 ANNUAL REPORT operations review
set of younger customers. Though development began late in the PRODUCT DEVELOPMENT calendar year 2006, the Savvy Light went on sale in July of financial year 2007-2008. Developing new models and variants of high quality while meeting the market's needs are amongst PROTON's top priorities. The year under review also saw tangible efforts to enhance linkages within our product development and motorsports In early 2007, PROTON introduced a brand new facelift for its divisions. In the third quarter of 2006, PROTON unveiled a limited highly popular WAJA sedan. The facelift focuses on a simpler, more edition of WAJA & GEN.2 variants that were designed and contemporary design at the front that gives the car a bolder developed by our motorsports division, R3. These enhanced appearance and improves engine cooling. There were also interior models have improved handling and performance, and are tuned and exterior colour changes as well as quality upgrades based on for the enthusiast. customer feedback. Built to commemorate PROTON R3's overall victory in the Merdeka Millennium Endurance Race 2005 & 2006, only 200 units of each model were planned. These unique variants feature one-of-its-kind bodykit styling and performance upgrades.
In the near future, PROTON plans to introduce a limited edition series of the Satria NEO and Savvy to commemorate the 50th anniversary of Malaysia's nationhood. These Merdeka editions will commemorate the founding of the nation and will be produced in a limited series of 200 cars each. Both the Neo and Savvy will be finished in unique colours and feature styling accents derived from The Waja's facelift was closely followed with the unveiling of a traditional Malaysian Batik themes. cosmetic freshening of our award-winning Savvy and the addition of a premium model with standard ABS and airbags. Key features As testament to the dynamism of our Product Development team, include a new honeycomb radiator grille, a more modern, simplified the PROTON Savvy has recorded various awards and design for the rear liftgate and new exterior colours. This upscale achievements during the year under review. A notable accolade Savvy was developed alongside a Savvy Lite model that is was the setting of a new record by our 1.2 litre Savvy for the Most equipped and positioned at a lower price point to bring in a new Fuel-Efficient Drive around Peninsular Malaysia as verified by the PROTON 2007 ANNUAL REPORT 61 operations review
Malaysia Book of Records. The Savvy also walked away with the New Straits Times/AmBank Group Cars, Bikes & Trucks 2006 Car of the Year Award for the Supermini category, as an additional testament to its abilities and virtues.
Kudos were not limited to our products, either. One of PROTON's CAE (Computer Aided Engineering) Engineers, Noor Hisham Ismail, contributed a study on Optimisation Technology that was named Best Paper at the Altair CAE User Conference in Bangalore, India, in August 2006.
An even greater adventure lies ahead, with the financial year 2006-2007 seeing the formative stages of development of two new products that are key to a major renewal of PROTON's complete portfolio of products. These models, to be introduced in the second half of the financial year 2007-2008, will provide Savvy’s entry into the Malaysia Book of Records for achieving ‘The Most Fuel-Efficient the first step in the redefinition of PROTON as a manufacturer of Drive Around Peninsular Malaysia’. high value, high quality affordable cars.
62 PROTON 2007 ANNUAL REPORT operations review
RESEARCH & DEVELOPMENT PROTON's subsidiary, Lotus Engineering, has developed a first proof-of-concept petrol/electric hybrid car that was displayed at the 2007 Geneva motor show in Switzerland. This vehicle uses its R&D remains an integral platform for PROTON to improve its combination of petrol engine and electrical drive to offer greatly capabilities of developing products and offering services that meet reduced exhaust emissions and improved fuel economy that are domestic and global market requirements. well ahead of clean-air legislation in the region. Both the hybrid vehicle project and the NGV programme are indicators as to how Experience is a crucial factor for our R&D team, more so in an PROTON is investigating and implementing ways to use operating environment where a short learning curve is imperative. technology to overcome automotive-related environmental and As such, during the year under review, our state-of-the-art R&D social issues facing the world today. facilities were put to productive use both internally to support PROTON's initiatives as well as for external clients. In addition to bolstering the skill-set of our R&D team, various tests of components and systems conducted for external clients have One of the core areas managed by our R&D team is in the area proven to be a revenue generator for the Group. PROTON has of automotive testing. Spearheaded by PROTON's provided testing and validation services and facilities to a number Homologation, Testing & Prototype (HTP) Department, the year of component manufacturers in the ASEAN region. under review saw a multitude of tests being conducted using our facilities including testing of components, materials, safety and strength (CMSS), exhaust emissions and fuel consumption and complete vehicle testing.
Studies into applied research are currently focusing on the application of natural gas as a clean and affordable fuel to supplement petrol. The Government of Malaysia is promoting natural gas as a supplement to petrol, and PROTON is taking a lead position in the development of a NGV (Natural Gas Vehicle) aimed at private buyers as well as one aimed at fleet usage, currently the primary users of natural gas as a motor fuel. The NGV models will cover a range of PROTON models, the first of which will be introduced in calendar year 2008. Lotus EVE Hybrid made its debut at the Geneva Motor Show
PROTON 2007 ANNUAL REPORT 63 operations review
TECHNICAL ENHANCEMENT
PROTON is cognisant that our human capital is the engine of growth that powers the advancement and evolution of our engineering capabilities. As such, consistent and relevant training is crucial to ensure that our employees have the knowledge and tools to help drive PROTON forward.
During the year under review, the Group participated in the MAJAICO Programme, which is a government to government programme between Malaysia and Japan focusing on industrial development. A total of 14 PROTON engineers were sent to Japan to learn and understand Japanese manufacturing theory and processes while enhancing cross-cultural communications.
Participants of the MAJAICO Programme In the last calendar year, a number of PROTON senior engineers were seconded to Lotus, assisting the company's development of a new model that will serve as a keystone product for the renowned British manufacturer of sports cars. PROTON engineers are not merely supporting Lotus, but are in lead positions in the development team in the areas of product development and production process for the new car.
In addition, the Lotus Suspension Dynamics Simulation and NVH (Noise, Vibration and Harshness) analysis knowledge transfer to PROTON have provided us with the industrial know-how to improve and manage our Ride & Handling Programme and NVH feature during the concept and planning stage of product development. 64 PROTON 2007 ANNUAL REPORT operations review
Manufacturing
The manufacturing capacity and cabability comprises two main plants in Malaysia as well as two plants overseas. These are PROTON Shah Alam in Selangor, PROTON Tanjung Malim in Perak, Chikarang in Indonesia and Norwich in the United Kingdom. PROTON 2007 ANNUAL REPORT 65 operations review
The total combined installed capacity for vehicle manufacturing is including painting and complete vehicle testing facilities which have 400,000 units per year. As of today, over 2.8 million units of cars enabled PROTON to evolve from being a mere assembler to an and 2.6 million units of engines have been produced in these entity with full-fledged manufacturing capabilities. Malaysian plants. Production volume was 104,485 units (comprising main plant With a reputation of being one of the most integrated 42,628 units, MVF 19,310 units, Tanjong Malim 41,107 units and manufacturing facilities in the region, the Malaysian facilities CKD 1,440 units). There was a negative variance of 98,515 units comprise casting and foundry, machining, stamping, assembling from AMP production volume plan of 203,000 units. Delivery 66 PROTON 2007 ANNUAL REPORT operations review
volume is 99,956 units (comprising domestic 79,008 units and export 20,588 units) and average channel inventory stock is 2.3 months. All models have an average of more than two months holding stock except for Satria Neo, Perdana and Iswara.
In order to support the best production and delivery volume, among the key initiatives that were implemented included the Saga Sub-27K Program from March 2007; introduction of PROTON Production System and Total Productive Maintenance; build-up quality improvement through on-line quality activities and models, the medium volume factory produces the Waja and optimisation of productivity level and operation ratio that were Chancellor models for domestic as well as for export markets. impacted by the lower than planned volume. Within the financial year, operations were severely impacted by the Among the mitigation initiatives taken to immediately respond to the changes in the market resulting in lower than planned volume as changes due to volume reduction included reduction of production well as high channel inventory. Due to volume reduction, mitigation volume to meet required orders from June 2006, revising working initiatives were taken to immediately respond to the changes and conditions from two shifts to one shift operations from June 2006, focus was mainly on improving the quality of products, operational line-shutdown in November and December 2006, manpower efficiency, and new product variants and introductions. Amongst rearrangement through reassignment to non-manufacturing the new products introduced were the Saga Sub-27K and functions, rearrangement of production processes to reduce Waja enhancement with the CamPro engines. Concurrently, utilities consumption and readjustment of CKD and Local Parts preparations for the new Saga were undertaken and this model is ordering to reduce inventory and container retention charges. expected to be ready by the next financial year. New initiatives such as Visual Information Control (VIC), PROTON Production System (PPS) and PROTON Total Productive Maintenance (PTPM) will be PROTON SHAH ALAM the main driver for further manufacturing efficiency improvement. The built-up quality measurement has also been refined to include The Shah Alam plant has a combined capacity of 200,000 units customer perception and ensuring satisfaction during delivery. The per year and this is made up of the medium volume factory, with a total production was 61,938 units with average production facilities capacity of 50,000 units per year and the main factory with a utilization rate of 31% due to strong competition in the domestic capacity of 150,000 units per year. The casting, engine and market. The Shah Alam plant is also supplying Completely transmission factories are also located within Shah Alam and are Knocked-Down parts and components to Zagros-Khodro in Iran to capable of producing 180,000 units of the CamPro engines per assemble and market PROTON vehicles in the region. Within the year, serving not only Shah Alam but also the Tanjong Malim plant. financial year, 1,440 vehicle sets have been delivered for assembly. While the main plant produces the Saga, Wira, Perdana and Arena PROTON 2007 ANNUAL REPORT 67 operations review
PROTON TANJUNG MALIM To further enhance supply of parts in November 2006, the consolidated logistics provider was implemented. To date, 22 vendors have signed on and the rest are expected to participate in This ultra-modern manufacturing and assembly plant has an the second phase of the program which took place in April 2007 installed capacity of 150,000 units per year and is capable of onwards. producing three different platforms and multiple variants. The plant complex consists of engine, stamping, body assembly, painting New initiatives such as VIC, PPS and PTPM will be the main drivers and final assembly facilities, inclusive of end-of-line vehicle testing for further manufacturing efficiency improvement. Total production equipment fully integrated with the application of PROTON's was 41,107 units with average production facilities utilisation rate of Automated-Assembly Line Controller. A community of suppliers is 27% as a result of strong competition in the domestic market. housed within the vicinity of the plant complex to ensure effective and efficient logistics network. To date, more than 10 major While the built-up quality measured in Defect per Unit (DPU) at modules and system suppliers are in operation in the Proton City the PROTON Tanjung Malim plant has improved by almost 58%, Vendor Park. The plant produces the Gen.2, Savvy and Satria Neo cost per unit however, has increased by 37% due to low models, which are all new platforms and products from the production volume. PROTON stable.
Similarly, within the financial year, operations were severely impacted by the changes in the market, resulting in lower than planned volume as well as high channel inventory. Various initiatives were implemented and focused mainly on improving quality of products, operational efficiency, new product variants and introduction of new products. Amongst the products introduced were the Satria Neo, Gen.2 enhancement and Savvy face lift for the domestic and export markets. Concurrently, preparations for the Gen.2 sedan and CPS for domestic and export market are being undertaken and are expected to be ready by the next financial year. 68 PROTON 2007 ANNUAL REPORT operations review
CHIKARANG, INDONESIA
P.T. Proton Tracoma Motors is a wholly owned company of Perusahaan Otomobil Nasional Sdn Bhd and its main operation is to manufacture PROTON products not only for Indonesia but also for the ASEAN markets. Assembly equipment and facilities have been fully commissioned with an installed capacity of 40,000 units per year and the plant is ready for the assembling of the appropriate model expected in the next financial year. PROTON 2007 ANNUAL REPORT 69 operations review
PROSPECTS
Production and Delivery Volume Plan is based upon the base domestic sales of 115,500 units (with a market share of 30%) and exports sales of 29,200 units. However, the manufacturing division is geared towards achieving the best domestic sales plan of 141,000 units (resulting in a market share of 37%) whilst maintaining the export volume of 30,000 units. This plan has taken into consideration domestic channel stock of 18,800 units as well as export inventory of 3,000 units based on estimates as at the end of March 2007.
Moving forward, in order to support the best production and delivery volumes, the following key initiatives will be implemented and these include puting into motion the Saga Sub-27K Program from March 2007, the introduction of new models such as the new Sedan by June 2007 and P2-110 by January 2008, the introduction of the Integrated Air-Fuel Module and Cam Profile Switching for the CamPro Engine by the second quarter of 2007, adoption of the PROTON Production System and PROTON Total Productive Maintenance also in the second quarter; build-up quality of less than 2.0 DPU and out-going quality of less than 1.0 DPU for the new models; working towards achieving productivity levels of 20 man-hours per unit for main-line and MVF and 18 man- hours per unit for Tanjung Malim, whilst operation ratios are targeted at 90% and ensuring that parts supply index and parts quality index are more than 90% to ensure the quality and productivity level targets are met.
70 PROTON 2007 ANNUAL REPORT operations review
NORWICH, UNITED KINGDOM
With a recapitalised, strengthened balance sheet, a 5-year strategic business plan and a more streamlined operational structure, coupled with record sales in Japan and Europe due to new and exciting class leading products coming on stream, Group Lotus Plc., a subsidiary of PROTON, is set for exciting times ahead.
LOTUS CARS
PERFORMANCE OVERVIEW The financial year under review was a challenging year for Lotus Cars given the high level of stock in its sales pipeline, particularly in North America, at the beginning of the year.
Lotus Elise - S (Hard Top) Nevertheless, due to the company's dedicated and focused initiatives to stimulate demand while at the same time managing As a specialist in the global automotive industry, Group Lotus is a the production levels of new cars, Lotus Cars’ global stock successful manufacturer of sports cars under its iconic Lotus inventories were reduced by a significant 937 units or over 55%. brand as well as a leading high technology engineering The reduction of inventories resulted in a cash in-flow of £20 consultancy, worldwide. million during the year.
The manufacture and sale of sports cars are carried out by Lotus With production for the year realigned to 2,633 units coupled with Cars Limited (Lotus Cars) while its automotive engineering the impact of a weaker dollar, Lotus Cars posted lower revenue of consultancy business is primarily undertaken by Lotus Engineering £93.3 million compared to £121.8 million the previous year. and is complemented by the other global automotive engineering However, the negative impact of internal and external factors was companies within the Group. Lotus Engineering carried out 287 mitigated by an increase in average revenue per car as well as projects for 123 clients last year. aftersales revenue during the year under review. PROTON 2007 ANNUAL REPORT 71 operations review
With the introduction of the Lotus Exige S variant in the USA in December 2006, gross margins for Lotus Cars improved during the year due to higher average margins per unit and improvement in revenue for aftersales parts and services.
Overheads during the 2006 / 2007 financial year were addressed by way of a “rightsizing” programme which resulted in the lowering of fixed costs in 2007 / 2008 by approximately £5.2 million per annum and lowered Lotus Cars breakeven volume by 50%.
Lotus Europa - S 72 PROTON 2007 ANNUAL REPORT operations review
OPERATIONS network worldwide while introducing 3 brand new models into the During the first quarter of 2006/2007 financial year, Group Lotus market. New distributors have just been appointed in Thailand, saw Mr. Michael J. Kimberley taking over the helm of the company Hong Kong and Korea. as Chief Executive Officer. Mr. Kimberley, along with his management team, has been tasked to deliver an aggressive 5- In the near future, Lotus fans worldwide can look forward to an all- year strategic plan that is tailored to turn the company into a new sports car currently code-named Project Eagle. This will be sustainably profitable long term business. followed closely by a new car to replace the iconic Lotus Esprit. There is also a third car set to be introduced as part of the strategic In line with this strategic plan, the year under review saw the 5-year initiative. streamlining of the Lotus Cars workforce through a voluntary separation scheme. The completion of this exercise has positively We expect sales volumes to improve as new models are impacted direct and indirect operating costs while creating a more introduced, whilst overheads are kept in check to ensure productive workforce with profitable results. economies of scale are achieved.
PROSPECTS Lotus Cars will also continue to invest in new research and Moving forward, Lotus Cars plans to aggressively expand into its development that is creating revenue and profit opportunities core markets of North America, the UK, Europe and International for the company in the future. A notable undertaking for the markets such as those in the vibrant Asia Pacific region including 2007/ 2008 financial year is the manufacturing of an electric Malaysia and China. To achieve this objective and to meet set sports car for a USA confidential client which has already targets of its 5-year plan, the company is set to enhance its dealer gained substantial publicity worldwide.
Lotus Elise - S PROTON 2007 ANNUAL REPORT 73 operations review
LOTUS ENGINEERING In tandem with improvements made internally, the year under review also saw the development and implementation of a more robust customer satisfaction feedback process that is conducted upon PERFORMANCE OVERVIEW completion of a project. This is aimed at ensuring brand recognition Lotus Engineering recorded a profit for the year under review due is enhanced further via superior customer satisfaction levels. to one-off exceptional items such as the recapitalisation initiative and an adjustment made on the postponement of a specific PROSPECTS project. Third party sales worldwide improved by £9.3 million or The global market outlook for the automotive industry is positive for 36% over the previous year. the coming year with substantial growth forecast for all Lotus Engineering's primary territories, particularly China and India. Operating profits were affected by lower revenues (particularly Significant new business has now been agreed and contracted in with the cessation of projects from PROTON) and higher China. overheads as well as unrealised savings of £1.3 million. Higher expenditure on third party sales activities undertaken during the Given the trend of going 'green', Lotus is paving the way with year, as well as costs at the Lotus Engineering Malaysia/China increased investment in the R&D of environmentally-friendly subsidiaries, were also factors. products and services that include electric vehicles and hybrid projects, a bio fuel prototype programmes for the Lotus Exige OPERATIONS and the installation of wind turbines to supply Lotus power In a bid to streamline operations to enhance productivity and utilities. efficiencies, the year under review saw Lotus Engineering implementing a new “fast to market” project delivery process. Part Lotus Engineering is proactively pursuing third party high tech of this initiative was the formation of the Project Management Office engineering globally and has achieved major successes in Asia, (PMO) that has been tasked to oversee all engineering projects. A particularly in China, as well as in Europe, India and the USA. new “lean and mean” project management group was also created to manage projects relating to Lotus Cars. In addition, resource Management has been strengthened by the elevation to Vehicle managers were appointed to control resources more effectively Engineering Director of the world's most renowned Vehicle based on a global delivery model while performance objectives Dynamics expert and the appointment of a new Managing Director were introduced to enhance management and delivery initiatives. of Lotus Engineering Limited from Jaguar. 74 PROTON 2007 ANNUAL REPORT operations review
Quality Management
In line with PROTON's long-term commitment towards embracing a system and culture that is centered on quality, the Group successfully re-established and fortified its quality procedures and standards throughout its manufacturing plants during the year under review. At the same time, an aggressive Group-wide quality awareness campaign was also introduced to instill the understanding and significance of quality in all aspects and activities of PROTON.
QUALITY OPERATIONS PRODUCTION On an operational perspective, a cross-functional Quality On the production front, the year under review saw increased Improvement Committee (QIC) comprising senior representatives assessment at vital stages of the production process. Problems of core divisions throughout PROTON was formed to address and were identified and communicated to the relevant Quality resolve quality issues impacting the Group internally as well as Improvement Teams who then worked alongside the respective externally. departments and individuals to solve them.
The Group's quality enhancement initiatives were specifically Improvements made by our Quality Improvement Teams were targeted at five core areas of the Quality Value Chain, namely new discussed and monitored by the QIC, which chaired its product development, manufacturing, vendors, technical & inaugural meeting in May 2006. The year under review saw the warranty, and sales & services. QIC being convened a total of 42 times in which 98 quality issues were addressed and resolved. Ultimately, the primary objective is to derive total customer satisfaction by delivering the highest standards of quality from the SERVICE production stage of a car to the after sales service experience. On the external front, the Group's Quality Management Division via its Quality Customer Satisfaction department continues to work closely with its domestic and overseas distributors to continuously improve service quality. PROTON 2007 ANNUAL REPORT 75 operations review
In the fourth quarter of 2006, PROTON successfully brought its PROTON also aims to resolve any other existing quality issues warranty policy and management of claims procedures to be on based on the newly established Global Priority Index, which par with current market standards. This will positively impact our focuses on prioritising issues for the correct attention level. competitiveness in our primary markets. Alongside Proton Edar, we also intend to establish a new CS (Customer Satisfaction) Manual as a basic guideline for all At the end of the financial year under review, all Proton Edar service distributors to meet the desired quality standards. branches will be audited to comply with the 4Ms (Man, Machine, Material & Methods) of the Customer Oriented Service Delivery The Group's Quality Management Division intends to speed up the System. understanding of the Asian Multi-Local Original Equipment Manufacturer operating (AMLO EM) environment while driving In line with fostering a closer relationship with end users, PROTON, changes in quality processes of complete-knock-down factories under its Gerak CAT (Customer Action Team) initiative has and our contract assemblers. The Group will also be bolstering its throughout the year conducted on site face to face meetings with human resources in the Group Quality Management Division to customers as well as our dealership personnel to address drive forward our overall quality improvement objectives. concerns and rectify problems.
MOVING FORWARD Our efforts in relation to quality have translated into improved feedback and response from end-users, specifically for our new SAVVY and Satria NEO models. It remains a priority that PROTON continues to enhance quality Group-wide for the coming financial years.
In the 2008 financial year, we intend to benchmark our existing ISO 9001 Quality & Service levels at Key Processes & Gateways to the best practices of TS16949 and address issues and seal any gaps. Additionally, we aim to improve our Warranty Management System through software upgrades and better training for our employees resulting in more accurate diagnosis of defects, faster countermeasures and less 'comeback' jobs. 76 PROTON 2007 ANNUAL REPORT operations review
Marketing
DOMESTIC MARKETS including standard leather seats for added comfort and luxury was introduced into the market. PROTON's marketing team was able to capitalize on these introductions to attract potential buyers. OVERVIEW While the year under review may be challenging to say the least, All in all, the year under review saw Proton Edar Sdn Bhd mounting given depressed consumer demand, an over-saturated market and a series of aggressive sales and marketing campaigns a highly competitive operating environment, PROTON has been all encompassing trade-in values, financial assistance packages, the more committed and adamant in our marketing efforts to step-up financing, insurance subsidies, free petrol & service position the brand and our products ahead of our competitors. vouchers and consumer contests nationwide during the festive season when traditionally, car sales are at its peak. Our campaigns On this score, PROTON Savvy took the limelight in 2006 when the were supported with the 5-year extended warranty for all PROTON model successfully made it into the Malaysia Book of Records for models, introduced to further add confidence to car buyers. being the most fuel-cost efficient vehicle above 1000cc. This coup was achieved when we took the Savvy on a 1,614 km journey across Peninsular Malaysia using about 68 litres of petrol, which In line with the Government’s call to promote road safety and amounted to only RM131. reduce the number of road accidents in the country, PROTON's Customer Management Center (CMC) introduced a novel one-on- Our marketing efforts for the Savvy were also bolstered by a one driving course, namely DSSW which stands for Drive, Safe, refreshing facelift for the model in response to consumer feedback. Smart & Wise, for its car buyers as part of its on-going customer At the same time, our Waja Campro with design enhancements relations management initiatives. The course covers both PROTON 2007 ANNUAL REPORT 77 operations review
classroom and practical defensive driving sessions conducted in CUSTOMER TESTIMONY collaboration with certified trainers at PROTON's semi-high speed test-track. Interested customers/prospects could inquire further or request for registration either by calling: PROTON i.care at 1300 880 888 or email to i.care@proton- Mohd Mazran Dato’ Mohd Mazlan, 25 Mohd Mazran has been driving his Gen.2 edar.com.my. for the past two years and is looking forward to being a satisfied owner for Since December 2005, CMC has organized 15 classes (about one many more years to come. every month with a minimum of 15 - 20 participants) and the outcome has been very encouraging with most of the participants requesting for intermediate and advance classes.
From an operational perspective, the year under review saw Proton Mohd Fauzi Johari, 45 Edar taking the bull by its horns in terms of solidifying positive brand Mohd Fauzi Jauhari is the proud owner of a PROTON Wira for the past ten years. association and building closer rapport with its market segments. On a tangible plane, the year saw Proton Edar's service centers recording an increased throughput of 13% year-on-year.
In January 2007, Proton Edar Service Center also introduced a 1-hour fast service a la “Pit Stop” concept, much to the delight of customers, especially the working class, whose time is of the essence.
Notable marketing initiatives undertaken by Proton Edar included the set up of a flood relief center during the recent floods in Johor. We also offered a 30% discount for vehicle parts to our buyers in order to mitigate their hardship due to the floods. 78 PROTON 2007 ANNUAL REPORT operations review
Our focus in developing our export market was on the after sales EXPORT MARKETS network and capabilities, as well as developing a better understanding of the customers in the respective markets. To OVERVIEW achieve this, the Group augmented its International Sales & The export market is fast becoming an attractive revenue generator Services Division with human resources and capacity. for PROTON. This augurs well for the Group in light of an oversaturated and highly competitive domestic market. Exports for As a result, the year under review saw PROTON recording the year under review saw a significant 64% jump in volume. Key improved sales in all its core overseas markets, namely the United to this growth is the expansion of PROTON's market share in Kingdom, Australia, the Middle East and Africa. strategic countries as well as the opening up of four new markets across the Middle East and Asia.
PROTON Savvy launch in Cyprus PROTON 2007 ANNUAL REPORT 79 operations review
PERFORMANCE AND OPERATIONS Prospects PROTON's market share in the strategic countries of Iran and Looking forward, in the new financial year, Iran is expected to South Africa saw an increase during the year. Our market share in continue to be a major source of growth for PROTON. The Iran almost doubled to 0.39% from 0.19% and South Africa production of the Gen.2 in CKD form should lead to a reduction in registered an increase of five times to1.0% from 0.2%. the “On-The-Road” price in Iran, thereby increasing volume.
The introduction of the Gen.2 as a complete built-up unit (CBU) Closer to home, Indonesia continues to be a focus growth market. into Iran, was well received with orders exceeding expectations by We also plan to expand into Thailand given the recent and most 44%. As such, a program to produce the Gen.2 in a complete welcomed, policy development. knocked-down (CKD) form in Iran is now underway and expected to be in operation within the new financial year. Similarly, in South Africa, orders for the Satria Neo after its launch were beyond the initial estimates.
The Left-Hand Drive Savvy was also introduced in the export market during the year. A “Shootout” for A-Segment cars was done by a “Taiwan Motor” magazine in their October 2006 edition in which the PROTON Savvy was rated the No.1 Choice as compared to several other Japanese and Korean brands.
Since technical support and after sales services have been identified as our keys-to-success in our export market, we initiated several “Service Campaigns” in our core markets with PROTON technical personnel in attendance. Also known as PROTON “STAR” (Service Technical Attribute And Image Rebuilding), these PROTON GEN.2 cars are currently being used as police cars in parts of the U.K. campaigns involve customer focused promotions & activities including free 43-point check with no labor cost and discounts for spare parts and give-away vouchers valued at US$200.
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Proton Cars (UK) The background to these market conditions relates mostly to economic factors in the private sector with record levels of personnel debt, substantial interest rate hikes, high fuel prices and increasing The year under review saw Proton Cars (UK) Limited moving taxes on vehicle emissions. High fuel prices and C02 emission- forward positively despite operating in difficult market conditions. based taxes have led to private buyers switching demand to dual fuel, diesel and small highly efficient fuel-based vehicles. OVERVIEW The new car market in UK fell by over 4% in 2006, denoting a third PERFORMANCE & OPERATIONS successive year of declining TIV. In particular, private buyers, which Against this backdrop, Proton Cars (UK) Limited achieved a 63% make up one of the Group's main segments, performed less than increase in sales during 2006 with average dealer throughput up 38%. par with total market conditions falling further to just 44% of total UK The additional appointment of 30 new dealers along with the sales. Overall, with consumer buying patterns continuing to introduction of the Savvy model were major factors in volume growth fluctuate and change, the vehicle segments where PROTON's with improvements also seen in many other areas of the business, such products are featured, also fell. On this score, the first quarter of as increased brand and product awareness, higher customer 2007 echoed similar market trends as experienced in 2006. satisfaction levels with a class leading 88% CSI rating and improved internal efficiencies including overhead and resource reductions.
Whilst volume and operational improvements have seen encouraging results, the UK market conditions over the last 12 months have led to far greater levels of competitor activity from all manufacturers creating heightened challenges in the trading landscape and financial pressures.
PROSPECTS All industry forecasts point to continued difficult market conditions in the 2007-2008 financial period with an upturn predicted in the year after. In view of the launch of Satria Neo and continued expansion within the dealer networks in key open points to increase geographical coverage of the United Kingdom car buying population, Proton Cars (UK) Limited is bullish on increasing sales A PROTON GEN.2 cruising through United Kingdom by over 10% this coming year. PROTON 2007 ANNUAL REPORT 81 operations review
Proton Cars (Australia) PROSPECTS The industry forecast for 2007-2008 is pointing to a record year of growth in all PROTON competing segments. One of the major It was a progressive year for Proton Cars Australia Pty Ltd with the obstacles for the coming year will be competitor activity as the successful induction of five new dealers and the launch of two new smaller marques have employed the strategy of reducing pricing models in the market, resulting in an increase in volume of over and increasing standard features in an effort to establish 10% during the financial year in review. themselves in the growing Australian market. There are currently 55 brands marketing over 350 different models which allow OVERVIEW consumers unprecedented choice when selecting a new vehicle. In 2006, when compared to the industry record of 988,269 achieved in 2005, sales for the Australian car industry fell by 2.6%. Proton Cars Australia plans to increase sales by over 29% this The shift between the various vehicle segments was primarily coming year, leveraging on the back of Satria Neo and the new influenced by the rising cost of fuel which resulted in an increase in dealers inducted in open points in the 2006-2007 fiscal period. the light and small segments and a dramatic decline in large vehicle sales. The imported vehicles segment grew by 3% despite the decline in overall sales with diesel powered vehicle sales increasing 16.5% and reinforcing the shift toward more fuel efficient models.
PERFORMANCE & OPERATIONS Despite supply difficulties in the first quarter, Proton Cars Australia successfully increased its sales by 10% and the introduction of the Savvy model in the early part of 2006 resulted in incremental sales, as the vehicle was well-received by both the franchised dealers and public at large. The subsequent release of Satria Neo in 2007 was also well-received with press reports complementing the vehicle on its class leading ride and handling capabilities. Market competition has increased due to slowing sales resulting in heavy discounting in an effort to maintain market share. Reductions in overheads have allowed Proton Cars Australia to maintain the profit forecasts.
PROTON Savvy 82 PROTON 2007 ANNUAL REPORT operations review
Properties
PROTON continues to be a significant participant in the country's property sector via its subsidiary Proton Hartanah Sdn Bhd, which wholly-owns Proton Properties Sdn Bhd and has a 40% stake in Proton City Development Corporation Sdn Bhd.
PROTON plant in Tanjung Malim
PROTON Centre of Excellence Main PROTON plant in Shah Alam PROTON 2007 ANNUAL REPORT 83 operations review
The Group's properties are primarily located at its management and manufacturing hub namely in Shah Alam, Selangor, and Tanjung Malim, Perak.
During the year under review, PROTON's new administrative office in Tanjung Malim reached its final stage of construction. Upon completion, this new building would be able to house the required administrative and support staff now at the Group's Shah Alam office.
The Proton City remaining land bank in Tanjung Malim, which totals 2720 acres, is currently being developed by Proton City Development Corporation into a mixed-development township with residential, recreational, commercial, institutional and industrial units. Embedded in this township are state-of-the-art features such as super high-speed integrated network, 'smart' homes and schools as well as a number of information technology-based amenities and utilities. 84 PROTON 2007 ANNUAL REPORT operations review
Financial Services
PROTON has entered into relationships with reputable financial institutions to provide convenient services that include financing packages for customers and operational facilities for authorised dealers.
• Proton Commerce Sdn. Bhd. is a joint venture between Proton Edar Sdn. Bhd. and Bumiputra Commerce Bank Berhad;
• Proton Finance Ltd. is a joint venture between Proton Cars UK Ltd. and Llyods TSB Bank;
• Lotus Finance Ltd. is a joint venture between Group Lotus Plc. and Chartered Trust, which provides financial services solely for Lotus cars. PROTON 2007 ANNUAL REPORT 85 operations review
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. 86 PROTON 2007 ANNUAL REPORT operations review
PROTON's Commitment To Corporate Social Responsibility
Corporate Social Responsibility (CSR) is a vital component to PROTON as it is the national car manufacturer's tangible way of contributing to the society that it operates within. As a Government Linked Company and as a means of achieving and delivering sustainable value to its stakeholders, PROTON's CSR platform works in tandem with and fully supports the National Economic Policy and 9th Malaysia Plan.
PROTON's involvement in CSR activities is based on the triple bottom line - management, environment and society which focuses on environmental protection, human rights, employee welfare, customer service, vendor and supplier partnerships, community involvement as well as ethical business behaviour.
A CSR Committee was set up at the tail end of the year under review with an objective to promote good CSR practices throughout the organisation and its subsidiaries. Headed by the Group Chairman, this committee is made up of senior management and personnel spanning the various divisions and serves as a means of check and balance for the Group in relation to the initiatives executed. PROTON 2007 ANNUAL REPORT 87 operations review
ENVIRONMENTAL The Group ensures that good waste management practices are in place as this is an indicator of a high degree of corporate PROTECTION responsibility and commitment to comply with national waste management requirements. Among the methods employed to protect and minimise the impact on the environment are recycling of by-products such as paper and boxes, scrap metal recycling, utilising reusable plastic boxes and containers, water recycling and the execution of energy saving methods.
PROTON is pleased to note that all efforts undertaken as far as environment protection is concerned have borne fruit. A tangible example is how all wastewater effluence discharged after treatment complies with the requirements of the Environment PROTON's environment philosophy revolves around sustainable Quality Act and Regulations 1974. Efforts are consistently taken development that is defined as ‘economic and social to protect the environment by striving to minimise waste and development to meet the needs of the present without pollution, and by setting environmental objectives and targets compromising the ability of future generations to meet their own which meet or exceed all legal requirements. needs. It continues to be the mainstay for our CSR initiatives and seeks to achieve the objective of protecting the environment by In order to realise this environmental policy, we are committed to minimising the impact on the environment as a result of our put into practice the use of environmentally friendly material and business operations. Steps such as management of pollution, cleaner production technology throughout the various stages of emissions, toxic wastes and recycling are consciously taken to product development, from designing, manufacturing, and protect the environment. utilisation to disposal. In addition, we worked hand-in-hand with suppliers by providing information and assistance to increase Environment friendly manufacturing processes are in position and product recycling, resources reuse rate, and minimise the use of the Group as a whole is working aggressively towards total environmental restricted substances. compliance to ISO14001 Environment Management System which is certified by an external assessment body and is an As a means of encouraging our youth to cherish the environment, internationally accepted standard of compliance. Naturally, this the Green Project was launched and through this, PROTON commitment enables us to proactively contribute towards the seeks to promote environmental awareness among school realisation of a sustainable society. children via tree-planting programmes, environmental picture book and essay competitions. 88 PROTON 2007 ANNUAL REPORT operations review
SOCIAL CONTRIBUTIONS On a national interest level, PROTON is one of the main sponsors of the prestigious Le Tour de Langkawi race. In the past, PROTON has taken on the role of official car provider for a PROTON is involved in providing financial aid and support in kind number of international, regional and national events, to deserving members of the society in the form of donations and conferences and meetings including NAM, ASEAN and OIC and sponsorships. In the area of education, PROTON participates in has participated in several local and international exhibitions the Adopt-A-School Programme, themed Program Pintar, starting relevant to the automotive industry and its core business. with two schools in Penang, namely Sekolah Kebangsaan Bagan Tuan Kechil, Butterworth, and Sekolah Menengah Kebangsaan In sports, PROTON is also the corporate custodian for badminton Paya Keladi, Kepala Batas. This programme commenced in in the country, and in 2007, it is the title sponsor for the World January 2007 and will continue until 2009. PROTON is also Badminton Championships to be held in August. In the area of involved in various motivational and educational programmes in motorsports, PROTON has a presence in the Petronas Malaysian schools within the areas of Shah Alam and Tanjung Malim from Formula 1 Grand Prix and in events such as the Merdeka which it operates. Millennium Endurance Race and the Malaysian Rally Championship. It is also a partner to the A1 Team Malaysia. PROTON 2007 ANNUAL REPORT 89 operations review
Yayasan PROTON is the Group's way of investing and contributing to the education needs of the underprivileged segments among the young. Yayasan PROTON was established with the intention of providing educational assistance to deserving candidates in the form of scholarships.
Humanity assistance and contributions in aid of disaster victims, environmental conservation and awareness programmes were also provided in the wake of the floods in Johor. PROTON initiated and activated a series of programmes to aid victims, from extending financial assistance, donations in the form of food and essential items to providing special discounts on parts and repairs to victims' whose PROTON cars were damaged by the natural disaster. We also set up a dedicated flood relief service and repair centre at the Tampoi Centre equipped with tools and equipment specific to PROTON cars, well-trained technicians with experience in rectifying flood-damaged cars and dedicated Service Advisors to assist customers in finding the best possible repair option based on their financial standing. We also provided guaranteed professional workmanship with warranty on replaced parts and logistics management of the flood-damaged cars.
Human capital development efforts have been via assistance and educational/training programmes designed to reach out to the community. Over the years, PROTON's activities involving the development of human capital has encompassed internship or practical training, training of unemployed graduates, working to develop useful and relevant programmes with Kolej PROTON in Universiti Utara Malaysia, as well as providing expertise to help schools, institutions of higher learning and other technical-based organisations. 90 PROTON 2007 ANNUAL REPORT operations review
PROTON is also a partner and sponsor of the Malaysian Skills Not just a campaign or a programme, PROTON i.CARE is an all Competition (automotive category). In the year under review encompassing culture and a way of life for each and everyone in PROTON also partnered with the Ministry of Higher Education to PROTON. kick-start a one-year internship programme for students from the Community College to enable selected students to continue their All PROTON customer service offerings will now fall under the studies at PROTON's service centers. PROTON i.CARE umbrella. From hotline to 24-hour breakdown services to after-sales service centres, PROTON i.CARE will be the Meanwhile, significant initiatives have been undertaken to single point of contact, serving as The Companion for customers. enhance our relationship with the public and PROTON car The latest initiative is the formation of 25 Mobile Service Teams with customers. In celebrating Malaysia's 50th year of Independence 108 mechanics going to the ground to meet customers. for example, PROTON on 4th March 2007 introduced an incredibly attractive deal for customers by offering the PROTON PROTON i.CARE marks the beginning of a new chapter in which Saga for just RM26,999. This was just one of the many ways PROTON reciprocates the commitment to its cars with equal or even greater commitment to quality, quality improvements and PROTON is thanking Malaysians for their strong support of the overall customer satisfaction. company and the brand over the years.
Meanwhile, in support of the initiatives underlined in the New PROTON i.CARE is a new initiative that underscores PROTON's Economic Policy, PROTON is also committed to developing the commitment to improve every quality aspect of its business - from commercial and industrial participation of Bumiputeras in the sales, after-sales to products. The initiative will be a key driver to automotive industry by providing business opportunities to transform and project PROTON as a Group that is committed to genuine and competitive local businesses. improvement and growth in quality. PROTON 2007 ANNUAL REPORT 91 operations review
Health and Safety Committee, briefings by group leaders at morning roll-calls and site auditing for health and safety including at workshops and equipments.
The Security Department of Group Security also provides a safe and secure environment for the diverse population that comprises the PROTON community. Specifically, it provides an organised force of trained personnel to protect the various facilities from fire, accidents, environmental pollution, theft, intrusion and other unlawful acts that disturb the peace or which place life and property in jeopardy.
HEALTH AND SAFETY
As a responsible corporate entity, PROTON implements good employment practices for the benefit of employees by carrying out safety campaigns for industrial safety at the workplace, festive season road safety campaigns and defensive driving workshops for car and motorcycle users. Other employee programmes include hearing conservation training, forklift training, industrial PROTON also provides an Ergonomic program where studies are safety training, fire safety training as well as fire drills, and being done to reduce work-related injuries and occupational evacuation training. Modules and training are provided by in- diseases as well as to improve safety levels in the factory, work house trainers on an annual basis, with an average of two quality and productivity. sessions conducted each month. Similar to the previous year, no fatal or serious accident cases Health and safety related activities are often held to encourage were recorded and incidences of cases related to minor industrial employees to pay attention to these issues and to put these accidents with medical leave and without medical leave saw a practices into place in their daily routine. Activities in the year reduction by 25% and 17% respectively. A lower motorcycle under review included a health and safety contest to increase accident trend amongst employees commuting to work was also employee awareness on these issues, quarterly meetings of the recorded.
92 PROTON 2007 ANNUAL REPORT operations review
HUMAN CAPITAL DEVELOPMENT At PROTON, we hold steadfast to the belief that consistent communication is the cornerstone in all our dealings with our employees. In light of this, a new and comprehensive employee With more than 11,000 employees worldwide under its banner, communications framework was developed to ensure that all PROTON's workforce spans the globe and through their employees are aligned with the organisation's direction and goals. dedicated work, the company continues to build the brand's name both on the domestic and international front. A majority of To take this effort one step further, strategic human capital the company's workforce commenced their career path with capability-building initiatives were executed. In addition to PROTON and synergistically grew alongside the company. facilitating assessment, these initiatives sought to develop leadership competencies, develop talent pool and put into motion a succession planning programme to better equip the workforce with skills to compete globally. The challenge lies in executing this strategic plan to ensure PROTON's human capital capability is fully realised. PROTON 2007 ANNUAL REPORT 93 operations review
The year also saw PROTON continue to provide opportunities for students through Yayasan PROTON, where the Group explored viable opportunities for human capital development through programmes with secondary school students and university graduates. Our role is to be a catalyst of success through our educational programmes to underprivileged yet smart students who can eventually be a part of the PROTON family.
PROTON also developed and launched Declaration of Assets and ‘Whistleblower’ policies to clearly underline our seriousness to establish integrity as one of our key values.
For the year under review, a new performance management system that is directly linked to KPls was developed and implemented. Cognisant of the fact that PROTON operates in an increasingly competitive and challenging landscape, the continuous development of our workforce is vital to ensure that we measure up as a key player in the automotive industry. PROTON in Australia
PROTON GEN.2
96 PROTON 2007 ANNUAL REPORT statement on corporate governance
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. PROTON 2007 ANNUAL REPORT 97 statement on corporate governance
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 and is pleased to report that the Group has to its best efforts and knowledge complied with the principles and Best Practices of the Code throughout the financial year under review. The Board continues to enhance its role in improving governance practises effectively to safeguard the interests of the shareholders as well as stakeholders. To this end, the Board has full control of and is responsible for the Group's overall strategy, acquisition and divestment policies, capital expenditure, annual budget, review of financial and operational performance, internal control and risk management processes. The Group's overall strategic direction, development, implementation and control remains of primary importance to the Board. The non-executive directors are independent of management and The roles and responsibilities of the Non-Executive Chairman and are free from any business relationships which could materially the Managing Director are clearly defined. The Chairman ensures interfere with the exercise of their independent judgement. the integrity and effectiveness of the Board as a whole. He conducts Board meetings and ensures that it proceeds in an The Board has delegated matters pertaining to the day to day orderly manner. management, operations and strategic development of the Group (subject to the Limits of Authorities and Group Policies and The Managing Director (“MD”) on the other hand is responsible Procedures), to the Managing Director who is supported by a for making and ensuring the implementation of broad policies as competent Management team whose expertise lies in Finance, approved by the Board and reports to and discusses material Human Resource, Risk Management, Marketing, Information matters including regulatory developments and strategic Technology, Operations, and Law amongst others. projects with the Board. There is therefore a natural separation of management and governance leading to a balance of power and authority. 98 PROTON 2007 ANNUAL REPORT statement on corporate governance
In the financial year ended 31 March 2007, the Board of PROTON Holdings Berhad (PHB) met fifteen (15) 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 - 15/15 Bin Hashim - Chairman Non Executive Chairman 2 Dato' Haji Syed Zainal Abidin Managing Director 1 Jan 2006 - 15/15 B Syed Mohamed Tahir 3 Tuan Haji Abdul Jabbar Independent 12 Apr 2004 - 14/15 Bin Abdul Majid Non Executive Director 4 Encik Mohammad Zainal Non Independent 17 Dec 2004 - 15/15 Bin Shaari Non Executive Director 5 Tuan Haji Abdul Kadir Independent 10 Mar 2005 - 13/15 Bin Md Kassim Non Executive Director 6 Dato' Ahmad Bin Haji Hashim Non Independent 26 Oct 2005 - 13/15 Non Executive Director 7 Dato' Michael Lim Heen Peok Independent 15 Sep 2006 - 8/8 Non Executive Director 8 Dato' Mohd Izzaddin Bin Idris Non Independent 15 Sep 2006 - 6/8 Non Executive Director 9 Encik Badrul Feisal Bin Non Independent 12 Apr 2004 7 Nov 2006 8/8 Abdul Rahman Non Executive Director 10 Lt. Gen (R) Dato' Seri Independent 12 Apr 2004 8 Sep 2006 7/7 Mohamed Daud Bin Abu Bakar Non Executive Director (Retired by virtue of Section 129 of the Companies Act, 1965) 11 Datuk Kisai Bin Rahmat Executive Director 1 Jan 2006 31 July 2006 5/5
The profiles of the directors are set out on pages 24 to 31 of the circulated to all Board Members at the beginning of each year. Annual Report. This would enable the Directors to plan ahead and ensure attendance at Board meetings. Additional meetings or Special Board meetings for the Company and its subsidiaries are Board meetings are convened whenever necessary when there scheduled in advance before the start of each calendar year and are urgent and important decisions to be made. PROTON 2007 ANNUAL REPORT 99 statement on corporate governance
BOARD COMPOSITION AND to the Board before a Board meeting. The agenda for every meeting permits the Board members to review the contents of BALANCE meetings and assists in providing the Chairman a better and efficient conduct of the proceedings at the Board meetings. The Board consists of eight (8) members with the Chairman being a Non-Independent Non-Executive Director, three (3) Non- The Board has full access to the Company Secretary who is Independent Non-Executive Directors, three (3) Independent Non- available to provide the Directors with the appropriate advice and Executive Directors and one (1) Executive Director who is the services and also to ensure that the relevant procedures are Managing Director. followed and rules and regulations are complied with. The Board is from time to time, updated on any changes in Laws and other As in the previous year, Tuan Haji Abdul Jabbar Bin Abdul Majid regulatory requirements. is the Company's Senior Independent Director to whom concerns pertaining to the Group may be conveyed by Senior Management as well as professionals and external advisors shareholders and the public. are from time to time invited to attend Board meetings to deliberate and clarify issues on the subject matter concerned. INDEPENDENCE AND CONFLICT OF INTEREST POLICY ON DIRECTOR APPOINTMENTS The Directors are required to make written declarations and it is their responsibility to declare whether they have a potential or actual The Board Nomination & Remuneration Committee reviews all new conflict of interest in any transaction. Where issues involve conflict appointments by taking into consideration the skill sets required by the Company and the Group. of interest, the interested Directors abstain from discussing or voting on the matter. Board Members are appointed through a formal and transparent selection process that is consistent with the Articles of Association SUPPLY OF INFORMATION of the Company and Guiding Principles for Appointment of Directors.
The Board has full access to all information pertaining to the New directors are required to undergo familiarisation programmes, Group's business affairs to enable the Board to discharge its plant visits and briefings to get a better understanding of the responsibilities effectively. PROTON Group, its operations and the automotive industry.
In general, the agenda, board papers and minutes of previous The Board Nomination & Remuneration Committee annually meetings of the Board and Board Committees including minutes of reviews the mix of skills and experience of the Directors to ensure Board meetings of subsidiary companies are circulated in advance that the Board has the right balance and effectiveness. 100 PROTON 2007 ANNUAL REPORT statement on corporate governance
RE-ELECTION OF DIRECTORS BOARD COMMITTEES
All Directors including the Executive Director are subject to The Board has delegated specific responsibilities to five sub- retirement by rotation at least once in every three years and are committees, namely the Board Audit Committee, Board eligible for re-election. In accordance with the Articles of Nomination & Remuneration Committee, Board Risk Management Association, 1/3 of the Directors shall retire from office at each Committee and Board Disciplinary Committee, which assist the Annual General Meeting. Board in overseeing the affairs of the Group and have been entrusted with specific responsibilities and authority and report to Any new appointed director shall hold office only until the next the Board with recommendations. Annual General Meeting of the Company and shall be eligible for re-election under Article 111. Directors who are over seventy (70) On 17 April 2007, the Board established an Executive Committee years of age are required to submit themselves for retirement primarily to assist the Management in addressing issues relating to annually at the Annual General Meeting, unless the Director is re- the implementation and monitoring of several key projects as well appointed by way of special resolution in accordance with Section as addressing issues relating to the identification of suitable 129 (6) of the Companies Act, 1965. candidates to fill several key positions at PROTON.
At the forthcoming Annual General Meeting of PROTON Holdings The above Committees have the authority to examine specific Berhad, the following Directors who retire have offered themselves issues and report to the Board with their recommendations. The for re-election: responsibility of decisions on all matters ultimately lies with the (i) Pursuant to Article 104 Board as a whole. 1. Encik Mohammad Zainal Bin Shaari 2. Tuan Haji Abdul Kadir Bin Md Kassim
(ii) Pursuant to Article 111 1. Dato' Michael Lim Heen Peok 2. Dato' Mohd Izzaddin Bin Idris
None of the Directors are subject to retirement pursuant to Section 129 of the Companies Act, 1965 at the forthcoming Annual General Meeting.
PROTON 2007 ANNUAL REPORT 101 statement on corporate governance
BOARD AUDIT COMMITTEE
The composition of the Board Audit Committee and their respective attendance record of meetings for the financial year ended 31 March 2007 are as follows:
No Name Of Director Designation Date of Date of Meeting Appointment Resignation Attendance
1 Tuan Haji Abdul Jabbar Chairman - 10 Mar 2005 - 8/8 Bin Abdul Majid Independent Non Executive Director
2 Encik Mohammad Zainal Member - 10 Mar 2005 - 6/8 Bin Shaari Non Independent Non Executive Director
3 Tuan Haji Abdul Kadir Member - 10 Mar 2005 - 7/8 Bin Md Kassim Independent Non Executive Director
4 Dato' Michael Lim Heen Peok Member - 29 Nov 2006 - 3/3 Independent Non Executive Director
During the financial year, the Board Audit Committee of PROTON (c) Reviewed the external audit reports and discussed any Holdings Berhad undertook the following activities: problems and reservations arising thereon. (a) Assisted the Board in discharging its statutory duties and (d) Reviewed the internal audit plan, methodology, functions and responsibilities relating to accounting and reporting practices resources. of the Company and the Group in accordance with Generally (e) Reviewed major findings on internal audit reports and Accepted Accounting Practices. management response. (b) Reviewed the external audit terms of engagement, the audit strategy, the proposed audit fee and the achievement of the The Terms of Reference of the Board Audit Committee are set out agreed upon reporting timeframes for the audit of the financial below. statements. 102 PROTON 2007 ANNUAL REPORT statement on corporate governance
COMPOSITION authority to carry out its work, and the performance of the members of the internal audit function; The Committee shall be appointed from amongst the Board and • the internal audit programme, processes, the results of shall:- the internal audit programme, or investigation undertaken (i) comprise no fewer than three members; and whether or not appropriate action is taken by the (ii) a majority of the members must be independent directors; and management on the recommendations of the internal (iii) at least one member must be a member of the Malaysian audit function; Institute of Accountants or if he is not, then he must be a • the quarterly results and year-end financial statements, person who complies with Paragraph 15.10 of Bursa Malaysia prior to the approval by the Board of Directors, focusing Securities Berhad's Listing Requirements. particularly on:- (i) changes in or implementation of major accounting The Chairman, who shall be elected by the members of the policy; Committee, shall be an independent director. (ii) significant and unusual events; (iii) compliance with accounting standards and other No alternate director may be appointed as a member of the Board legal requirements; and Audit Committee. (iv) accuracy and adequacy of the disclosure of information essential to a fair and full presentation of The Board will review the terms of office and the performance of the financial affairs of the Group; the Board Audit Committee and its members at least once every • any related party and conflict of interest situation that may three years. arise within the listed issuer or group including any transaction, procedure or course of conduct that raises FUNCTIONS AND DUTIES questions of management integrity; • promptly report to Bursa Malaysia Securities Berhad on The functions and duties of the Board Audit Committee shall be to:- any matter reported by it to the Board of the Company (a) Review and report to the Board of Directors on the following:- which has not been satisfactorily resolved resulting in a • with the External Auditors, the audit plan; breach of the Listing Requirements of Bursa Malaysia • with the External Auditors, the External Auditor's Securities Berhad; evaluation of the system of internal control; • submit to the Board a Report on the summary of activities • with the External Auditors, the External Auditor's audit of the Board Audit Committee in the discharge of its report; functions and responsibilities in respect of each financial • the assistance given by the Company's employees to the year. External Auditors; • the adequacy of the scope, functions and resources of (b) Consider the appointment of the external auditor, the audit fee the internal audit functions and that it has the necessary and any questions of resignation and dismissal. PROTON 2007 ANNUAL REPORT 103 statement on corporate governance
MEETINGS INTERNAL AUDIT FUNCTION
The Committee shall hold meetings on at least four occasions each The Group uses the services of the Group Internal Audit Division to year, although additional meetings may be called, as and when accomplish its internal audit requirements. The Group Internal Audit necessary, by the Chairman of the Committee. These meetings will Division reports to the Board Audit Committee on matters usually be:- concerning the Group and assists the Board of Directors in • prior to the current year's audit; monitoring and managing risks and internal controls. • upon completion of the External Auditor's interim examination; • prior to the meeting of the full Board to approve the financial The Group Internal Audit Division reviews internal controls related to statements; all key activities of the Group and recommends improvements in • prior to the announcement of the quarterly results; controls and procedures. The Group Internal Audit Division is • upon the request of any member of the Committee or the independent of the activities it audits and performs with impartiality External Auditors, the Chairman of the Committee shall and due professional care. The findings of the Group Internal Audit convene a meeting of the Committee to consider the matters Division are reported to the Board Audit Committee. brought to its attention; • at least once a year, the Committee shall meet with the The Board Audit Committee approves the internal audit plan of External Auditors without any Executive Directors present. the Group Internal Audit Division each year. The scope of the internal audit covers the audits of all units and operations, ATTENDANCE including subsidiaries.
In order to form a quorum in respect of a meeting of an audit During the year, the Group Internal Audit Division serves to ensure committee, the majority of members present must be independent control measures are adequate and effective in mitigating key risks directors. The Chairman may request that directors and members and that they are monitored. The monitoring process will form the of the management, the Internal Auditors and representatives of the basis for continually improving the risk management process in the External Auditors be present at meetings of the Committee. context of the Group's overall goals.
MINUTES
The Company Secretary shall be the Secretary to the Committee and shall be present at all meetings to record minutes.
Minutes of each meeting shall be prepared and entered into 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. 104 PROTON 2007 ANNUAL REPORT statement on corporate governance
BOARD NOMINATION & REMUNERATION COMMITTEE
The Board Nomination & Remuneration Committee reviews new includes subsidiaries and relevant associates and other investee director appointments of the Group and the balance and companies. effectiveness of the boards of directors, taking into account the required mix of skills, experience and other qualities, before making The Board Nomination & Remuneration Committee is made up recommendations to the Board. entirely of Non-Executive Directors, with the majority consisting of Independent Non-Executive Directors. The Committee is empowered to conduct periodic reviews on the overall remuneration policy and package of the Executive and Non- Appointments to the Committee shall be for a period of three (3) Executive Directors and Senior Management of the Group for years which may be extended provided that the majority of the recommendation to the Board. Committee members remain independent.
The authority and scope of coverage of the Nomination and The Committee has met four (4) times during the financial year. Remuneration Committee is over the PROTON Group which
The Composition of the Board Nomination & Remuneration Committee is as follows:
No Name Of Director Designation Date of Date of Meeting Appointment Resignation Attendance
1 Dato' Mohammed Azlan Chairman - 10 Mar 2005 - 4/4 Bin Hashim Non Independent Non Executive Director
2 Encik Ahmad Tajuddin Member - 29 Aug 2005 - 4/4 Bin Abdul Carrim Independent
3 Encik Md Ali Bin Md Dewal Member - 29 Aug 2005 - 3/4 Independent
4 Dato' Michael Lim Heen Peok Member - 13 Nov 2006 - 2/2 Independent Non Executive Director
5 Encik Badrul Feisal Member - 10 Mar 2005 7 Nov 2006 2/2 Bin Abdul Rahim Non Independent Non Executive Director PROTON 2007 ANNUAL REPORT 105 statement on corporate governance
BOARD RISK MANAGEMENT COMMITTEE
The Board Risk Management Committee assists the Board to The Board Risk Management Committee is made up entirely of oversee the overall management of all risks faced by the Group's Non-Executive Directors and third party members (not being business. Further details of the activities of the Board Risk directors of the Company) who are appointed by the Board from Management Committee are spelt out in the Statement on Internal time to time as follows: Control.
No Name Of Director Designation Date of Date of Meeting Appointment Resignation Attendance
1 Tuan Haji Abdul Kadir Chairman - 29 Sep 2005 - 4/4 Bin Md Kassim Independent Non Executive Director
2 Datuk Tan Kim Leong Member - Independent 29 Aug 2005 - 4/4
The composition of the Board Risk Management Committee is reviewed annually by the Board on the recommendation of the Board Nomination and Remuneration Committee.
106 PROTON 2007 ANNUAL REPORT statement on corporate governance
BOARD DISCIPLINARY COMMITTEE (“BDC”)
The BDC is a platform for the PROTON Group to deal primarily The BDC has the power to initiate investigations, consider and with disciplinary issues. The BDC is part of the structural take appropriate action thereof on any case referred to it by any mechanism for the handling of cases that may arise from the party either received orally or in writing. introduction of the Whistleblower and Assets Declaration Policies.
The BDC comprises members all of whom are non executive directors as follows:
No Name Of Director Designation Date of Date of Meeting Appointment Resignation Attendance
1 Dato' Mohammed Azlan Chairman - 7 May 2006 - 5/5 Bin Hashim Non Independent Non Executive Director
2 Tuan Haji Abdul Jabbar Independent 7 May 2006 - 5/5 Bin Abdul Majid Non Executive Director
3 Tuan Haji Abdul Kadir Independent 7 May 2006 - 5/5 Bin Md Kassim Non Executive Director
4 Dato' Ahmad Bin Haji Hashim Non Independent 7 May 2006 - 4/5 Non Executive Director
PROTON BOARD EXECUTIVE COMMITTEE (“EXCO”)
On 17 April 2007, the Board establised an Executive Committee The objectives of the re-establishment of the said EXCO is to assist primarily to assist the Management in addressing issues relating to the Management in addressing issues relating to the the implementation and monitoring of several key projects as well implementation and monitoring of several key projects, including as addressing issues relating to the identification of suitable but not limited to PROTON’s Strategic Business Plan, Annual candidates to fill several key positions at PROTON. Management Plan, PROTON’s Business Turnaround Plan and also PROTON 2007 ANNUAL REPORT 107 statement on corporate governance
to address issues relating to identifying suitable candidates to fill Subject to the resolutions of the Board from time to time, the several key positions at PROTON. It is to be noted that the provisions contained in the Terms Of Reference and the functions of the EXCO shall not overlap that of other Board Memorandum and Articles of Association of the Company, the Committees, such as the Board Nomination & Remuneration EXCO may exercise any of the powers, authorities and discretions Committee. for the time being vested in the Board with regard to the affairs and business of the Company.
The Executive Committee which has met three (3) times since its establishment comprises three (3) representatives from amongst the PHB Board members and one (1) Senior Management representative as follows:
No Name Of Director Designation Date of Appointment
1 Dato' Mohammed Azlan Bin Hashim Chairman 17 Apr 2007 Non Independent Non Executive Director
2 Dato' Haji Syed Zainal Abidin Managing Director 17 Apr 2007 B Syed Mohamed Tahir
3 Dato' Michael Lim Heen Peok Independent 17 Apr 2007 Non Executive Director
4 Dato’ Mohd Izzaddin Bin Idris Non Independent 17 Apr 2007 Non Executive Director
DIRECTORS' TRAINING
All Directors have successfully completed the Mandatory continue to identify and attend appropriate seminars and courses Accreditation Programme conducted by the Research Institute of to keep abreast of changes in legislation and regulations affecting Investment Analysts Malaysia as imposed by Bursa Malaysia the Group. Securities Berhad (“Bursa Securities”). The Company has arranged various in-house training programmes Despite repeal of Bursa Securities' Continuing Educational and luncheon talks on topics relevant to the Company which were Programme with effect from 1 January 2005, the Directors attended by both the members of the Board and Senior Management.
108 PROTON 2007 ANNUAL REPORT statement on corporate governance
DIRECTORS' REMUNERATION
The Board Nomination & Remuneration Committee is responsible for fees and attendance allowances in accordance with the number of reviewing the performance of the Executive Directors and meetings attended. In addition, the Non-Executive Directors are recommending to the Board the remuneration package and reward each provided with the use of a car. structure. The Board as a whole determines the remuneration of the Executive and Non-Executive Directors. Directors do not participate Non-Executive Directors fees are paid upon shareholders approval in any discussions or decisions concerning each individual’s at each Annual General Meeting. remuneration. In the case of the Executive Director, the remuneration is structured to link rewards to corporate and The Board Remuneration Committee carries out reviews when individual performance through key performance indicators appropriate and refers to remuneration surveys and consultants to comprising fixed and performance-based rewards. assist in determining the appropriate level of reward, which is competitive and consistent with the corporate objectives. This is The level of remuneration of the Non-Executive Directors reflects necessary in order to attract and retain professionals with the the experience and level of responsibilities undertaken by the qualities needed to manage the Group successfully. Director concerned. The Non-Executive Directors are paid annual
Details of the total remuneration of the Directors of PROTON Holdings Berhad for the financial year ended 31 March 2007 are as follows:
Directors Basic Salaries Fees and Benefits Bonus and Other Employee Benefits Allowances in Kind Total
Executive Director RM1,276,278 - RM63,000 RM1,339,278 Non-Executive Directors - RM1,533,125 RM35,993 RM1,569,118
TOTAL RM1,276,278 RM 1,533,125 RM98,993 RM2,908,396
Remuneration Number of Directors Range of Total Remuneration Executive Non-Executive Total
Below RM50,000 - 2 2 RM50,001 - RM150,000 -33 RM100,001 - RM500,000 - 33 RM500,001 - RM1,000,000 2 13
TOTAL 2 9 11 PROTON 2007 ANNUAL REPORT 109 statement on corporate governance
FINANCIAL REPORTING 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 The Board is committed to providing a balanced, clear and financial statements comply with the Companies Act, 1965. meaningful assessment of the financial performance and prospects of the Group to shareholders, the investor community In preparing the financial statements the Board has; and the regulatory authorities. Shareholders and other stakeholders • Selected suitable accounting policies and applied them are kept abreast of the Group's performance through the timely consistently announcement of the quarterly financial results and accompanying • Made judgements and estimates that are reasonable and press releases. prudent; • Ensured that all applicable accounting standards have been The Board Audit Committee assists the Board to oversee the followed; and financial reporting processes and the quality of its financial • Prepared financial statements on the going concern basis as reporting. Quarterly financial results and annual financial statements the Directors have a reasonable expectation, having made are reviewed by the Board Audit Committee to ensure adequacy enquiries, that the Group has adequate resources to continue and completeness of information prior to the Board's approval. To in operations for the foreseeable future. enhance quality of the Group's financial reporting, the external auditors will be conducting quarterly reviews of the Group's quarterly results in addition to the year-end audit. INTERNAL CONTROLS
The Board acknowledges its overall responsibility for maintaining a DIRECTORS RESPONSIBILITY system of internal controls that provides assurance of effective and STATEMENT efficient operations and compliance with laws and regulations and also its internal procedures and guidelines. The size and complexity The Board is required by the Companies Act, 1965, to ensure that of the operations may give rise to risks of unanticipated or financial statements prepared for each financial year have been unavoidable losses. made out in accordance with the applicable approved accounting standards and give a true and fair view of the state of affairs of the The system of internal controls is designed to provide reasonable Company and the Group at the end of the financial year and of the but not absolute assurance against the risk of material errors, results and cash flow of the Company and the Group for the frauds or losses occurring. The Board Audit Committee reviews the financial year. effectiveness of the system of internal controls, which covers financial, operational and compliance controls, and also risk management. 110 PROTON 2007 ANNUAL REPORT statement on corporate governance
RELATIONSHIP WITH AUDITORS 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 The Board Audit Committee maintains an appropriate transparent communication and dialogue with the shareholders. Shareholders relationship with both the Group’s external auditors and internal are encouraged to actively participate and interact with the Board auditors. The external auditors are invited to attend Board Audit and members of the Senior Management pertaining to the agenda Committee meetings and present their audit findings when the items during the general meeting. Company's annual financial results are considered. The Board Audit Committee meets with the external auditors at least once a In addition, the Chairman briefs the shareholders on the company's year without the presence of the Executive Director and operations for the financial year. Senior Management and the Management. external auditors are present to respond to questions and queries to ensure a high level of accountability and transparency of the DIALOGUE BETWEEN THE business goals, strategies and operations. COMPANY AND For investors, regular dialogues are held with financial analysts and SHAREHOLDERS / INVESTORS fund managers representing institutional and individual shareholders through the investor relations programme.
The Board recognises the importance of transparency and Besides the Annual Report, the Board ensures timely accountability to its shareholders and investors. Different channels announcements are made to Bursa Malaysia Securities Berhad of communication are optimised to provide shareholders and and disseminates clear, accurate, and sufficient information to investors with a balanced and complete view of the Group’s enable the shareholders and investors to make informed decisions. performance and the issues faced by its businesses in a The Investor Relations Unit also proactively disseminates competitive environment amidst a changing landscape. appropriate and relevant information to the investor community and attends to whatever queries they may have. PROTON 2007 ANNUAL REPORT 111 additional compliance information
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 2007 2006 RM'000 RM'000
PricewaterhouseCoopers Malaysia 2,214 1,373 Member firm of PricewaterhouseCoopers International Limited, 393 362 (a separate and independent legal entity from PricewaterhouseCoopers Malaysia)
Total 2,607 1,735
MATERIAL CONTRACTS RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE Perusahaan Otomobil Nasional Sdn Bhd ("PONSB"), a wholly owned subsidiary of the Company, had on 30 January 2007 By Resolution of the Extraordinary General Meeting of the entered into a conditional sale & purchase agreement ("SPA") with Company held on 8 September 2006, a mandate was granted by Tracoma Holdings Berhad ("Tracoma") for PONSB and / or its the shareholders for recurrent related party transactions of a nominee(s) to acquire from Tracoma, the remaining 49% equity revenue or trading nature, to be entered into during the period 8 interest in PT Proton Tracoma Motors comprising 10,780,000 September 2006 to 6 September 2007 (being the date of the ordinary shares of USD1.00 each for a total cash consideration of forthcoming AGM) between the Company or its subsidiaries and USD10,133200 or USD0.94 per share. related parties, the latter being based on an estimate. As required, below is a listing of the said transactions as having been actually The above acquisition of PT Proton Tracoma Motors was entered during the period for the financial year ended 31 March completed on 10 August 2007. 2007.
Announcements to Bursa Malaysia Securities Berhad were made in accordance with the Listing Requirements.
112 PROTON 2007 ANNUAL REPORT additional compliance information
Transacting Related Party Nature of Transaction Company Actual Value within Group
1 Lub Dagangan Sdn. Bhd. Purchase of lubricants PONSB 2,314,647
2 Petronas Dagangan Sdn. Bhd. Purchase of lubricants PESB 7,917,305
3 Petronas Dagangan Sdn. Bhd. Purchase of lubricants PONSB 2,063,853
4 DZ Automobile Sdn. Bhd. Sale of goods PESB 11,205,803
5 EON Berhad Sale of goods PESB 1,005,624,614
6 EON Berhad Sale of parts PPCSB 97,996,196
7 GKN Driveline Malaysia Sdn. Bhd. Purchase of parts PONSB 41,552,686
8 Johnson Controls Auto Holding Sdn. Bhd. Purchase of goods PPCSB 942,810
9 Johnson Controls Auto Seating Sdn. Bhd. Purchase of goods PONSB 141,342,104
10 Johnson Controls Auto. Interior Sdn. Bhd. Purchase of goods PPCSB 498,549
11 Johnson Controls Auto. Interior Sdn. Bhd. Purchase of goods PONSB 30,353,303
12 PPCSB Sale of goods PONSB 13,381,836
13 PPCSB Purchase of parts PONSB 497,482
14 PPCSB Purchase of parts PESB 75,087,385
15 PPCSB Commission/Royalties received PONSB 3,988,344
16 PPCSB Purchase of parts PCUKL 5,367,144
17 PPCSB Purchase of parts PCA 3,332,176
18 PPCSB Purchase of parts P S'pore 1,021,401
PROTON 2007 ANNUAL REPORT 113 additional compliance information
Transacting Related Party Nature of Transaction Company Actual Value within Group
19 Hicom Teck See Manufacturing Purchase of parts PPCSB 1,672,980 (M) Sdn. Bhd.
20 Hicom Teck See Manufacturing Purchase of parts PONSB 136,346,551 (M) Sdn. Bhd.
21 Oriental Summit Industries Sdn. Bhd. Purchase of parts PPCSB 1,328,526
22 Oriental Summit Industries Sdn. Bhd. Purchase of parts PONSB 62,790,175
23 PHN Industry Sdn. Bhd. Purchase of parts PONSB 55,329,317
On 8 June 2007, the Group obtained exemption from Bursa Notes: Malaysia Securities Berhad (“Bursa”) from disclosing Related Party PONSB Perusahaan Otomobil Nasional Sdn. Bhd. PESB PROTON Edar Sdn. Bhd. Transactions with the Khazanah Nasional Berhad Group of PPCSB PROTON Parts Centre Sdn. Bhd. companies. As a result, the Company is not required to seek a PCUKL PROTON Cars (UK) Ltd. renewal of the said general mandate at the forthcoming Annual PCA PROTON Cars Australia Pty. Ltd. P’SPORE PROTON Singapore Pte. Ltd. General Meeting of the Company.
Further, Bursa had on 14 December 2006 amended the Listing Requirements pertaining to related party transactions whereby the threshold for a major shareholder is now increased from 5% to 10% of the aggregate nominal amount of voting shares in a company provided that the said shareholder is not the largest shareholder of the Company. 114 PROTON 2007 ANNUAL REPORT statement on internal control
Statement On Internal Control
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 Bursa Malaysia Securities Berhad. 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 recognises the importance of sound internal controls and risk management practices for 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 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.
PROTON 2007 ANNUAL REPORT 115 statement on internal control
RISK MANAGEMENT The GRMC, which comprises of Senior Management, is responsible for overseeing the risk management implementation, regular updating of the Group’s risk profiles and improving the Risk management is regarded by the Board of Directors (Board) to implementation methodology. The committee also provides be an integral part of the Group's operations with the objective of direction to the GRMU in carrying out its activities. maintaining a sound internal control system and ensuring its continuing adequacy and integrity. As part of PROTON Group's At GRMC, the Committee deliberates and decides the Group's continuous efforts to enhance the level of risk management culture major risks to be escalated for the attention of the Board Risk and practices, the company continues to embed the risk Management Committee (BRMC). management process in the conduct of the business operations to provide reasonable assurance of achieving the Group's business The BRMC was established to deliberate major risks highlighted by objectives while at the same time enhancing shareholder's value. the Management and assist the Board in reviewing PROTON's risk policies and strategies. The Group Risk Management Unit (GRMU) is responsible for ensuring that an appropriate risk management framework exists For the financial year ended 31 March 2007, the GRMC and within the Group and is effectively implemented to manage the key BRMC have held quarterly meetings in accordance to the Charter. risks exposures of the organisation on an on-going basis. To further inculcate the risk management culture within the company, the Board has approved the revised risk management policy (Policy) to ASSURANCE MECHANISM ensure potential critical risks that organisations are exposed to are managed effectively under the prevailing operating environment. Apart from risk management activities, the Board and Management have established numerous processes for identifying, evaluating The Policy provides a clear guideline in respect of the key areas and managing the significant risks faced by the Group. They where risk assessments are required to be performed at PROTON continue to strive in enhancing and implementing the internal Group. GRMU together with the Risk Management Champions control system to manage those risks that could affect the Group's have undertaken a number of risk assessments during the year, growth and financial viability. These processes include updating the specifically on risks related to strategic, financial, business system of internal controls when there are changes to the business environment, operations and vehicle development projects. GRMU environment or regulatory guidelines. has facilitated in the process of risk identification, reporting, mitigation and continuing resolution of these issues. If deemed appropriate, these risks are escalated to the Group Risk Management Committee (GRMC) for review and advice. 116 PROTON 2007 ANNUAL REPORT statement on internal control
The key elements of the Group's control environment include: It also reviews the effectiveness of the internal audit function with particular emphasis on the scope and quality of audits, resources BOARD COMMITTEES as well as independence of the Group Internal Audit Department (GIAD). Board Committees were established by the Board to assist the Board in the execution of its responsibilities to provide oversight on The BAC continues to meet regularly and have full and unimpeded the effectiveness of the Group's operations. The responsibilities access to the internal and external auditors and all employees of and authority of the Committees are governed by specific terms of the Group. reference and these Committees are accountable to the Board.
Further information relating to the activities of the BAC are set out The Board Committees are: in the Statement of Corporate Governance. • Audit Committee • Nomination and Remuneration Committee ORGANISATION STRUCTURE AND MANAGEMENT • Risk Management Committee COMMITTEES • Disciplinary Committee An organisation structure, which is aligned to business and operations requirements and led by Heads of Divisions with clearly The details of the above mentioned Board Committees are set out defined lines of responsibility, accountability and levels of authority, in the Statement of Corporate Governance. is in place to assist in the implementation of the Group's strategies and day-to-day businesses. BOARD OF AUDIT COMMITTEE The Board has delegated the duty of reviewing and monitoring the Various functional Committees were set up at the management effectiveness of the Group's system of internal control to the Board level to ensure the Group's actions and operations are properly of Audit Committee (BAC). The BAC, comprising a majority of aligned towards achieving the organisation's goals and objectives. independent non-executive directors, brings with them wide ranging in-depth experience, knowledge and expertise. GROUP INTERNAL AUDIT GIAD continues to independently monitor compliance with the The BAC assumes the overall duties of reviewing with the external internal policies and procedures and the effectiveness of the auditors their audit plan, audit report, as well as their findings and internal control systems and highlights significant findings for recommendations on internal controls highlighted annually in the corrective actions by the line management. Internal Control Memorandum. Throughout the financial year, the BAC was updated on the development of the Malaysian Financial The annual audit plan, which covers the entity and its subsidiary Reporting Standards, as well as legal and regulatory requirements. companies, and established primarily on a risk-based approach, is PROTON 2007 ANNUAL REPORT 117 statement on internal control
reviewed and approved by the BAC annually before the are deliberated by the BAC, which subsequently presents commencement of the following financial year and a quarterly work them to the Board for their review, consideration and approval; status update is given by GIAD. GIAD regularly reviews the • Management Committee meetings are held on a regular basis approved annual audit plan to ensure significant risk areas are to identify, discuss and resolve operational, financial and key given adequate audit focus. However, GIAD does not review the management issues; internal control system of its associated companies and joint • A comprehensive budgeting process where the annual controlled entities which fall within the control of their major budgets are approved by the Board and reviewed at mid year; shareholders. Nonetheless, the interests of PROTON are served • The Board receives and reviews monthly reports from through representation on the Board of Directors of the respective Management on key strategic and operational issues and associated companies and joint controlled entities. provides direction to management; • Regular visits to operating units and subsidiaries by Senior On a monthly basis, GIAD also updates the Management Management; Committee on the status of corrective actions taken by the line • Measurement of each department's performance against a set management arising from the audit findings highlighted by both of common criteria via internal survey questionnaires; GIAD and the external auditors. • Continuous training efforts to enhance competency of the workforce; and Further information relating to the activities of GIAD functions are set • Formal employee appraisal system for effective coaching and out in the Statement of Corporate Governance. evaluation of employee performance. During the year, Key Performance Indicators (KPIs) had been established to gauge OTHER KEY ELEMENTS OF INTERNAL CONTROL the performance of the respective business and functional The other key elements of the Group's internal control systems are units within the Group. described below:- • Defined delegation of responsibilities to committees and CONCLUSIONS management of Head Office and operating units, including For the Financial Year under review, after due and careful inquiry authorisation levels for various aspects of the business which and based on the information and assurance provided, the Board are set out in the Limits of Authority; is satisfied that the key elements of internal control are in place. • Documented internal policies and procedures as set out in the Nevertheless, identified areas of concerns are accorded closer Group Policies and Procedures and certification by ISO attention and more regular monitoring to ensure key internal 9001:2000 of the Quality System Procedures for the controls are adequate and effective to continually safeguard Company and major subsidiaries within the Group; shareholders' investment and the Group's assets. • Quarterly financial statements and the Group's performance 118 PROTON 2007 ANNUAL REPORT risk management
Risk Management
PROTON Group acknowledges the need for a sound risk management process and practices.
To ensure that a sound risk management process & practices are implemented within the PROTON Group in accordance to the Malaysian Code on Corporate Governance, the Board delegated the responsibility to manage the Group's risks to the Board Risk Management Committee. This responsibility is supported by the Group Risk Management Committee comprising the Heads of key divisions in PROTON Group.
RISK MANAGEMENT FRAMEWORK Recognizing the importance of a sound risk culture in PROTON, a common risk language and framework were established and implemented, which have become the guiding principles for the business divisions, departments and subsidiaries. PROTON 2007 ANNUAL REPORT 119 risk management
The framework, process and practices provide clear guidelines Group Risk Management Committee (GRMC) on the following: The GRMC, comprising Senior Management representing the key business value chain, was initiated as the supporting • RISK POLICY AND STRATEGY arm of the BRMC. Its responsibility, among others, is to Risk Management Policy identify and evaluate principal risks and evaluate the This year in review, the risk management policy was practicality of proposed risk mitigation actions. The Group significantly improved and enhanced. Among the critical met quarterly in the period under review. points in the policy relate to risk assessment requirement, whereby four (4) obligatory business/proposal papers which Group Risk Management Unit (GRMU) require risk assessment were identified. These included The GRMU continued to vigilantly inculcate the risk proposal papers on new product development, new management culture within the PROTON Group through investment and new market entry as well as major business Risk awareness and profiling workshops. In addition, several and strategic planning exercises. facilitations and review sessions were held to assist the group during the AMP 06/07 session. Special risk This requirement, along with the robust risk operation assessments were also performed and monitored systems and management, will enable early detection, specifically on projects, products, suppliers and quality. evaluation and management of risks in the company. Risk Management Units (RMU) of major subsidiaries and • RISK ORGANIZATION AND STRUCTURE business divisions Board Risk Management Committee (BRMC) The risk management team of major subsidiaries and The BRMC, which was established in 2003, was formed with divisions continued to perform self risk assessments and the main function of overseeing the implementation and regular mitigation status updates. The high risk events operations of the Risk Management Framework in the deemed to be affecting the Group were highlighted to the PROTON Group. This year in review continued to see the GRMC for review and advice. committee meeting periodically in accordance with the BRMC charter. During these meetings, risk reports were The Risk Management Governance Structure of PROTON updated, and various discussions were held to ensure that Group and key roles and responsibilities of the committees the risk management framework, process and practices are are illustrated in the diagram as follows: robust and effectively implemented organisation wide. 120 PROTON 2007 ANNUAL REPORT risk management
BOARD OF DIRECTORS Liaison BOARD RISK MANAGEMENT COMMITTEE (BRMC) REPORTING GROUP RISK GROUP CEO/MANAGING DIRECTOR FLOW MARKET MANAGEMENT UNIT (GRMU) GROUP RISK MANAGEMENT COMMITTEE (GRMC) Liaison ALL BUSINESS UNITS & PROTON GROUP OF COMPANIES RISK MANAGEMENT GOVERNANCE STRUCTURE
Division / Business units within PROTON Holdings Berhad / PONSB
Subsidiaries Corporate Direction & Approval Board of Directors
Corporate Direction & Approval Group Advice Board of Directors Board Risk Management Committee (BRMC)
BRMC’s duties and responsibilities are Liaison supported by the Group Risk Management Committee (GRMC) which is to provide an Endorsement of oversight role on the Risk Management process BRMC papers and practices in PROTON Group Group Facilitation
MCM Group Risk Management Group CEO / MD Unit (GRMU)
Group Risk Management Committee (GRMC)
1. Supervise the enforcement of Risk RMU Management Framework and review from Local Facilitation time to time the mechanism used in the Risk Management process to ensure compliance with latest regulations and corporate Management governance best practices. Advice 2. Evaluate and identify the principal risks and Subsidiaries Liaison ensure that control mechanism is in place to mitigate the risks. 3. Review risks reports on a scheduled basis and to communicate risk concerns to Group CEO/MD for decisions and if necessary, escalate to BRMC. PROTON 2007 ANNUAL REPORT 121 risk management
RISK MEASUREMENT A standard Risk Management measurement and dashboard were developed to aid various risk management units in identifying, rating and monitoring strategic, business environment, project, financial and operational related risks.
Using this measurement tool, GRMU was able to consolidate the risks into Corporate Risk Profile and Business Unit Risk Profiles. Only key risks which could significantly impact the Group's objectives were escalated to GRMC and BRMC for deliberation.
RISK OPERATION AND SYSTEMS This year in review, the Group Risk Management Unit continued its effort to further instill the Risk Management culture through training and facilitation programs. Risk assessment and reporting were also performed using the standard risk management format to ensure a uniform framework for reporting and updating of risks. PROTON in Singapore
PROTON GEN.2
124 PROTON 2007 ANNUAL REPORT calendar of events
JULY 2006 JULY 2006 JULY 2006
• Satria Neo on display at the 39th • Visit by Australian journalists to the • Handing-over of keys to a new ASEAN Ministerial Meeting held PROTON Centre of Excellence. Satria Neo owner. at Kuala Lumpur Convention Centre.
JULY 2006 AUGUST 2006 AUGUST 2006
• Perak Chief Police Officer SAC (1) • Dato' Haji Syed Zainal Abidin flags off • Class “O” Overall Champion’s of the Datuk Aziz Bulat visits PROTON’s the Satria Neo 2000km Challenge at Merdeka Millennium Endurance Race Tanjung Malim plant. the PROTON Centre of Excellence. at the Sepang Circuit. PROTON 2007 ANNUAL REPORT 125 calendar of events
SEPTEMBER 2006 SEPTEMBER 2006 SEPTEMBER 2006
• The Group’s 3rd Annual General • Wira taxis for PUSKOPAU at • The Satria GTi Club convoy trip to Meeting held at the PROTON Centre of Pekanbaru, Indonesia. Phuket, Thailand. Excellence in September last year.
SEPTEMBER 2006 SEPTEMBER 2006 OCTOBER 2006
• A1 driver Alex Yoong at the Malaysia • PROTON was the Official Car • PROTON Bridging Communities Book of Records Savvy Fuel Economy for the 1st Malaysian Astronaut initiative at an old folks home. Drive. Programme. 126 PROTON 2007 ANNUAL REPORT calendar of events
OCTOBER 2006 OCTOBER 2006 OCTOBER 2006
• Dato' Haji Syed Zainal Abidin handing • The happy winner of the HOT FM • Inspector-General of Police Tan Sri out goodies to orphans at PROTON ‘Finding Neo’ challenge, Noraidah binti Musa Hassan receiving PROTON Tanjung Malim’s Buka Puasa. Ariffin. vehicles on behalf of Polis DiRaja Malaysia.
OCTOBER 2006 OCTOBER 2006 OCTOBER 2006
• A visit by PROTON staff to the • PROTON hosting a Buka Puasa • Members of the A1 Team Malaysia Children’s Oncology Ward, Hospital for children in Shah Alam. visit PROTON in Shah Alam. Kuala Lumpur. PROTON 2007 ANNUAL REPORT 127 calendar of events
NOVEMBER 2006 NOVEMBER 2006 NOVEMBER 2006
• Invitees at Yayasan PROTON's Open • Launch and Motor Show at South • The PROTON Global Distribution House. Africa. Conference 2007.
NOVEMBER 2006 DECEMBER 2006 DECEMBER 2006
• PROTON’s team getting ready for • Flag-off of Waja Performance Club • PROTON’s Engineering division the A1 Grand Prix at Sepang. Convoy to Penang. receives the Anugerah Tangan Emas Perdana Menteri. 128 PROTON 2007 ANNUAL REPORT calendar of events
JANUARY 2007 JANUARY 2007 JANUARY 2007
• PROTON staff assisting in the Flood • Dato' Haji Syed Zainal Abidin and his • Launch of the PROTON Waja MC3 Relief program in Johor. wife meet with flood victims and relief and Savvy FL at the PROTON Centre members. of Excellence.
JANUARY 2007 FEBRUARY 2007 MARCH 2007
• Launch of the Satria Neo in South • Stage 8 of Le Tour de Langkawi • PROTON launches the Savvy and Africa. from PROTON Shah Alam to Gen.2 in Indonesia witnessed by H.E. Genting Highlands. Minister of Industry, Indonesia, Bapak Fahmi Idris. PROTON 2007 ANNUAL REPORT 129 calendar of events
MARCH 2007 MARCH 2007 MARCH 2007
• The 6th International Auto Aftermarket • Launch of PROTON’s Showroom • Secretary General, Ministry of EXPO 2007 in Japan. in Silipi, Jakarta. International Trade and Industry, Datuk Abdul Rahman, visits the PROTON booth at the Auto Mechanika exhibition at the Kuala Lumpur Convention Centre. MARCH 2007 MARCH 2007 APRIL 2007
• Students attending the KPP Smart • Lotus EVE Hybrid was launched • Encik Ibrahim Marsidi, Managing Learning Programme organised at the Geneva Motor Show in 2007. Director, Petronas Dagangan Berhad, by PROTON. at “Proton Edar Servis Mesra” Launch at the Litar Sepang Petronas Station. 130 PROTON 2007 ANNUAL REPORT calendar of events
APRIL 2007 APRIL 2007 APRIL 2007
• Invitees at the launch of Miyazu tooling • The national badminton players visit • Launch of the Double Service plant in Tanjung Malim by Chief Minister PROTON Shah Alam. Campaign by Koo Kien Keat and of Perak, YAB Dato' Sri Di-Raja (Dr.) Tan Boon Heong, winners of the Mohamad Tajol Rosli Mohd Ghazali. Badminton All-England Open.
APRIL 2007 APRIL 2007 APRIL 2007
• Innovative Creative Circle (ICC) • PROTON’s National Skills Competition • Alex Yoong briefing attendees at Convention at the PROTON Centre held at the Centre of Excellence. the PROTON and HPC Track event of Excellence. in Sepang International Circuit. PROTON 2007 ANNUAL REPORT 131 calendar of events
MAY 2007 MAY 2007 MAY 2007
• YAB Dato' Seri Mohd Najib Tun Abdul • A1 end of season party is celebrated • PROTON receives an award at the Razak, Deputy Prime Minister, visiting at the PROTON Centre of Excellence. Reader's Digest Trusted Brand the PROTON booth at Pekan Fest, Awards 2007 presentation. Pahang.
JUNE 2007 JUNE 2007
MAY 2007
• PROTON sponsors a visit to Kuala • Prime Minister YAB Dato' Seri Abdullah Lumpur for one of its adopted schools Ahmad Badawi checking out a car under the Program Pintar community at the PROTON booth at the project. SMIDEX exhibition. • Reader's Digest Trusted Brand Awards 2007. PROTON in Iran
PROTON GEN.2
Statutory Financial Statements Contents
136 Directors’ Report 139 Income Statements 140 Balance Sheets 142 Consolidated Statement of Changes in Equity 143 Company Statement of Changes in Equity 144 Cash Flow Statements 147 Notes to the Financial Statements 221 Statement by Directors 222 Statutory Declaration 223 Report of the Auditors 136 PROTON 2007 ANNUAL REPORT directors’ report
DIRECTORS' REPORT The Directors hereby submit their annual report to the members together with the audited financial statements of the Group and Company for the financial year ended 31 March 2007.
PRINCIPAL ACTIVITIES The Company is principally involved in investment holding activities.
The principal activities of the subsidiary companies, associated companies and jointly controlled entities are set out in Notes 16 to 18 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
(Loss)/profit for the year (589,533) 233,779
DIVIDENDS The amount of dividends paid or declared by the Company since 31 March 2006 were as follows: RM'000 In respect of the financial year ended 31 March 2006:
Final tax exempt dividend of 5.0 sen per ordinary share, paid on 13 October 2006 27,461
The Directors do not recommend any dividend payment for the financial year ended 31 March 2007.
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. PROTON 2007 ANNUAL REPORT 137 directors’ report (continued)
DIRECTORS The Directors who have held office during the period since the date of the last report are:
Dato’ Mohammed Azlan bin Hashim Dato' Syed Zainal Abidin bin Syed Mohamed Tahir Haji Abdul Jabbar bin Abdul Majid Mohammad Zainal bin Shaari Haji Abdul Kadir bin Md Kassim Dato’ Ahmad bin Hj Hashim Dato' Lim Heen Peok (appointed on 15.09.2006) Dato' Mohd Izzaddin bin Idris (appointed on 15.09.2006) Datuk Kisai bin Rahmat (resigned on 31.07.2006) Lt Gen (R) Dato’ Seri Mohamed Daud bin Abu Bakar (retired on 08.09.2006) Badrul Feisal bin Abdul Rahim (resigned on 07.11.2006)
In accordance with Article 104 of the Company’s Articles of Association, Mohammad Zainal bin Shaari and Haji Abdul Kadir bin Md Kassim, 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, Dato' Lim Heen Peok and Dato' Mohd Izzaddin bin Idris retire at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election.
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.
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.
138 PROTON 2007 ANNUAL REPORT directors’ report (continued)
STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS (CONTINUED) 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 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 Note 16 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.
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 24 July 2007.
DATO’ MOHAMMED AZLAN BIN HASHIM DATO' SYED ZAINAL ABIDIN BIN SYED MOHAMED TAHIR Chairman Director PROTON 2007 ANNUAL REPORT 139 income statements
INCOME STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2007
Group Company Restated 2007 2006 2007 2006 Note RM'000 RM'000 RM'000 RM'000
Revenue 6 4,911,841 7,796,932 667,983 111,097 Cost of sales (4,547,537) (6,895,091) - -
Gross profit 364,304 901,841 667,983 111,097 Other operating income 136,882 230,544 393 836 Distribution costs (410,189) (439,754) - - Administrative expenses (618,147) (580,771) (333,065) (834) Other operating expenses (60,462) (78,834) - -
(Loss)/profit before finance cost 7 (587,612) 33,026 335,311 111,099 Finance cost 9 (35,541) (43,878) - - Share of results of associated companies 17 3,219 17,033 - - Share of results of jointly controlled entities 18 1,805 11,804 - -
(Loss)/profit before taxation (618,129) 17,985 335,311 111,099
Taxation - Company - - (101,532) (77) - Subsidiary companies 28,596 28,409 - - 10 28,596 28,409 (101,532) (77) (Loss)/profit for the year (589,533) 46,394 233,779 111,022
Attributable to: Equity holders of the Parent (589,533) 46,690 233,779 111,022 Minority interest - (296) - - (Loss)/profit for the year (589,533) 46,394 233,779 111,022
(Loss)/earnings per share (sen) - basic 11 (107) 9 - diluted 11 N/A N/A
The notes on pages 147 to 220 form part of these financial statements. 140 PROTON 2007 ANNUAL REPORT balance sheets
BALANCE SHEETS AS AT 31 MARCH 2007
Group Company Restated 2007 2006 2007 2006 Note RM'000 RM'000 RM'000 RM'000
NON-CURRENT ASSETS Property, plant and equipment 13 3,179,439 3,312,947 - - Goodwill 14 29,008 29,008 - - Other intangible assets 15 169,075 17,999 - - Subsidiary companies 16 - - 1,708,651 1,465,659 Associated companies 17 169,758 160,409 13,600 13,600 Jointly controlled entities 18 223,550 245,256 -- Other long term investments 19 10,397 10,397 6,475 6,475 Deferred tax assets 20 - 105,786 - - Total Non-Current Assets 3,781,227 3,881,802 1,728,726 1,485,734
CURRENT ASSETS Inventories 21 1,273,612 1,389,005 - - Trade and other receivables 22 981,025 1,142,851 5 195 Amounts due from subsidiary companies 23 - - 66,219 68,041 Amounts due from associated companies 24 24,314 40,391 - - Amounts due from jointly controlled entities 25 10,618 9,288 - - Tax recoverable 10 176,048 51,491 314 118 Current investments 26 73,448 211,965 - - Deposits, bank and cash balances 27 626,475 1,585,982 10,610 49,835 Total Current Assets 3,165,540 4,430,973 77,148 118,189
TOTAL ASSETS 6,946,767 8,312,775 1,805,874 1,603,923
The notes on pages 147 to 220 form part of these financial statements. PROTON 2007 ANNUAL REPORT 141 balance sheets (continued)
BALANCE SHEETS AS AT 31 MARCH 2007 (CONTINUED)
Group Company Restated 2007 2006 2007 2006 Note RM'000 RM'000 RM'000 RM'000
EQUITY AND LIABILITIES Share capital 28 549,213 549,213 549,213 549,213 Reserves 29 4,681,375 5,321,439 1,248,223 1,041,905 Equity attributable to equity holders of the Parent 5,230,588 5,870,652 1,797,436 1,591,118 Minority interests - - - - Total Equity 5,230,588 5,870,652 1,797,436 1,591,118
NON-CURRENT LIABILITIES Long term liabilities 30 181,637 100,255 - - Deferred tax liabilities 20 754 805 - - Total Non-Current Liabilities 182,391 101,060 - -
CURRENT LIABILITIES Trade and other payables 31 1,046,338 1,247,328 790 2,719 Provisions 32 196,067 217,062 - - Amounts due to subsidiary companies 33 - - 7,647 10,086 Amounts due to associated companies 34 99,675 46,231 - - Amounts due to jointly controlled entities 35 25,060 8,811 - - Taxation 2,222 16,865 - - Short term borrowings 36 164,426 804,766 - - Total Current Liabilities 1,533,788 2,341,063 8,437 12,805
TOTAL LIABILITIES 1,716,179 2,442,123 8,437 12,805 TOTAL EQUITY AND LIABILITIES 6,946,767 8,312,775 1,805,873 1,603,923 Net assets per share attributable to equity holders of the Parent (RM) 9.52 10.69 3.27 2.90
The notes on pages 147 to 220 form part of these financial statements. 142 PROTON 2007 ANNUAL REPORT consolidated statement of changes in equity for the financial year ended 31 March 2007
Attributable to equity holders of the Company Foreign Share Capital exchange Retained Minority Total capital reserve reserve profits Total interest equity RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
At 1 April 2005 549,213 475,617 (81,816) 4,916,935 5,859,949 333 5,860,282 Net income recognised directly in equity - Foreign exchange differences on translation of foreign operations - - 18,934 - 18,934 (37) 18,897 Profit for the financial year - - - 46,690 46,690 (296) 46,394 Total recognised income and expense for the financial year - - 18,934 46,690 65,624 (333) 65,291 Final dividend for the financial year ended 31 March 2005 - - - (54,921) (54,921) - (54,921) At 31 March 2006 549,213 475,617 (62,882) 4,908,704 5,870,652 - 5,870,652
At 1 April 2006 549,213 475,617 (62,882) 4,908,704 5,870,652 - 5,870,652 Net income recognised directly in equity - Foreign exchange differences on translation of foreign operations - - (23,070) - (23,070) - (23,070) Loss for the financial year - - - (589,533) (589,533) - (589,533) Total recognised income and expense for the financial year - - (23,070) (589,533) (612,603) - (612,603) Final dividend for the financial year ended 31 March 2006 - - - (27,461) (27,461) - (27,461) At 31 March 2007 549,213 475,617 (85,952) 4,291,710 5,230,588 - 5,230,588
The notes on pages 147 to 220 form part of these financial statements. PROTON 2007 ANNUAL REPORT 143 company statement of changes in equity for the financial year ended 31 March 2007
Issued and fully paid ordinary shares Distributable Nominal Number value of Retained of shares RM1 each earnings Total Note '000 RM'000 RM'000 RM'000
At 1 April 2005 549,213 549,213 985,804 1,535,017 Net profit attributable to shareholders - - 111,022 111,022 Final dividend for the financial year ended 31 March 2005 12 - - (54,921) (54,921) At 31 March 2006 549,213 549,213 1,041,905 1,591,118
At 1 April 2006 549,213 549,213 1,041,905 1,591,118 Net profit attributable to shareholders - - 233,779 233,779 Final dividend for the financial year ended 31 March 2006 12 - - (27,461) (27,461) At 31 March 2007 549,213 549,213 1,248,223 1,797,436
The notes on pages 147 to 220 form part of these financial statements. 144 PROTON 2007 ANNUAL REPORT cash flow statements for the financial year ended 31 March 2007
Group Company Restated 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
CASH FLOWS FROM OPERATING ACTIVITIES (Loss)/profit for the year (589,533) 46,394 233,779 111,022 Adjustments for: Taxation (28,596) (28,409) 101,532 77 Property, plant and equipment: - depreciation 352,900 341,990 - - - written off 94,263 82,857 - - - impairment - 5,066 - - - loss/(gain) on disposal 250 (218) - - (Write back of)/allowance for inventories write down (30,681) 46,865 - - Impairment loss on an investment in a subsidiary - - 327,652 - Amortisation of intangible assets 22,315 9,419 - - Interest expense 35,541 43,878 - - Interest income (35,563) (67,388) (374) (588) Share of results of associated companies (3,219) (17,033) - - Share of results of jointly controlled entities (1,805) (11,804) - - Write back of diminution in value of current investments - (7,202) - - Gain on disposal of current investments (49,975) (2,664) -- Loss on dilution in interest of associated company - 48 - - (Write back of)/allowance for doubtful debts (30,958) 117,923 - - Unrealised foreign exchange gain (4,598) (20,365) - - Provision for warranties (net of expected reimbursement) 38,737 81,314 - - Dividends income (8,713) (9,525) (667,983) (111,097) Operating (loss)/profit before working capital changes (239,635) 611,146 (5,394) (586)
The notes on pages 147 to 220 form part of these financial statements. PROTON 2007 ANNUAL REPORT 145 cash flow statements for the financial year ended 31 March 2007 (continued)
Group Company Restated 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000 CASH FLOWS FROM OPERATING ACTIVITIES (CONTINUED) Changes in working capital: Inventories 162,458 (468,790) - - Receivables - trade and other receivables 212,606 45,479 190 4,294 - subsidiary companies - - 1,822 (61,726) - associated companies and jointly controlled entities 14,822 (8,259) - 3,713 Payables - trade and other payables (204,712) (420,151) (1,929) 222 - provisions for liabilities and charges (88,219) (90,151) - - - subsidiary companies - - (2,438) (3,269) - associated companies and jointly controlled entities 69,691 9,613 - -
Cash used in operations (72,989) (321,113) (7,749) (57,352) Taxation paid (4,819) (62,687) (101,728) (98) Interest received 39,544 76,835 374 568 Interest paid (42,927) (40,505) - - Retirement benefits paid (15,401) (14,536) - - Net cash flow used in operating activities (96,592) (362,006) (109,103) (56,882)
CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (318,835) (478,451) - - Additional investment in subsidiary companies - - (570,644) - Additional investment in associated company (7,169) - - - Purchase of intangible assets (173,354) - - - Purchase of current investments (284,513) (207,817) - - Proceeds from disposal of current investments 473,005 207,253 - - Proceeds from disposal of property, plant and equipment 6,762 15,816 - - Dividends received 31,113 42,452 667,983 111,000 Net cash flow (used in)/from investing activities (272,991) (420,747) 97,339 111,000 The notes on pages 147 to 220 form part of these financial statements. 146 PROTON 2007 ANNUAL REPORT cash flow statements for the financial year ended 31 March 2007 (continued)
Group Company Restated 2007 2006 2007 2006 Note RM'000 RM'000 RM'000 RM'000
CASH FLOWS FROM FINANCING ACTIVITIES Dividend paid (27,461) (54,921) (27,461) (54,921) Proceeds from borowings 964,148 326,582 - - Proceeds from lease and hire purchase 5,823 - - - Repayment of term loans - (54,436) - - Finance lease and hire purchase installments paid (384) - - - Repayment of short term borrowings (1,467,399) (312,152) - - Fixed deposits pledged as security 43 666,640 (11,123) - - Net cash flow from/(used in) financing activities 141,367 (106,050) (27,461) (54,921) NET DECREASE IN CASH AND CASH EQUIVALENTS (228,216) (888,803) (39,225) (803) EXCHANGE RATE EFFECTS 6,488 5,070 - - CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL YEAR 693,192 1,576,925 49,835 50,638 CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 43 471,464 693,192 10,610 49,835
The notes on pages 147 to 220 form part of these financial statements. PROTON 2007 ANNUAL REPORT 147 notes to the financial statements - 31 March 2007
1 GENERAL INFORMATION
The Company is principally involved in investment holding activities.
The principal activities of the subsidiary companies, associated companies and jointly controlled entities are set out in Notes 16 to 18 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.
The address of the registered office and the principal place of business of the Company is:
HICOM Industrial Estate, Batu 3, 40000 Shah Alam, Selangor Darul Ehsan, Malaysia.
2 BASIS OF PREPARATION
During the financial year, the Group made losses of RM589.5 million (2006: profits of RM46.4 million).
Going concern assumption
The Directors are of the opinion that the use of the going concern assumption in the preparation of the financial statements is appropriate based on the approved Group business plan and available financing arrangements, including efforts in place to reduce costs, control cash flows and the introduction of new models in the next twelve months. The Group has also obtained additional facilities as described in Notes 27 and 30 to the financial statements.
The Directors expect the Group to continue to operate as a going concern and accordingly, the assets and liabilities of the Group and Company are recorded on the basis that the Group and Company will be able to realise its assets and discharge its liabilities in the normal course of business.
Estimates and judgement
The preparation of financial statements requires the Directors to make estimates and judgement 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 and judgement are based on the Directors’ best knowledge of current events and actions.
The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Group and the Company's financial statements are disclosed in Note 4 to the financial statements. 148 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
2 BASIS OF PREPARATION (CONTINUED)
Financial Reporting Standards
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 Financial Reporting Standards (‘FRSs’), the Malaysian Accounting Standard Board ('MASB') Approved Accounting Standards in Malaysia for Entities Other than Private Entities, and the provisions of the Companies Act, 1965.
As required under FRS 108, the following describes the new Standards and Interpretations which have been issued by the MASB:
(a) Standards, amendments to published standards and Interpretations Committee (IC) interpretations that are effective
The new accounting standards, amendments to published standards and Interpretations issued by the MASB ('IC interpretations') to the existing standards effective for the Group and Company's financial periods beginning 1 April 2006 are as follows:
FRS 1 First-Time Adoption of Financial Reporting Standards FRS 2 Share-based Payments FRS 3 Business Combinations FRS 5 Non-current Assets Held for Sale and Discontinued Operations FRS 101 Presentation of Financial Statements FRS 102 Inventories FRS 108 Accounting Policies, Changes in Accounting Estimates and Errors FRS 110 Events after the Balance Sheet Date FRS 116 Property, Plant and Equipment FRS 121 The Effects of Changes in Foreign Exchange Rates FRS 127 Consolidated and Separate Financial Statements FRS 128 Investments in Associates FRS 131 Interests in Joint Ventures FRS 132 Financial Instruments: Disclosure and Presentation FRS 133 Earnings Per Share FRS 136 Impairment of Assets FRS 138 Intangible Assets FRS 140 Investment Property
Amendment to FRS 119 (2004) Employee Benefits - Actuarial Gains and Losses, Group Plans and Disclosures - in relation to the 'asset ceiling' test. PROTON 2007 ANNUAL REPORT 149 notes to the financial statements - 31 March 2007 (continued)
2 BASIS OF PREPARATION (CONTINUED)
(a) Standards, amendments to published standards and Interpretations Committee (IC) interpretations that are effective (continued)
IC 107 Introduction of the Euro IC 110 Government Assistance - No Specific Relation to Operating Activities IC 112 Consolidation - Special Purpose Entities IC 113 Jointly Controlled Entities - Non-Monetary Contributions by Venturers IC 115 Operating Leases - Incentives IC 121 Income Taxes - Recovery of Revalued Non-Depreciable Assets IC 125 Income Taxes - Changes in the Tax Status of an Entity or its Shareholders IC 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease IC 129 Disclosure - Service Concession Arrangements IC 131 Revenue - Better Transactions Involving Advertising Services IC 132 Intangible Assets - Web Site Costs
A summary of the impact of the new accounting standards, amendments to the published standards and IC interpretations to existing standards on the financial statements of the Group is set out in Note 45 to the financial statements.
(b) Standards, amendments to published standards and IC interpretations to existing standards that are not yet effective and have not been early adopted
The new standards, amendments to published standards and interpretations that are mandatory for the Group financial periods beginning on 1 April 2007, but which the Group has not early adopted, are as follows:
(i) FRS 117 Leases (effective for accounting periods beginning on or after 1 October 2006). This standard requires the classification of leasehold land as prepaid lease payments. The Group will apply this Standard from financial periods beginning on 1 April 2007. The Group has not disclosed the financial impact of the application of this Standard following the transitional provision which provides exemption from early disclosure of the financial impact prior to its effective date.
(ii) Amendment to FRS 119 (2004) Employee Benefits – Actuarial Gains and Losses, Plans and Disclosures (effective for accounting periods beginning on or after 1 January 2007). This amendment introduces the option of an alternative recognition approach for actuarial gains and losses. It may impose additional recognition requirements for multi- employer plans where insufficient information is available to apply defined benefit accounting. It also adds new disclosure requirements.
(iii) FRS 124 Related Party Disclosures (effective for accounting periods beginning on or after 1 October 2006). This standard will affect the identification of related parties and some other related party disclosures. The Group will apply this standard from financial periods beginning on 1 April 2007. The Group has not disclosed the financial impact of the application of this standard following the transitional provision which provides exemption from early disclosure of the financial impact prior to its effective date. 150 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
2 BASIS OF PREPARATION (CONTINUED)
(b) Standards, amendments to published standards and IC interpretations to existing standards that are not yet effective and have not been early adopted (continued)
(iv) FRS 139 Financial Instruments: Recognition and Measurement (effective date yet to be determined by MASB). This new standard establishes principles for recognising and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. Hedge accounting is permitted only under strict circumstances. The Group will apply this standard when it becomes effective.
The MASB also issued the following revised Standards, amendment to Standards and IC Interpretations which are only effective for annual periods on or after 1 July 2007. The Group will apply these Standards and Interpretations from financial periods beginning on 1 April 2008.
FRS 111 Construction Contracts FRS 112 Income Taxes FRS 118 Revenue FRS 120 Accounting for Government Grants and Disclosure of Government Assistance Amendment to FRS 121 The Effects of Changes in Foreign Exchange Rates - Net Investment in Foreign Operation FRS 134 Interim Financial Reporting FRS 137 Provisions, Contingent Liabilities and Contingent Assets IC Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities IC Interpretation 2 Members' Shares in Co-operative Entities and Similar Instruments IC Interpretation 5 Rights to Interest arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IC Interpretation 6 Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment
IC Interpretation 7 Applying the Restatement Approach under FRS 129 (2004) Financial Reporting in Hyperinflationary Economies IC Interpretation 8 Scope of FRS 2
The above standards, amendments to published standards and IC interpretations to existing standards is not anticipated to have significant impact to the Group.
(c) Standards that are not yet effective and not relevant or material for the Group operations
FRS 6 Exploration for and Evaluation of Mineral Resources (effective for accounting periods beginning on or after 1 January 2007). This Standard is not relevant to the Group’s operations as the Group does not carry out exploration for and evaluation of mineral resources. PROTON 2007 ANNUAL REPORT 151 notes to the financial statements - 31 March 2007 (continued)
3 SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements.
(a) Subsidiary companies Subsidiary companies are those corporations, partnerships or other entities in which the Group has power to exercise control over the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.
Investments in subsidiary companies 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. The accounting policy on Impairment of Assets is set out in Note 3(t).
Prior to 1 January 2006, the Group applied both the purchase method and the merger method to account for Business Combinations in accordance with FRS 122. With effect from 1 January 2006, only the purchase method of accounting is used to account for Business Combinations in accordance with FRS 3.
The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date irrespective of the interest of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised as a gain in the Consolidated Income Statement.
Subsidiary companies are consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
Uniform accounting policies for like transactions and other events in similar circumstances are used by all companies in the group in preparing the Consolidated Financial Statements. The financial statements of all companies within the Group used in the preparation of the Consolidated Financial Statements are prepared as of the same reporting date.
Inter-company balances, inter-company transactions and unrealised gains on transactions between companies are eliminated in full. Unrealised losses are also eliminated in full unless the assets transferred are impaired.
Minority interest represents that portion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not owned, directly or indirectly through the subsidiaries by the parent. It is measured at the minorities’ share of the fair values of the subsidiaries’ identifiable assets and liabilities at the acquisition date and the minorities’ share of changes in the subsidiaries’ equity since that date. Separate disclosure is made of minority interest. 152 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(a) Subsidiary companies (continued) The gain or loss on disposal of a subsidiary is the difference between the net disposal proceeds and the Group’s share of the subsidiary’s net assets as of the date of disposal, including the cumulative amount of any exchange differences that relate to that subsidiary which were previously recognised in equity, and is recognised in the Consolidated Income Statement.
(b) Associated companies Associates are those corporations, partnerships or other entities in which the Group exercises significant influence, but which it does not control. Significant influence is the power to participate in the financial and operating policy decisions of the associated companies but not the power to exercise control over those policies.
Investments in associated companies 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. The accounting policy on Impairment of Assets is set out in Note 3(t).
In the Consolidated Financial Statements, investments in associated companies are accounted for using the equity method. Under the equity method, the Group’s share of its associates’ post-acquisition profits or losses is recognised in the Income Statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted to the carrying amount of the investment. When the Group’s share of losses in an associated company equals or exceeds its cost of investment in the associated company including any other unsecured receivables, the Group discontinues its share of further losses, unless it has incurred legal or constructive obligations to make payments on behalf of the associated company.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associated companies. Unrealised losses are also eliminated unless the assets transferred are impaired.
In applying the equity method, the Group has ensured that uniform accounting policies for like transactions and other events in similar circumstances of the associated companies are used. The equity method is applied based on the latest audited financial statements or management financial statements that have the same reporting date.
(c) 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 where the strategic financial and operating policy decisions relating to the entity requires unanimous consent of the parties sharing control. The Group’s interests in jointly controlled entities are accounted for in the Consolidated Financial Statements by the equity method of accounting, as disclosed in Note 3. PROTON 2007 ANNUAL REPORT 153 notes to the financial statements - 31 March 2007 (continued)
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) Jointly controlled entities (continued) 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. The cumulative post- acquisition movements are adjusted to the carrying amount of the investment.
Unrealised gains on transactions between the Group and its jointly controlled entities are eliminated to the extent of the Group’s interest in the jointly controlled entities. Unrealised losses are also eliminated unless the assets transferred are impaired.
In applying the equity method, the Group has ensured that uniform accounting policies of jointly controlled entities for like transactions and other events in similar circumstances are used. The equity method is applied based on the latest audited financial statements or management financial statements that have the same reporting date.
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. The accounting policy on Impairment of Assets is set out in Note 3(t).
(d) Investments The Group uses its judgement to determine the classification of its investments into current and non-current. An investment is classified as current if it is readily realisable and it is held for trading or intended to be realised within 12 months after the balance sheet date. All other investments are classified as non-current.
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 period in which the decline is identified.
Current investments are carried at the lower of cost and market value, determined on an aggregate portfolio basis. Cost is derived at on the weighted average basis whilst 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 marketable securities are credited/charged to the Income Statement.
On disposal of an investment, the difference between net disposal proceeds and its carrying amount is credited/charged to the Income Statement. 154 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Property, plant and equipment Property, plant and equipment are tangible items that:
I. are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and II. are expected to be used during more than one period.
(i) Cost Property, plant and equipment are initially stated at cost. Cost includes expenditure that is directly attributable to the acquisition of the items and bringing them to the location and condition so as to render them operational in the manner intended by the Group. The Group allocates the initial cost of an item of property, plant and equipment to its significant component parts.
A piece of freehold land held by the Group 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.
The Group has adopted the transitional provision of IAS16 (revised) which allows the freehold land to be stated at the amount revalued on 5 September 1983. All other land held by the Group is stated at cost.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the Income Statement during the financial period in which they are incurred.
(ii) Depreciation Freehold land is not depreciated as it has an infinite life. Depreciation of other property, plant and equipment is provided for on a straight line basis to write off the cost or valuation of each asset to its residual value over the estimated useful lives. The assets’ residual values, useful lives and depreciation method are reviewed annually and revised if appropriate. PROTON 2007 ANNUAL REPORT 155 notes to the financial statements - 31 March 2007 (continued)
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Property, plant and equipment (continued) (ii) Depreciation (continued) The principal estimated useful lives of depreciation used are as follows:
Long term leasehold land over period of lease term of 98 years Buildings 15-40 years Plant and machinery 5-15 years Office equipment, furniture and fittings 2-8 years Vehicles 3-5 years
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 7 years.
Work in progress is not depreciated. Upon completion, the related costs will be transferred to the respective categories of assets. Depreciation on work in progress commences when the assets are ready for their intended use. Cost of toolings for pre-production are written off in the year they are incurred.
(iii) Impairment Where an indication of impairment exists, the carrying amount of the assets is assessed and written down immediately to its recoverable amount. The accounting policy on Impairment of Assets is set out in Note 3(t).
(iv) Gains or Losses on Disposal Gain or losses on disposals are determined by comparing proceeds with carrying amount and are included in profit/(loss) from operations. On disposal of revalued assets, amounts in revaluation reserve relating to those assets are transferred to retained earnings.
(v) Repairs and maintenance Repairs and maintenance are charged to the Income Statement during the period in which they are incurred. The cost of major renovations are included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. 156 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) Intangible assets (i) Goodwill Goodwill is carried at cost less accumulated impairment losses. Goodwill is tested for impairment at least annually, or when events or circumstances occur indicating that an impairment may exist. Impairment of goodwill is charged to the Consolidated Income Statement as and when it arises. Impairment losses on goodwill are not reversed. Gains or losses on the disposal of an entity include the carrying amount of goodwill relating to the entity disposed.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each cash-generating unit or a group of cash-generating units represents the lowest level within the Group at which goodwill is monitored for internal management purposes and which are expected to benefit from the synergies of the combination. The Group allocates goodwill to each business segment in each country in which it operates.
Goodwill on acquisition of associated companies and jointly controlled entities are included in the carrying value of the investment in associated companies and jointly controlled entities respectively. Such goodwill are tested for impairment as part of the overall balance.
(ii) Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (3 to 5 years).
(iii) Research and development cost Research expenditure is recognised as an expense when incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when the criteria for recognition in FRS 138 are fulfilled.
Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development expenses capitalised include costs incurred in the development from the date it first meet the recognition criteria and up to the completion of the development project and commencement of commercial production. Capitalised development expenditures are stated at cost less accumulated amortisation and accumulated impairment losses, if any. Amortisation is based on the expected production volume over its total useful life, which does not exceed 7 years for vehicles and 10 years for mechanical parts. PROTON 2007 ANNUAL REPORT 157 notes to the financial statements - 31 March 2007 (continued)
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Leases Finance leases are leases of property, plant and equipment where the Group assumes substanstially 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 3(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.
(h) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on a first-in, first-out basis. Cost includes the actual cost of materials and incidentals in bringing the inventories to their present location and condition, and is determined on the first-in, first-out basis. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution. In arriving at net realisable value, due allowance is made for obsolete, slow moving or defective stocks.
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, which are not specifically identified. Other receivables are carried at anticipated realisable values. Bad debts are written off to the Income Statements during the financial year in which they are identified.
(j) 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 (for example, under an insurance contract), the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. When the effect of the time value of money is material, the amount of provision is the present value of the expenditure expected to be required to settle the obligation. Provisions are not recognised for future operating losses. 158 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) Provisions (continued) (i) Warranties Provision is recognised for the estimated liability on all products under warranty in addition to claims already received and verified. 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.
(ii) Onerous contracts The Group recognises a provision for onerous contracts when the expected benefits to be derived from a contract are less than the unavoidable costs of meeting the obligations under the contract.
(k) 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. PROTON 2007 ANNUAL REPORT 159 notes to the financial statements - 31 March 2007 (continued)
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Employee benefits (continued) (ii) Post employment benefits (continued)
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.
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 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 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. 160 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) 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 subsidiary companies, associated companies and jointly controlled entities 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.
Deferred tax assets and liabilities are not recognised on temporary differences arising from:
(i) goodwill; or
(ii) from the initial recognition of an asset or liability in a transaction which is not a business combination and at time of the transaction, affects neither accounting profit nor taxable profit.
Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
(m) Foreign currency transactions and translation (i) Functional and Presentation Currency Items included in the financial statements of each of the Group’s entities are measured using its functional currency, which is the currency of the primary economic environment in which the entity operates ('the functional currency'). The Consolidated Financial Statements are presented in Ringgit Malaysia, which is the Group's functional and presentation currency. PROTON 2007 ANNUAL REPORT 161 notes to the financial statements - 31 March 2007 (continued)
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m) Foreign currency transactions and translation (continued) (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement.
(iii) Group companies The results and financial position of all the Group companies (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
- assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
- income and expenses for each Income Statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
- all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to shareholders’ equity. When a foreign operation is disposed off or sold, such exchange differences that were recorded in equity are recognised in the Income Statement as part of the gain or loss on disposal.
(n) Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short term, highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the Balance Sheet. 162 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o) Income recognition Revenue from sales of vehicles, spare parts and accessories are recognised when significant risks and rewards have been transferred to buyers. Significant risks and benefits are deemed to have been transferred upon delivery or acceptance of the goods.
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.
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.
(p) 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. PROTON 2007 ANNUAL REPORT 163 notes to the financial statements - 31 March 2007 (continued)
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(p) Financial instruments (continued)
(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
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 settlement of the contracts.
(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.
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. Quoted market prices or dealer quotations for the specific or similar instruments are used for long term debt. Unquoted long term investments are valued based on quoted investments with similar features.
The face values, less any estimated credit adjustments, for financial assets and liabilities classified as current are assumed to approximate their fair values. 164 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(q) Borrowings 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.
Borrowing costs are charged to the Income Statement as an expense in the period in which they have accrued. In subsequent periods, borrowings are stated at cost less repayment made during the year.
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.
Borrowings are classified as current liabilities unless the Group has unconditional right to defer settlement of the liability for least 12 months after the balance sheet date.
(r) Share capital Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares are expensed off in the Income Statement.
Dividends on ordinary shares are recognised as liabilities when proposed or declared before the balance sheet date. A dividend proposed or declared after the balance sheet date, but before the financial statements are authorised for issue, is not recognised as a liability at the balance sheet date. Upon the dividend becoming payable, it will be accounted for as liability.
(s) Contingent liabilities and contingent assets The Group and Company 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. PROTON 2007 ANNUAL REPORT 165 notes to the financial statements - 31 March 2007 (continued)
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(s) Contingent liabilities and contingent assets (continued) 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.
(t) Impairment of assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or whenever events or circumstances occur indicating that an impairment may exist. 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 measured at the higher of the fair value less cost to sell of an asset and its value-in-use. The value-in-use is the net present value of the projected future cash flow derived from that asset discounted at the appropriate discount rate. Assets other than goodwill that suffered impairment are reviewed for possible reversal at each reporting date.
The projected cash flows are based on the Group’s estimates calculated based on historical, industry trend, general market, economic conditions and other available information. 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.
Irrespective of whether there is any indication of impairment, the Group shall test an intangible asset with an indefinite useful life or an intangible asset not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test may be performed at any time during an annual period; it is performed at the same time every year. Different intangible assets may be tested for impairment at different times. However, if such an intangible asset was initially recognised during the current annual period, that intangible asset shall be tested for impairment before the end of the current annual period. 166 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
4 KEY ESTIMATES AND JUDGEMENTS
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have a material impact on the Group’s results and financial position are tested for sensitivity to changes in the underlying parameters. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.
(i) Carrying value of property, plant and equipment The Group assesses impairment of the assets mentioned above whenever the events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable i.e. the carrying amount of the asset is more than the recoverable amount. Recoverable amount is measured at the higher of the fair value less cost to sell for that asset and its value-in-use. The value-in-use is the net present value of the projected future cash flow derived from that asset discounted at an appropriate discount rate.
Projected future cash flows are based on Group’s estimates calculated based on historical, sector and industry trends, general market and economic conditions, changes in technology and other available information regarding the automotive sector, primarily in Malaysia, which is the Group's key market. The assumptions used, results and conclusion of the impairment assessment are stated in Note 13 to the financial statements.
(ii) Estimated useful lives of property, plant and equipment and capitalised development costs The Group reviews annually the estimated useful lives of property, plant and equipment and capitalised development costs based on factors such as business plan and strategies, expected level of usage and future technological developments.
Future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned. A reduction in the estimated useful lives of property, plant and equipment and development costs would increase the recorded depreciation or amortisation and decrease the property, plant and equipment and development cost balance.
PROTON 2007 ANNUAL REPORT 167 notes to the financial statements - 31 March 2007 (continued)
4 KEY ESTIMATES AND JUDGEMENTS (CONTINUED)
(iii) Deferred tax assets Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. This involves significant judgments regarding the future financial performance of the Group, the likely timing and level of future taxable profits together with future tax planning strategies to support the basis of recognition of deferred tax assets. An analysis of the deferred tax balance is set out in Note 20 to the financial statements.
The Directors have considered the ability of the Group to generate sufficient taxable income to utilise the deferred tax asset and have concluded no deferred tax assets should be recognised at 31 March 2007.
(iv) Estimation of income taxes Income taxes are estimated based on the rules governed under the Income Tax Act, 1967. Significant judgment is required in determining the capital allowances and deductibility of certain expenses during the estimation of the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business.
Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax provisions in the period in which such determination is made. The status of the income tax position of the Group is in Note 10 to the financial statements.
(v) Provision for warranty obligations and amounts recoverable Provision is made for the estimated liability on all products under warranty in addition to claims already received. The accrual recorded is based on the actual levels and trends of claims experienced by the Group arising during the period of warranty over a number of years which provides a basis for calculating expected warranty claims. In addition, the Group records an asset for the amount expected to be recoverable from its vendors based on similar actual claims and trends of claims experienced.
An analysis of the estimated obligation and utilisation of the provision is stated in Note 32 to the financial statements.
(vi) Allowance for inventory write down Allowance for inventory write down is made based on an analysis of the ageing profile and expected sales patterns of individual items held in inventory. This requires an analysis of inventory usage based on expected future sales transactions taking into account current market prices, useful lives of models and expected cost to sell. Changes in the inventory ageing and expected usage profiles can have an impact on the allowance recorded. The movement in allowance and the net realisable amount of inventory is stated in Notes 7 and 21 to the financial statements respectively. 168 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
4 KEY ESTIMATES AND JUDGEMENTS (CONTINUED)
(vii) Allowance for receivables The allowance is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. This is determined based on the ageing profile, expected collection patterns of individual receivable balances, credit quality and credit losses incurred. The Group carefully monitors the credit quality of receivable balances and makes estimates about the amount of credit losses that have been incurred at each financial statement reporting date. Any changes to the ageing profile, collection patterns, credit quality and credit losses can have an impact on the allowance recorded.
(viii) Impairment of goodwill The Group tests goodwill for impairment at least annually in accordance with its accounting policy or whenever events or change in circumstances indicate that this in necessary. The assumptions used, results and conclusion of the impairment assessment are stated in Note 14 to the financial statements.
5 SIGNIFICANT EVENT
During the financial year, Perusahaan Otomobil Nasional Sdn Bhd (‘PONSB’), a wholly-owned subsidiary company of the Company entered into a conditional sale and purchase agreement with Tracoma Holdings Berhad ('Tracoma') to acquire the remaining 49% equity interest in PT Proton Tracoma Motors comprising 10,780,000 oridinary shares of USD1.00 each for total cash consideration of USD10,133,200 or USD0.94 per share ('Proposed Acquisition').
At the date of the financial statements, both PONSB and Tracoma have mutually agreed to extend the date to 31 August 2007 for fulfillment of all the conditions precedent in respect of the Proposed Acquisition as stated in the Sale and Purchase Agreement. PROTON 2007 ANNUAL REPORT 169 notes to the financial statements - 31 March 2007 (continued)
6 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 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
Sale of vehicles, spare parts and accessories 4,685,418 7,645,963 - - Gross dividend income 168 - 667,983 111,097 Rendering of services 219,942 142,957 - - Others 6,313 8,012 - - 4,911,841 7,796,932 667,983 111,097
7 (LOSS)/PROFIT BEFORE FINANCE COST
Group Company Restated 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
The following items have been charged/ (credited) in arriving at (loss)/profit from operations:
Gross dividends receivable from: - subsidiary company, unquoted being dividend-in-specie - - (376,482) - - subsidiary company, unquoted - - (289,600) (109,843) - associated companies, unquoted - - (1,733) (1,254) - others, quoted (8,545) (9,525) - - - others, unquoted (168) - (168) - Property, plant and equipment: - depreciation 352,900 341,990 - - - written off 94,263 82,857 - - - impairment - 5,066 - - - loss/(gain) on disposal 250 (218) - - Impairment loss on an investment in a subsidiary - - 327,652 - Amortisation of intangible assets 22,315 9,419 - - Research and development expenditure 48,653 192,429 - - Provision for warranties (net of expected reimbursement) 38,737 81,314 - - 170 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
7 (LOSS)/PROFIT BEFORE FINANCE COST (CONTINUED)
Group Company Restated 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
(Write back of)/allowance for doubtful debts (30,958) 117,923 - - Write back of diminution in value of current investments - (7,202) - - (Gain)/loss on disposal of investment: - current investments (49,975) (2,664) - - - joint ventures - 5,113 - - Statutory audit fees to PricewaterhouseCoopers Malaysia: - current year 945 514 195 87 - underprovision of prior year - 200 - - Other member firms of PricewaterhouseCoopers 1,113 966 - - International Limited* Audit related fees to PricewaterhouseCoopers - Malaysia 525 561 - - Non-audit fees to PricewaterhouseCoopers - Malaysia 2,214 1,373 - - - Other member firms of PricewaterhouseCoopers 393 362 - - International Limited* Operating lease rental 3,975 7,644 - - Hire of plant, machinery and equipment 696 --- Rental of land and building 16,794 12,722 -- Foreign exchange gain: - transactions (21,833) (3,695) - (223) - translation (4,598) (20,365) - - Rental income on land and buildings (1,667) (1,307) - - Interest income (35,563) (67,388) (374) (588) (Write back of)/allowance for inventories write down (30,681) 46,865 - - Insurance claims on Medium Volume Factory Fire - (46,737) - -
* PricewaterhouseCoopers Malaysia and other member firms of PricewaterhouseCoopers International Limited are separate and independent legal entities PROTON 2007 ANNUAL REPORT 171 notes to the financial statements - 31 March 2007 (continued)
8 STAFF COST
Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
Wages, salaries and bonuses 493,768 501,823 - 180 Termination benefits 1,980 1,839 - - Pension cost - defined contribution plan 31,365 31,818 - - - defined benefit plan 21,852 45,065 - - Other employee benefits 38,495 58,874 - 16 Reorganisation and redundancy costs of a principal subsidiary of the Group 27,086 - -- 614,546 639,419 - 196
Number of employees (including executive directors) 9,525 11,159 - -
Directors’ remuneration
The aggregate amount of emoluments receivable by the Directors of the Group and Company during the financial year was as follows:
Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
Non-executive Directors: - fees 1,243 514 621 514 - estimated money value of benefits-in-kind 36 24 - 24 - other benefits 291 178 145 178 Executive Directors: - salaries and bonuses 1,102 955 - 180 - estimated money value of benefits-in-kind 63 57 - 16 - other employee benefits 174 128 - - 2,909 1,856 766 912
Details of the defined contribution and defined benefit plans of the Group and Company are set out in Note 37. 172 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
9 FINANCE COST
Group 2007 2006 RM'000 RM'000
Interest expense on: Long term loans 24,321 29,105 Short term borrowings 9,280 13,791 Others 1,940 982 35,541 43,878
Included in other operating income of the Group is interest income amounting to RM35,563,000 (2006: RM67,388,000).
10 TAXATION
Group Company Restated 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
Taxation in Malaysia Current taxation: - charge for the financial year 50 35,557 101,532 169 - (over)/under accrual in respect of prior years (137,452) 2,005 - (92)
Taxation outside Malaysia Current taxation: - charge for the financial year 3,071 2,173 - - - over accrual in respect of prior years - (568) - -
Deferred taxation (Note 20) Origination and reversal of temporary differences (51) (67,576) - - Write off of deferred tax asset 105,786 - - - (28,596) (28,409) 101,532 77
PROTON 2007 ANNUAL REPORT 173 notes to the financial statements - 31 March 2007 (continued)
10 TAXATION (CONTINUED)
Group Company Restated 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
Taxation for Group and Company (28,596) (28,409) 101,532 77
A numerical reconciliation between the average effective tax rate and the statutory tax rate is as follows:
Group Company Restated 2007 2006 2007 2006 % % % % %
Malaysia tax rate 27 28 27 28 Tax effects of: - double deduction and allowance incentive on qualifying expenditure 5 (388) - - - expenses not deductible for tax purposes (5) 203 - - - income not subject to tax 3 (125) (12) (28) - current year tax losses not recognised (39) 157 - - - over under accrual in respect of prior years 22 8 - - - reversal of previously recognised deferred tax assets (17) 7 - - - recognition of previously unrecognissed tax losses 10 (10) - - - effect on temporary differences not recognised (1) (7) - - - tax on share of associated companies and jointly controlled entities - (45) - - - lower tax rate - 14 - - Average effective tax rate 5 (158) 15 -
174 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
10 TAXATION (CONTINUED)
Group Company Restated 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
Disclosure items:
Current year tax losses utilised during the financial year 31,267 1,057 - - Tax savings arising from such tax losses 8,442 298 - -
Previously unrecognised tax losses utilised during the financial year 223,263 6,675 -- Tax savings arising from such tax losses 60,281 1,869 - -
Unutilised tax losses carried forward 843,939 614,461 -- Unutilised reinvestment allowance 1,561,714 1,421,028 - -
The tax recoverable which resulted from a writeback arose following the Inland Revenue Board (IRB) agreeing to settle tax disputes in respect of one of the subsidiary’s treatment of certain items in the tax submissions for Years of Assessment 1989 to 1993. PROTON 2007 ANNUAL REPORT 175 notes to the financial statements - 31 March 2007 (continued)
11 (LOSS)/EARNINGS PER SHARE
Basic (loss)/earnings per share is calculated by dividing the net (loss)/profit attributable to shareholders by the weighted average number of ordinary shares in issue during the financial year.
Group 2007 2006
Net (loss)/profit attributable to shareholders (RM’000) (589,533) 46,690 Weighted average number of ordinary shares in issue (‘000) 549,213 549,213 Basic (loss)/earnings per share (sen) (107.34) 8.50
Diluted (loss)/earnings per share is not presented in the financial statements since there are no dilutive potential ordinary shares.
12 DIVIDENDS
There is no dividend proposed in respect of the financial year ended 31 March 2007.
Group 2007 2006 RM'000 RM'000
Final dividend for the financial year ended 31 March 2006: Tax exempt dividend of 5.0 sen per ordinary share 27,461 -
Final dividend for financial year ended 31 March 2005: Tax exempt dividend of 10.0 sen per ordinary share - 54,921
176 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
13 PROPERTY, PLANT AND EQUIPMENT
Office equipment, Land Plant furniture Long term and fittings and Work-in Freehold leasehold Buildings machinery vehicles progress Total Group Note RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
2007 Cost/valuation At 1 April 2006 45 256,009 10,989 1,279,834 4,082,411 1,084,357 168,856 6,882,456 Currency translation 861 - 9,195 9,819 10,453 (243) 30,085 differences Additions 5,202 - 196 15,717 48,143 249,577 318,835 Disposals - - (22) (27,592) (13,217) (2,851) (43,682) Written off - - (2,583) (15,559) (52,300) (91,287) (161,729) Reclassification - - 46,071 76,218 13,239 (135,528) - Transfer to inventory - - (1,170) - - - (1,170) At 31 March 2007 262,072 10,989 1,331,521 4,141,014 1,090,675 188,524 7,024,795
Office equipment, Land Plant furniture Long term and fittings and Work-in Freehold leasehold Buildings machinery vehicles progress Total Group Note RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
2007 Accumulated depreciation At 1 April 2006 45 - 933 345,130 2,270,842 663,786 - 3,280,691 Currency translation differences - - 1,766 5,007 5,160 - 11,933 Charge for the financial year - 112 39,366 210,626 102,796 - 352,900 Disposals - - - (27,585) (9,085) - (36,670) Written off - - (671) (15,421) (51,374) - (67,466) Reclassification ------Transfer to inventory - - (264) - - - (264) At 31 March 2007 - 1,045 385,327 2,433,469 711,283 - 3,541,124
PROTON 2007 ANNUAL REPORT 177 notes to the financial statements - 31 March 2007 (continued)
13 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Office equipment, Land Plant furniture Long term and fittings and Work-in Freehold leasehold Buildings machinery vehicles progress Total Group RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
2007 Accumulated impairment losses At 1 April 2006 13,671 - 138,713 80,436 55,998 - 288,818 Currency translation differences 920 - 7,304 4,150 3,040 - 15,414 Charge for the financial year ------Disposals ------At 31 March 2007 14,591 - 146,017 84,586 59,038 - 304,232
Net book value At 31 March 2007 247,481 9,944 800,177 1,612,959 320,354 188,524 3,179,439
Office equipment, Land Plant furniture Long term and fittings and Work-in Freehold leasehold Buildings machinery vehicles progress Total Group (restated) Note 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) - As previously stated 256,009 10,989 1,279,834 4,082,411 1,111,775 168,856 6,909,874 Effect of adopting FRS 138 15 - - - - (27,418) - (27,418) At 31March 2006 as restated 256,009 10,989 1,279,834 4,082,411 1,084,357 168,856 6,882,456 178 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
13 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Office equipment, Land Plant furniture Long term and fittings and Work-in Freehold leasehold Buildings machinery vehicles progress Total Group (restated) Note 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) As previously stated - 933 345,130 2,270,842 673,205 - 3,290,110 Effect of adopting FRS 138 15 - - - - (9,419) - (9,419) At 31 March 2006 as restated - 933 345,130 2,270,842 663,786 - 3,280,691
Office equipment, Land Plant furniture Long term and fittings and Work-in Freehold leasehold Buildings machinery vehicles progress Total Group (restated) RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
2006 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 as restated 13,671 - 138,713 80,436 55,998 - 288,818
Net book value At 31 March 2006 as restated 242,338 10,056 795,991 1,731,133 364,573 168,856 3,312,947 PROTON 2007 ANNUAL REPORT 179 notes to the financial statements - 31 March 2007 (continued)
13 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
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 this 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 (2006: RM22,448,000).
The long term leasehold land comprise 2 parcels of land held by certain subsidiary companies which have unexpired leases of 90 and 69 years respectively as at 31 March 2007 (2006: 91 and 70 years respectively).
The title deed to the land of the Group amounting to net book value of RM72,258,000 (2006: RM72,258,000) has not been transferred pending subdivision of the master title.
During the financial year, the Group acquired office equipment with an aggregate cost of RM6,778,500 (2006: Nil) by means of a finance lease. The net book value of the office equipment under finance lease at the balance sheet date was RM6,493,803 (2006: Nil).
Impairment test for property, plant and equipment The carrying value of property, plant and equipment of a subsidiary company at balance sheet date is RM2,812,826,000 (2006: RM2,914,708,000). During the financial year, the subsidiary company undertook a test for impairment of property, plant and equipment.
The property, plant and equipment were allocated to the subsidiary company’s cash-generating units, i.e. production plants.
(a) Key assumptions used in the value-in-use calculations The recoverable amounts of the production plants are determined based on value-in-use calculations. This value-in-use calculations apply a discounted cash flow model using cash flow projections covering a ten-year period for the two older production plants and a fifteen-year period for the new production plant. The projections over these periods reflect the subsidiary company’s expectation of usage, revenue growth, operating costs and margins for each production plant based on past experience and current assessment of market share, expectations of market growth and industry growth. The value- in-use calculation for the newer plant reflects the initial low utilisation and the expectation of increased utilisation to the end of the useful life of the plant.
Cash flows projections beyond the tenth year for the two older production plants and fifteenth year for the new production plant are not extrapolated using estimated terminal growth rates. However the cash flow projections are assumed to be derived from the dismantling of the production plants and disposal of the land on which the 3 specific plants are located.
180 PROTON 2007 ANNUAL REPORT notes to the financial statements - 31 March 2007 (continued)
13 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) (a) Key assumptions used in the value-in-use calculations (continued) For purposes of the value-in-use calculation, a discount rate of 13% has been applied. The discount rate reflects the prevailing independent market rate applicable to the Group in Malaysia.
The sales volumes used in the projections indicate a significant increase from current levels as the subsidiary company is planning to introduce new models where capital expenditure has been incurred to date, over the projection periods. However, the projected sales volume does not include future new models for which capital expenditure has not been incurred.
The terminal value assumed for the disposal of land resulted in a discounted cash flow which is significantly higher than the historical cost to the subsidiary company.
b) Impact of possible changes in key assumptions Sensitivity analysis show that no impairment loss is required for the carrying amount of property, plant and equipment assessed, including where realistic variations are applied to key assumptions. PROTON 2007 ANNUAL REPORT 181 notes to financial statements - 31 March 2007 (continued)
14 GOODWILL
Group 2007 2006 RM'000 RM'000
At 31 March 29,008 29,008
Impairment tests for goodwill The Group undertook the annual test for impairment of goodwill. The carrying amount of goodwill is allocated to the Group's cash generating unit.
(a) Key assumptions used in the value-in-use calculation The recoverable amount of the cash-generating unit including goodwill in this test is determined based on the value-in-use calculation. This value-in-use calculation applies a discounted cash flow model using cash flow projections covering a five- year period for the distribution business in Malaysia. The projections reflect the subsidiary company's expectation of revenue growth, operating costs and margins based on past experience and current assessment of market share, expectation of market growth and industry growth.
For purposes of the value-in-use calculation, a discount rate of 13% has been applied. The discount rate reflects an independent market rate applicable to the Group in Malaysia.
The sales volumes used in the projections indicate a significant increase from current levels as the Group is planning to introduce new models where capital expenditure has been incurred to date, over the projected periods. However, the projected sales volume does not include future new models for which capital expenditure has not been incurred. A nil terminal value has been assumed.
(b) Impact of possible changes in key assumptions Sensitivity analysis show that no impairment loss is required for the carrying amount of goodwill, including where realistic variations are applied to key assumptions.
182 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
15 OTHER INTANGIBLE ASSETS
Capitalised costs for product under Computer development software Total Group Note RM'000 RM'000 RM'000
2007 Cost At 1 April 2006 13 - 27,418 27,418 Additions 142,975 30,379 173,354 At 31 March 2007 142,975 57,797 200,772
Amortisation At 1 April 2006 13 - 9,419 9,419 Exchange rate adjustments (37) - (37) Charge for the financial year 11,648 10,667 22,315 At 31 March 2007 11,611 20,086 31,697
Net book value At 31 March 2007 131,364 37,711 169,075
Group (restated) 2006 Cost At 1 April 2005 - - - Effects of adopting FRS 138 13 - 27,418 27,418 At 31 March 2006 - 27,418 27,418
Amortisation At 1 April 2005 - - - Effects of adopting FRS 138 13 - 9,419 9,419 At 31 March 2006 - 9,419 9,419
Net book value At 31 March 2006 - 17,999 17,999
PROTON 2007 ANNUAL REPORT 183 notes to financial statements - 31 March 2007 (continued)
16 SUBSIDIARY COMPANIES
Company 2007 2006 RM'000 RM'000
Unquoted shares at cost: At 1 April 1,465,659 1,465,659 Additional investments in subsidiaries 570,644 - 2,036,303 1,465,659 Allowance for impairment losses (327,652) - At 31 March 1,708,651 1,465,659
During the financial year, the Group undertook a restructuring exercise of its overseas subsidiaries, Proton Cars Australia Pty. Ltd. ('PCA'), Proton Cars (UK) Ltd. (‘PCUK’) and Lotus Group International Ltd. ('LGIL') which involved partial waiver and capitalisation of inter-company debts. This exercise had resulted in PCA, PCUK and LGIL now having positive shareholders equity.
The additional investments represent subscription for 255,000,000 new Redeemable Convertible Preference Shares ('RCPS') of RM0.10 each for a consideration of RM255,000,000 in Proton Marketing Sdn. Bhd., capitalisation of inter-company loan of RM308,475,000 with the LGIL Group and subscription of 7,169,000 in new ordinary shares of RM0.10 for a consideration of RM7,169,000 in Lotus Advance Technologies Sdn. Bhd..
The details of the subsidiary companies are as follows:
Group's effective Country of interest Name Principal activities incorporation 2007 2006
Perusahaan Otomobil Manufacture, assemble Malaysia 100% 100% Nasional Sdn. Bhd.^ and sale of motor vehicles and related products
Proton Tanjung Malim Sdn. Bhd.^ Assembly of motor vehicles Malaysia 100% 100% and 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% 184 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
16 SUBSIDIARY COMPANIES (CONTINUED)
Group's effective Country of interest Name Principal activities incorporation 2007 2006
Subsidiary of Perusahaan Otomobil Nasional Sdn. Bhd. Proton Automobiles (China) Ltd. ^ Dormant British Virgin 100% 100% Islands
Subsidiaries of Proton Marketing Sdn. Bhd. Proton Corporation Sdn. Bhd. ^ Dormant Malaysia 100% 100%
Proton Cars (UK) Ltd.*^ Distributor of Proton England 100% 100% vehicles in United Kingdom
Proton Cars Australia Pty. Ltd.*^ Importation and Australia 100% 100% distribution of 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, Malaysia 100% 100% related spare parts and accessories
Subsidiaries of Lotus Advance Technologies Sdn. Bhd. Proton Engineering Provision of engineering Malaysia 100% 100% Research Technology Sdn. Bhd.^ services
Lotus Group International Ltd.*^ Investment holding England 100% 100%
Subsidiary of Proton Hartanah Sdn. Bhd. Proton Properties Sdn. Bhd.^ Property development Malaysia 100% 100% and management
PROTON 2007 ANNUAL REPORT 185 notes to financial statements - 31 March 2007 (continued)
16 SUBSIDIARY COMPANIES (CONTINUED)
Group's effective Country of interest Name Principal activities incorporation 2007 2006
Subsidiaries 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%
Subsidiaries of Proton Edar Sdn. Bhd. Proton Singapore Pte. Ltd.*^ Sale of motor vehicles, Singapore 100% 100% related spare parts and accessories
Proton Edar Resources Sdn. Bhd.^ Repair and maintenance Malaysia 100% 100% of motor vehicles (previously dormant)
Proton Edar Ventures Sdn. Bhd.^ Dormant Malaysia 100% 100%
PT Proton Edar Indonesia* Sale of motor vehicles, Indonesia 95% 95% related spare parts and accessories
Subsidiary of Proton Engineering Research Technology Sdn. Bhd. Marco Acquisition Corporation*^ Leasing of equipment United States 100% 100% and asset of America
Subsidiary of Lotus Group International Ltd. Group Lotus Plc*^ Holds intellectual property England 100% 100% 186 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
16 SUBSIDIARY COMPANIES (CONTINUED)
Group's effective Country of interest Name Principal activities incorporation 2007 2006
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 United States 100% 100% operations in North America of America
Subsidiary of Lotus Cars Ltd. Lotus Engineering Ltd.*^ Carries out specific England 100% 100% engineering contracts
Subsidiary of Lotus Engineering Ltd. Lotus Engineering (Malaysia) Sdn. Bhd.^ Engineering consultancy Malaysia 100% 100%
Subsidiaries of Lotus Holdings Inc. Lotus Engineering Inc.*^ Engineering consultancy United States 100% 100% in North America of America
Lotus Cars USA Inc.*^ Car sales and servicing United States 100% 100% of 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 prior to 1 April 2006.
At 31 March 2007, the Directors are of the opinion that the carrying amount of the investment in a subsidiary company exceeds the recoverable amount. Accordingly, an impairment loss of RM327,652,000 was recognised. The Directors estimated the recoverable amount based on a 5 year discounted cash flow model.
PROTON 2007 ANNUAL REPORT 187 notes to financial statements - 31 March 2007 (continued)
17 ASSOCIATED COMPANIES
Group Company Restated 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
Unquoted shares at cost 52,083 52,083 13,600 13,600 Additional investment 7,169 - - - Accumulated impairment losses (22,000) (22,000) - - 37,252 30,083 13,600 13,600 Share of post acquisition reserves 132,506 130,326 - - 169,758 160,409 13,600 13,600
The Group's share of the assets, liabilities, revenue and expenses of the associated companies are as follows:
Group Restated 2007 2006 RM'000 RM'000
Non-current assets 103,615 80,134 Current assets 178,840 168,449 Current liabilities (112,697) (88,174) Net assets 169,758 160,409
Revenue 210,643 245,062 Expenses (excluding tax) (205,793) (222,126) Profit from ordinary activity before taxation 4,850 22,936 Taxation (1,631) (5,903) Profit from ordinary activity after taxation 3,219 17,033 188 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
17 ASSOCIATED COMPANIES (CONTINUED)
The details of the associated companies are as follows:
Group's effective Country of interest Name Principal activities incorporation 2007 2006
PHN Industry Sdn. Bhd. Manufacture and sales Malaysia 35% 35% of stamped parts and sub-assembly of automotive metal components
Marutech Elastomer Manufacture and Malaysia 25% 25% Industries Sdn. Bhd. production of moulded products, extruded and rubber hoses for motor vehicles, motorcycle and other related products
Exedy (Malaysia) Sdn. Bhd. Manufacture and Malaysia 45% 45% assembly of manual clutch and automatic transmission parts
Associated company of Perusahaan Otomobil Nasional Sdn. Bhd. Vina Star Motors Corporation Import, assembly and Socialist 25% 25% distribution of vehicles Republic of Vietnam
Associated company of Proton Hartanah Sdn. Bhd. Proton City Development Property developer and Malaysia 40% 40% Corporation Sdn. Bhd. project management
Associated company of Proton Cars (UK) Ltd. Proton Finance Ltd. Provide dealer and England 49.99% 49.99% customer finance
Associated company of Proton Edar Sdn. Bhd. Netstar Advance Systems Sdn. Bhd. Engaged in the Malaysia 40% 40% manufacture, assembly and sale of vehicle racking devices PROTON 2007 ANNUAL REPORT 189 notes to financial statements - 31 March 2007 (continued)
17 ASSOCIATED COMPANIES (CONTINUED)
Group's effective Country of interest Name Principal activities incorporation 2007 2006
Associated company of Proton Automobile (China) Ltd. Goldstar Proton Automobiles Co. Ltd.* Production of automobile People's 49% 49% tools and components Republic of China
Associated company of Lotus Advance Malaysia 51% 51% Technology Sdn. Bhd. Mizayu (Malaysia) Sdn. Bhd.# Development, marketing and sale of products and service relating to dies, moulds and jigs
* The Board has resolved to dissolve the Company. # In the previous year, the Group had classified Miyazu (Malaysia) Sdn. Bhd. as a jointly controlled entity. The Group has reassessed the classification of its investment in Miyazu following the adoption of FRS 131 “Interests in Joint Ventures” where all significant matters relating to financial and operating matters require the unanimous approval of all ventures. The Directors have now reclassified the investment in Miyazu as an associated company. The change in classification does not have significant impact to the Group.
18 JOINTLY CONTROLLED ENTITIES
Group Restated 2007 2006 RM'000 RM'000
Unquoted shares at cost 179,303 179,303 Accumulated impairment losses (1,114) (1,114) 178,189 178,189 Share of post-acquisition reserves 45,361 67,067 223,550 245,256 190 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
18 JOINTLY CONTROLLED ENTITIES (CONTINUED)
The Group's share of the assets, liabilities, revenue and expenses of the jointly controlled entities are as follows:
Group Restated 2007 2006 RM'000 RM'000
Non-current assets 217,327 227,369 Current assets 89,871 117,910 Current liabilities (83,648) (100,023) Net assets 223,550 245,256
Revenue 172,267 162,561 Expenses (excluding tax) (167,019) (147,763) Profit from ordinary activity before taxation 5,248 14,798 Taxation (3,443) (2,994) Profit from ordinary activity after taxation 1,805 11,804
The details of the jointly controlled entities are as follows:
Group's effective Country of interest Name Principal activities incorporation 2007 2006
Jointly controlled entities of Proton Marketing Sdn. Bhd. Proton Parts Centre Sdn. Bhd.# Trading of motor vehicle Malaysia 55% 55% components, spare parts and accessories
Proton Cars (Europe) Ltd.# Dormant England 56% 56%
Jointly controlled entity of Perusahaan Otomobil Nasional Sdn. Bhd. PT Proton Tracoma Motors (Indonesia)# Manufacturing and sales of Indonesia 51% 51% motor vehicles
Jointly controlled entity of Group Lotus Plc Lotus Finance Ltd. Motor vehicles financing England 49.9% 49.9% PROTON 2007 ANNUAL REPORT 191 notes to financial statements - 31 March 2007 (continued)
18 JOINTLY CONTROLLED ENTITIES (CONTINUED)
Group's effective Country of interest Name Principal activities incorporation 2007 2006
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.
There are no commitments and contingencies relating to the jointly controlled entities.
Impairment test for investment in PT Proton Tracoma The carrying amount of the Group's investment in PT Proton Tracoma at balance sheet date is RM29.1 million (2006: RM37.6 million). The Group undertook the test for impairment of its investment in PT Proton Tracoma.
(a) Key assumptions used in the value-in-use calculations The recoverable amount of the investment is determined based on value-in-use calculations. This value-in-use calculation apply a discounted cash flow model using cash flow projections covering a five-year period. The projections reflect the Group's expectation of revenue growth, operating costs and margins for the investment based on the current assessment of market share, expectations of market growth and industry growth.
For purposes of the value-in-use calculation, a discount rate of 22% has been applied. The discount rate reflect the prevailing independent market rate applicable to the industry in the country in which the joint controlled entity operates, as adjusted for risk premium.
The sales volumes used in the projections indicate a significant increase from current levels as the Group is planning to introduce new models over the projection periods and expansion is expected for this relatively new investment.
(b) Impact of possible changes in key assumptions Sensitivity analysis show that no impairment loss is required for the carrying amount of investment in the joint controlled entity assessed, including where realistic variations are applied to key assumptions. 192 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
19 OTHER LONG TERM INVESTMENTS
Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
Unquoted investments in Malaysia: At cost 13,347 13,347 8,575 8,575 Allowance for diminution in value (2,950) (2,950) (2,100) (2,100) 10,397 10,397 6,475 6,475
20 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 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
Subject to income tax: Deferred tax assets - 105,786 - - Deferred tax liabilities (754) (805) - - (754) 104,981 - -
Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
Movement of deferred tax At beginning of financial year 104,981 37,405 - -
(Charged)/credited to Income Statement (Note 10) - property, plant and equipment (46,290) 54,237 - - - inventories (18,987) 589 - - - allowances and provisions (61,361) 9,296 - - - receivables 20,903 3,454 - - (105,735) 67,576 - - At end of financial year (754) 104,981 - - PROTON 2007 ANNUAL REPORT 193 notes to financial statements - 31 March 2007 (continued)
20 DEFERRED TAXATION (CONTINUED)
Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
Deferred tax assets (before offsetting)
- property, plant and equipment - 46,290 - - - inventories - 18,987 - - - allowances and provisions - 61,361 - - - 126,638 - - Offset of deferred tax liabilities - (20,852) - - Deferred tax assets (after offsetting) - 105,786 - -
Deferred tax liabilities (before offsetting) - property, plant and equipment (754) (7,178) - - - receivables - (14,479) -- (754) (21,657) -- Offset against deferred tax assets - 20,852 - - Deferred tax liabilities (after offsetting) (754) (805) - -
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 analysed below. The availability of the unused tax losses and unabsorbed capital allowances for offsetting against future taxable profits of the Company and the respectively subsidiary companies are subject to no substantial changes in shareholdings of those companies under Section 44 (5A) and (5B) of Income Tax Act, 1967. 194 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
20 DEFERRED TAXATION (CONTINUED)
Group 2007 2006 RM'000 RM'000
Deductible temporary differences of which no deferred tax assets is recognised Unrecognised tax losses 243,496 184,214 Unabsorbed capital allowances 347,473 47,395 Unrecognised reinvestment allowances 421,589 397,888 Other temporary differences 8,982 4,661
Taxable temporary differences of which no deferred tax liabilities is recognised Surplus from land revaluation 12,201 11,572
As at 31 March 2007, there is no temporary differences associated with unremitted earnings of subsidiary companies, associated companies and jointly controlled entities for the recognition of deferred tax liabilities (2006: Nil).
21 INVENTORIES
Group 2007 2006 RM'000 RM'000
Raw materials: - completely knocked-down packs of vehicles 230,077 264,920 - others 77,220 148,174 Parts, accessories and general stores 84,992 91,257 Work-in-progress 149,973 102,933 Finished vehicles 693,339 698,931 Goods-in-transit 23,072 65,988 Apartments for sale 14,939 16,802 1,273,612 1,389,005
PROTON 2007 ANNUAL REPORT 195 notes to financial statements - 31 March 2007 (continued)
22 TRADE AND OTHER RECEIVABLES
Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
Trade receivables 786,349 969,300 - - Allowance for doubtful debts (37,550) (52,662) - - 748,799 916,638 - -
Other receivables 140,594 143,778 5 195 Allowance for doubtful debts (70,487) (86,333) - - 70,107 57,445 5 195
Warranty claims recoverable (Note 32) 121,397 125,835 - - Prepayments 25,096 28,709 - - Deposits 15,626 14,224 - - 981,025 1,142,851 5 195
The currency exposure profile of trade and other receivables are as follows:
Currency exposure at 31.3.2007 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 724,825 28,338 77,944 51,098 20,246 902,451 Pound Sterling - 32,767 18,343 19,479 6,399 76,988 Others - - - - 1,586 1,586 724,825 61,105 96,287 70,577 28,231 981,025
Company Functional currency Ringgit Malaysia 5 - - - - 5 196 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
22 TRADE AND OTHER RECEIVABLES (CONTINUED)
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
Credit terms of trade receivable for the Group ranges from 14 days to 360 days (2006: 14 days to 360 days). However, the majority of the Group trade receivables have a credit term between 14 days to 60 days (2006: 14 days to 60 days).
Group sales are concentrated in Malaysia with one major third party customer in Malaysia making up 20% (2006: 31%) of total Group revenue.
23 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.
PROTON 2007 ANNUAL REPORT 197 notes to financial statements - 31 March 2007 (continued)
24 AMOUNTS DUE FROM ASSOCIATED COMPANIES The amounts due from associated companies arose from normal trade transactions. These amounts have credit terms ranging from 30 days to 60 days (2006: 30 days to 60 days).
Currency exposure at 31.3.2007 Ringgit Pound Malaysia Sterling Total RM'000 RM'000 RM'000
Group Functional currency Ringgit Malaysia 22,599 - 22,599 Pound Sterling - 1,715 1,715 22,599 1,715 24,314
Currency exposure at 31.3.2006 Ringgit Pound Malaysia Sterling Total RM'000 RM'000 RM'000
Group (restated) Functional currency Ringgit Malaysia 39,040 - 39,040 Pound Sterling - 1,351 1,351 39,040 1,351 40,391
198 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
25 AMOUNTS DUE FROM JOINTLY CONTROLLED ENTITIES The amounts due from jointly controlled entities arose from normal trade transactions. These amounts have credit terms ranging from 30 days to 45 days (2006: 30 days to 45 days).
Advances to a jointly controlled entity in 2006 were due within 180 days and interest of 7.23% was charged.
Currency exposure at 31.3.2007 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 4,668 - 5,950 - - 10,618
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 (restated) Functional currency Ringgit Malaysia 9,201 - - 74 - 9,275 Pound Sterling - - - 13 - 13 9,201 - - 87 - 9,288
26 CURRENT INVESTMENTS
Group 2007 2006 RM'000 RM'000
Quoted investments in Malaysia: Cost: Shares 15,496 116,736 Commercial paper and corporate debt 584 584 16,080 117,320
Unquoted investments in Malaysia: Cost: Commercial paper and corporate debt 57,368 94,645 73,448 211,965 PROTON 2007 ANNUAL REPORT 199 notes to financial statements - 31 March 2007 (continued)
26 CURRENT INVESTMENTS (CONTINUED)
Group Restated 2007 2006 RM'000 RM'000
Market value of quoted investments: Shares 16,355 121,868 Commercial paper and corporate debt 2,313 4,351 18,668 129,219
27 DEPOSITS, BANK AND CASH BALANCES
Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
Short term funds deposited with: Licensed banks 493,206 1,168,787 9,500 49,000 Discount houses 43,000 227,470 - - Other financial institutions - 57,465 - - 536,206 1,453,722 9,500 49,000 Bank and cash balances 90,269 132,260 1,110 835 626,475 1,585,982 10,610 49,835
Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
0 - 1 month 363,428 626,287 9,500 49,000 2 - 3 months 73,666 83,386 - - 4 - 6 months 94,900 90,500 - - 6 - 12 months 4,212 353,549 - - More than 12 months - 300,000 - - 536,206 1,453,722 9,500 49,000
Bank balances are deposits held at call with banks. 200 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
27 DEPOSITS, BANK AND CASH BALANCES (CONTINUED)
The currency exposure profile of deposits, bank and cash balances are as follows:
Currency exposure at 31.3.2007 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 532,993 21,860 15,495 8,809 1,260 580,417 Pound Sterling - 14,459 3,633 - - 18,092 Australian Dollar - - - 1,215 - 1,215 Others - - - - 26,751 26,751 532,993 36,319 19,128 10,024 28,011 626,475
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 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
Deposits, bank and cash balances in the Company as at 31 March 2007 and 2006 are denominated in Ringgit Malaysia.
The weighted average effective interest rates of deposits at the balance sheet date were 3.22% (2006: 3.10%) per annum for the Group and 2.95% (2006: 2.73%) for the Company.
The Group has facilities comprising Letter of Credit, Banker's Acceptance and Bank Guarantee amounting to RM525.1 million available as at 31 March 2007.
PROTON 2007 ANNUAL REPORT 201 notes to financial statements - 31 March 2007 (continued)
28 SHARE CAPITAL
Group and Company 2007 2006 RM'000 RM'000
Authorised: 1,000,000 1,000,000
Issued and fully paid: At beginning/end of financial year 549,213 549,213
29 RESERVES The Company has sufficient tax credits under Section 108(6) of the Income Tax Act, 1967 to frank all (2006: RM936.3 million) of its retained profits as at 31 March 2007 if paid out as dividends. The extent of the retained earnings not covered at that date amounted to Nil (2006: RM105.6 million).
In addition, the Company has tax exempt income as at 31 March 2007 amounting to approximately RM320.6 million (2006: RM56.6 million) available for distribution as tax exempt dividends to shareholders. This tax exempt income is subject to the agreement by the Inland Revenue Board.
The capital reserves arose as a result of a Group reorganisation exercise whereby all existing shareholders of Perusahaan Otomobil Nasional Sdn. Bhd. ('PONSB') (previously Perusahaan Otomobil Nasional Berhad) exchanged all their ordinary shares of RM1.00 each comprising of 549,213,000 ordinary shares in PONSB for 549,213,000 new ordinary shares of RM1.00 each in the Company in a one-for-one share exchange on 5 April 2004. 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.
30 LONG TERM LIABILITIES
Group 2007 2006 RM'000 RM'000
Unsecured: Long term loans (Note a) 135,027 115,490 Portion repayable within twelve months (Note 36) (58,877) (56,613) 76,150 58.877 202 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
30 LONG TERM LIABILITIES (CONTINUED)
Group 2007 2006 RM'000 RM'000
Secured: Long term loans - 570,900 Portion repayable within twelve months (Note 36) - (570,900) - -
Lease and hire purchase creditors - secured (Note b) 6,400 - Portion repayable within twelve months (Note 31) (956) - 5,444 -
Employee retirement benefits (Notes (d) & 37) 49,842 41,378 Automotive Development Fund (Notes (c) & 43) 50,201 - 181,637 100,255
(a) Long term loans - unsecured Group 2007 2006 RM'000 RM'000
The long term loans are repayable as follows: Within one year (Note (i)) 58,877 56,613 Between one and two years - 58,877 More than two years (Note (ii)) 76,150 - 135,027 115,490
(i) Repayable within one year The loan balance comprises of 2 separate tranches of RM10.9 million (2006: RM21.6 million) and RM48.0 million (2006: RM93.9 million) respectively. The repayment 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 bear a fixed interest rate of 4% per annum and is repayable in Ringgit Malaysia.
Subsequent to the financial year end, the Group obtained a deferment for the repayment of the second tranche loan of RM47.8 million due on 30 September 2007 to 30 September 2009. PROTON 2007 ANNUAL REPORT 203 notes to financial statements - 31 March 2007 (continued)
30 LONG TERM LIABILITIES (CONTINUED) (a) Long term loans - unsecured (continued) (ii) Repayable more than two years Subsequent to the financial year end, the Government of Malaysia has approved a loan of up to RM400 million to the Group at concessionary terms. The loan is due to be repaid in 4 installments over a 4 year period commencing 1 April 2009. At 31 March 2007, RM76.2 million has been advanced by the Government of Malaysia in respect of this facility.
(b) Lease and hire purchase creditors - secured The lease and hire purchase arrangements obtained by subsidiary companies are secured against the assets of the respective subsidiary companies. Group 2007 2006 RM'000 RM'000
The lease and hire purchase creditors are repayable as follows: Within one year 1,403 - Between one and two years 1,403 - Between two and five years 4,216 - Later than five years 820 - Total Gross Payments 7,842 - Less: Finance charges (1,442) - Total Net Payments 6,400 -
(c) Automotive Development Fund The Government of Malaysia has approved the setting up of an Automotive Development Fund ('ADF') under the Ninth Malaysia Plan with the objective of modernising and automating the manufacturing processes, improving efficiency, productivity, quality and the application of automation for the Malaysian automotive industry.
The Government of Malaysia had, at 31 March 2007, disbursed a total of RM50 million to the Group to be utilised for payments to external parties for the purpose of developing and promoting a competitive and viable domestic automotive sector as a means to achieve the objective of the ADF.
(d) Employee retirement benefits The employee retirement benefits represents the scheme operated by Lotus Group International Ltd., as disclosed in Note 37.
204 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
31 TRADE AND OTHER PAYABLES
Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
Trade payables 242,801 250,129 - 617 Other payables 203,553 350,118 790 2,102 Accruals 558,124 625,743 - - Amounts due to related parties 131 21,338 - - Deferred revenue 40,773 - - - Lease and hire purchase creditors - current portion (Note 30) 956 - - - 1,046,338 1,247,328 790 2,719
The currency exposure profile of the trade and other payables are as follows:
Currency exposure at 31.3.2007 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 673,641 22,245 121,510 16,826 20,773 854,995 Pound Sterling 15,893 130,000 25,642 17,414 422 189,371 Others - - - - 1,972 1,972 689,534 152,245 147,152 34,240 23,167 1,046,338
Company Functional currency Ringgit Malaysia 790 - - - - 790
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 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 PROTON 2007 ANNUAL REPORT 205 notes to financial statements - 31 March 2007 (continued)
31 TRADE AND OTHER PAYABLES (CONTINUED)
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
Company Functional currency Ringgit Malaysia 2,658 - - - 61 2,719
Terms of trade payables granted to the Group and Company varies up to 60 days (2006: 60 days) credit days and no credit (2006: no credit) respectively.
32 PROVISIONS
Group 2007 2006 RM'000 RM'000
At 1 April 217,062 239,888 Exchange differences 1,996 (5,043) Charged to income statement 38,737 81,314 Warranties receivable 26,491 (8,946) Additional provision for the financial year 65,228 72,368 Utilised during the financial year (88,219) (90,151) At 31 March 196,067 217,062
The Group expects to be reimbursed by suppliers in respect of warranties amounting to RM121,397,000 (2006: RM125,835,000) as disclosed in Note 22.
33 AMOUNTS DUE TO SUBSIDIARY COMPANIES Amounts due to subsidiary companies are unsecured, denominated in Ringgit Malaysia, interest free and have no fixed repayment terms.
34 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.
206 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
35 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 (2006: 30 days to 45 days).
The currency exposure profile of the amounts due to jointly controlled entities is as follows:
Currency exposure at 31.3.2007 Ringgit Pound US Malaysia Sterling Dollar Total RM'000 RM'000 RM'000 RM'000
Group Functional currency Ringgit Malaysia 25,060 - - 25,060
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 8,736 75 - 8,811
36 SHORT TERM BORROWINGS
Group 2007 2006 RM'000 RM'000
Unsecured: Long term loan - current portion (Note 30) 58,877 56,613 Bankers acceptance 739 1,304 Bank overdrafts 27,128 58,260 86,744 116,177
Secured: Bank overdrafts 77,682 117,689 Long term loan - current portion (Note 30) - 570,900 77,682 688,589 164,426 804,766
PROTON 2007 ANNUAL REPORT 207 notes to financial statements - 31 March 2007 (continued)
36 SHORT TERM BORROWINGS (CONTINUED) The interest rate charged for bank overdrafts during the financial year ranged from 5.79% to 6.79% (2006: 5.50% to 6.83%) per annum.
The bank overdraft facilities are secured by way of a corporate guarantee from a subsidiary company.
The bankers acceptance was drawn in Ringgit Malaysia and payable within 60 days. No interest was charged to the amount drawn (2006: Nil).
The currency exposure profile of the short-term borrowings is as follows:
Currency exposure at 31.3.2007 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 59,616 - - - - 59,616 Pound Sterling - 104,810 - - - 104,810 59,616 104,810 - - - 164,426
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 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 28,243 804,766 208 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
37 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 2005, using the Projected Unit method, updated to 31 December 2006.
The movements during the financial year in the amount recognised in the Consolidated Balance Sheet is as follows :
Group 2007 2006 RM'000 RM'000
At 1 April 41,378 14,213 Currency translation differences 2,013 (3,364) Charged to Income Statement 21,852 45,065 Contributions and benefits paid (15,401) (14,536) At 31 March 49,842 41,378
The amounts recognised in the Consolidated Balance Sheet is analysed as follows:
Group 2007 2006 RM'000 RM'000
Present value of obligation 392,068 370,548 Fair value of plan assets (369,469) (309,543) Shortfall of funded plan 22,599 61,005 Unrecognised actuarial gain 42,040 8,455 Unrecognised transitional liability (14,797) (28,082) Liability on Balance Sheet 49,842 41,378
PROTON 2007 ANNUAL REPORT 209 notes to financial statements - 31 March 2007 (continued)
37 EMPLOYEE RETIREMENT BENEFITS (CONTINUED) The expense recognised in the Consolidated Income Statement is analysed as follows:
Group 2007 2006 RM'000 RM'000
Current service cost 14,383 11,996 Interest cost 19,988 15,159 Expected return on plan assets (22,790) (16,750) Actuarial gain recognised - (2,670) Gain on curtailments and settlement (4,701) - Amortisation of transitional liability 14,972 37,330 Total, included in staff cost within administrative expenses (Note 8) 21,852 45,065
Actual return on plan assets 28,059 65,290
The principal actuarial assumptions used in respect of the Group's defined benefit plan were as follows:
Group 2007 2006 % %
Discount rates 5.40 5.00 Expected return on plan assets - equities 7.50 7.25 - bonds 4.75 4.50 - others 4.00 4.00 Expected rate of salary increase 4.10 3.85 Expected rate of pension payment increase 3.00 2.85 Inflation 3.10 2.85 210 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
38 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.
Inter-segment 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 2007 2006 2007 2006 2007 2006 2007 2006 RM'million RM'million RM'million RM'million RM'million RM'million RM'million RM'million
Revenue External sales 3,729.3 6,654.6 1,182.5 1,142.3 - - 4,911.8 7,796.9 Inter-segment sales 243.0 129.9 124.8 149.6 (367.8) (279.5) - - Total revenue 3,972.3 6,784.5 1,307.3 1,291.9 (367.8) (279.5) 4,911.8 7,796.9
Result Segment operating (loss)/profit (448.4) 58.6 (183.9) (118.1) (49.5) 5.4 (681.7) (54.1) Unallocated expenses - 9.9 Unallocated income 58.50 9.9 Interest expense (35.5) (43.9) Interest income 35.6 67.4 Share of net results of associated companies and jointly controlled entities 14.5 21.3 (4.2) 7.5 (5.3) - 5.0 28.8 Taxation 28.6 28.4 (Loss)/profit after taxation (589.5) 46.4
PROTON 2007 ANNUAL REPORT 211 notes to financial statements - 31 March 2007 (continued)
38 SEGMENTAL INFORMATION (CONTINUED)
Malaysia Other countries Elimination Total 2007 2006 2007 2006 2007 2006 2007 2006 RM'million RM'million RM'million RM'million RM'million RM'million RM'million RM'million
Other information Segment assets 5,379.3 6,907.1 745.4 620.4 - - 6,124.7 7,527.5 Unallocated assets 822.1 785.3 822.1 785.3 Total assets 6,946.8 8,312.8
Segment liabilities 871.1 1,282.1 545.3 278.7 - - 1,416.4 1,560.8 Unallocated liabilities 299.8 881.3 299.8 881.3 Total liabilities 1,716.2 2,442.1
Capital expenditure 294.7 455.4 24.1 23.1 - - 318.8 478.5 Depreciation and amortisation 351.9 336.3 23.3 15.1 - - 375.2 351.4 Assets written off 92.2 82.9 2.1 - - - 94.3 82.9 Impairment - - - 5.1 - - - 5.1 Other non-cash items (26.5) 269.2 3.9 59.5 - - (22.6) 328.7
Unallocated income includes dividend from other investments, gain on disposal of current investments and writeback of provision for diminution in value of current investments. Unallocated expenses represent losses on current investments, both realised and unrealised. Segment assets consist primarily of property, plant and equipment, inventories, receivables and operating cash, and exclude investments in associated companies, jointly controlled entities, long term investments, current 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 13). 212 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
38 SEGMENTAL INFORMATION (CONTINUED)
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 the automobile industry. Therefore, only sales to external customers based on customer location is presented.
Malaysia Other countries Elimination Total 2007 2006 2007 2006 2007 2006 2007 2006 RM'million RM'million RM'million RM'million RM'million RM'million RM'million RM'million
Revenue External sales 3,386.8 6,441.0 1,525.0 1,355.9 - - 4,911.8 7,796.9 Inter-segment sales 243.0 129.9 124.8 149.6 (367.8) (279.5) - - Total revenue 3,629.8 6,570.9 1,649.8 1,505.5 (367.8) (279.5) 4,911.8 7,796.9
39 CAPITAL AND OTHER COMMITMENTS
Capital commitments Capital expenditure for property, plant and equipment approved by the Board not provided for in the financial statements:
Group 2007 2006 RM'000 RM'000
Contracted for 283,328 267,727 Not contracted for 2,266,587 3,900,523 2,549,915 4,168,250
40 OPERATING LEASES
As at 31 March 2007, the Group was committed to making the following payments in respect of operating leases expiring:
Group 2007 2006 Land and Plant and Land and Plant and buildings machinery Total buildings machinery Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Within one year - 1,162 1,162 1,246 2,212 3,458 Between one and five years 1,144 747 1,891 5,753 1,884 7,637 After five years - 123 123 - - - 1,144 2,032 3,176 6,999 4,096 11,095 PROTON 2007 ANNUAL REPORT 213 notes to financial statements - 31 March 2007 (continued)
41 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 subsidiary companies, 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.
(a) Sales of goods and services
Group 2007 2006 RM'000 RM'000 - Jointly controlled entities 13,615 18,650
(b) Purchases of goods and services from:
Group 2007 2006 RM'000 RM'000
- Associated companies 227,435 157,536 - Jointly controlled entities 84,280 165,940 - PEPS-JV (M) Sdn Bhd 128,948 186,259 - Technomeiji Rubber Industries Sdn. Bhd. 7,970 13,597 - Aluminium Alloy Industries Sdn. Bhd. 2,715 16,601 214 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
42 CONTINGENT LIABILITIES (a) A supplier had obtained a judgement in default against a subsidiary company for RM12.2 million after failing to reach a formal agreement. The subsidiary had obtained legal opinion that the claims are without basis and an action to strike out a portion of the claim (i.e. RM7.2million) would be successful.
(b) A Distributor instituted arbitration proceedings against a subsidiary company as a result of the termination of its distributorship, for which the Distributor had claimed USD9,941,973 (RM37,779,497) plus general damages and interest. The Arbitration Award was handed down on 30 October 2006 wherein the Distributor's claim against the subsidiary company was dismissed. The Distributor has filed an action in court to set aside the Arbitration Award. The subsidiary has obtained legal advice that it is highly unlikely that such action will be successful.
43 CASH AND CASH EQUIVALENTS
Group Company 2007 2006 2007 2006 RM'000 RM'000 RM'000 RM'000
Licensed banks 493,206 1,168,787 9,500 49,000 Discount houses 43,000 227,470 - - Other licensed financial institutions - 57,465 - - 536,206 1,453,722 9,500 49,000 Bank and cash balances 90,269 132,260 1,110 835 Deposits, bank and cash balances 626,475 1,585,982 10,610 49,835 Bank overdrafts (104,810) (175,949) - - Fixed deposit pledged as security - (716,841) - - Bank balance in respect of ADF Fund (Note 30) (50,201) - - - 471,464 693,192 10,610 49,835 PROTON 2007 ANNUAL REPORT 215 notes to financial statements - 31 March 2007 (continued)
44 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 subsidiary companies 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.
(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. 216 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
44 FINANCIAL INSTRUMENTS (CONTINUED) (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 2007, the outstanding notional principal amount of the Group foreign exchange contracts are as follows: Group 2007 2006 RM'000 RM'000
Maturity Less than 6 months 149,864 45,873 Between 6 months and 1 year 42,311 41,986 192,175 87,859
The foreign currency amounts to be received and the contractual exchange rates of the Group's outstanding contracts are as follows: Currency Currency to be to be RM'000 Average Hedged item received paid equivalent contracted rate 2007 Group Future purchase of raw materials over the following 6 months JPY USD 114,947 1 USD = RM3.0170 Forecasted receivables - the following 6 months GBP USD 34,917 1 USD = GBP 1.9209 - 6 to 12 months GBP JPY 42,311 1 USD = JPY 219.7491 192,175
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 PROTON 2007 ANNUAL REPORT 217 notes to financial statements - 31 March 2007 (continued)
44 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 Fair Carrying Fair Note amount value amount value RM'000 RM'000 RM'000 RM'000
2007 Recognised on the Balance Sheet Current investments 26 73,448 76,036 - - Other long term investments 19 10,397 * 6,475 * Advance - Government loan facility 30 (76,150) # Lease and hire purchase creditor - long term portion 30 (5,444) (5,036) - -
2006 Recognised on the Balance Sheet Current investments 26 211,965 220,864 - - Other long term investments 19 10,397 * 6,475 * Long term loans - unsecured 30 (115,490) (115,078) - -
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’s share of the net tangible worth of the investments at the balance sheet date is RM15,660,813 (2006 : RM14,956,000). # It was not practicable within the constraints of timeliness and cost to estimate the fair value of the advance from the Government reliably as the terms of the facility has yet to be finalised. 218 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
45 CHANGES IN ACCOUNTING POLICIES The following describes the impact of the new accounting standards, amendments to the published standards and IC interpretations adopted by the Group and Company for financial year beginning 1 April 2006 as listed in Note 2 of Basis of Preparation of the Financial Statements.
(a) Irrelevant or immaterial effect on financial statements The adoption of FRS 1, 2, 3, 5, 102, 108, 110, 121, 127, 128, 132, 133, 140 and the 'assets ceiling' amendments to FRS
119 (2004) did not result in significant changes to the Group and Company's accounting policies. In summary:
• FRS 1, 2, 3, 133, 140 and the amendment to FRS 119 (2004) are not relevant to the Company's operations, • FRS 5 requires the Group and Company to continue to depreciate its property, plant and equipment where assets identified for disposal do not meet the criteria set out by that standard; previously, depreciation ceased when the Board has plans to sell the assets, • FRS 5, 102, 108, 110, 127, 128, 132 and ICs had no material effect on the Group and Company's policies, • FRS 121 had no material effect on the Group and Company's policies as the Group and Company has the same functional currency as its measurement policy.
(b) Reclassification of prior year comparatives Set out below are changes in accounting policies that resulted in reclassification of prior year comparatives but did not effect the recognition and measurement of the Group's net assets: (i) FRS 101 has affected the presentation of minority interest. In the Consolidated Balance Sheets, minority interest is now presented within total equity. In the Consolidated Income Statement, minority interest is presented as an allocation of the net profit or loss for the period. The movement in minority interest is now presented in the Consolidated Statement of Changes in Equity. Consequently, total recognised income and expenses for the period, showing separately the amounts attributable to equity holders of the parent and to minority interest are shown in the Consolidated Statement of Changes in Equity. Share of results in associated companies and jointly controlled entities is now disclosed net of taxation in the Consolidated Income Statement.
(ii) FRS 131 has affected the classification of investment in jointly controlled entity. The Group has reassessed the classification of its investment in Miyazu Sdn Bhd following the adoption of FRS 131 where all significant matters relating to financial and operating matters require the unanimous approval of all venturers. The Directors have now reclassified the investment in Miyazu Sdn Bhd as an associated company. PROTON 2007 ANNUAL REPORT 219 notes to financial statements - 31 March 2007 (continued)
45 CHANGES IN ACCOUNTING POLICIES (CONTINUED) (c) Relevant effect from adoption of new accounting policies or change in accounting policies (i) FRS 116: Property, Plant and Equipment The adoption of FRS 116 has resulted in extension of the accounting policy on property, plant and equipment as follows: • The cost of property, plant and equipment includes costs of dismantling, removal and restoration, the obligation incurred as a consequence of installing the assets; • The assets' residual values and useful life are reviewed and adjusted as appropriate at least at each financial year- end; and • Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance expenses are charged to the Income Statement during the financial period in which they are incurred.
The Group has applied retrospectively the aforesaid and no material adjustment resulted from this assessment.
(ii) FRS 136 : Impairment of Assets The adoption of FRS 136 had resulted in the extension of the accounting policy on impairment of goodwill. The accounting policy on Impairment of Assets is set out in Note 3(t).
(iii) FRS 138 : Intangible Assets The adoption of FRS 138 prospectively resulted in the extension of the accounting policy on intangible assets with the resulting impact: • Computer software was previously capitalized as an integral component of property, plant and equipment. Under FRS 138, such computer software is now recognized separately as an intangible asset and amortised over the useful lives. The change in policy has no significant impact to the Income Statement. • Intangible assets also now includes development cost of products where such costs meet the asset recognition criteria in FRS 138 and the cost is amortised over the expected useful life upon commercial launch of the products. 220 PROTON 2007 ANNUAL REPORT notes to financial statements - 31 March 2007 (continued)
45 CHANGES IN ACCOUNTING POLICIES (CONTINUED) (c) Relevant effect from adoption of new accounting policies or change in accounting policies (continued) The effects of the change in accounting policies as mentioned in (b) and (c)(iii) are as follows:
As previously As reported Adjustments restated RM'000 RM'000 RM'000
Group Income Statements (FRS 101) Share of results of associated and jointly controlled entities 38,924 (10,087) 28,837 Profit before taxation 28,072 (10,087) 17,985 Taxation 18,322 10,087 28,409
Group Balance Sheets (FRS 138) and (FRS 131) Property, plant and equipment - Cost 6,909,874 (27,418) 6,882,456 Property, plant and equipment - Accumulated depreciation (3,290,110) 9,419 (3,280,691) Property, plant and equipment - Net book value 3,330,946 (17,999) 3,312,947 Other intangible assets - 17,999 17,999 Investment in associated companies 155,702 4,707 160,409 Investment in jointly controlled entities 249,963 (4,707) 245,256 Amounts due from associated company 4,394 35,997 40,391 Amounts due from jointly controlled entities 45,285 (35,997) 9,288 Amounts due to associated company 34,904 11,327 46,231 Amounts due to jointly controlled entities 20,138 (11,327) 8,811
46 APPROVAL OF FINANCIAL STATEMENTS The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 24 July 2007.
PROTON 2007 ANNUAL REPORT 221 statement by directors pursuant to section 169(15) of the companies act, 1965
We, Dato' Mohammed Azlan Bin Hashim and Dato' Syed Zainal Abidin Bin Syed Mohamed Tahir, being two of the Directors of Proton Holdings Berhad, state that, in the opinion of the Directors, the financial statements set out on pages 139 to 220 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 2007 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 Financial Reporting Standards, the MASB Approved Accounting Standards in Malaysia for the Entities Other than Private Entities.
Signed on behalf of the Board of Directors in accordance with their resolution dated 24 July 2007.
DATO' MOHAMMED AZLAN BIN HASHIM DATO' SYED ZAINAL ABIDIN BIN SYED MOHAMED TAHIR Chairman Director
222 PROTON 2007 ANNUAL REPORT statutory declaration pursuant to section 169(16) of the companies act, 1965
I, Tan Chun Weng, being 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 139 to 220. 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 27 July 2007, before me.
COMMISSIONER FOR OATHS
PROTON 2007 ANNUAL REPORT 223 report of the auditors to the members of PROTON holdings berhad
We have audited the financial statements set out on pages 139 to 220. These financial statements are the resposibility of the Company’s Director. It is our reponsibility to form an independent opinion, based on our audit, on these financial statements 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 misstatements. 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 evaluting the overall financial statements 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 Financial Reporting Standards, the MASB Approved Accounting Standards in Malaysia for Entities Other Than Private Entities so as to give a true and fair view of:
(i) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements; and
(ii) the state of affairs of the Group and of the Company as at 31 March 2007 and of the results and cash flows of the Group and Company for the financial year ended on that date; and
(b) the accounting and other records and the registers required by the Act to be kept by the Company and by subsidiaries of which we have acted auditors have been propely 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 16 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. 1867/09/08 (J)) Chartered Accountants Partner of the Firm 224 PROTON 2007 ANNUAL REPORT shareholdings statistics as at 16 July 2007
ANALYSIS OF SHAREHOLDINGS Share Capital Authorised Share Capital Issued and Fully Paid Up 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 % of No. of % of Shareholders/ Shareholders/ Shares Issued Held Capital Held Capital
1 - 99 76 1.1180 761 0.0001 100 - 1,000 3,776 55.5457 3,506,447 0.6384 1,001 - 10,000 2,347 34.5249 8,681,890 1.5808 10,001 - 100,000 448 6.5902 13,788,575 2.5106 100,001 - 27,460,649 148 2.1771 202,056,056 36.7901 27,460,650 and above 3 0.0441 321,179,273 58.4799 Total 6,798 100.0000 549,213,002 100.0000
DISTRIBUTIONS OF SHAREHOLDINGS
Malaysian Malaysian Malaysian Malaysian Foreign Foreign Foreign Foreign No. of % of No. of % of No. of % of No. of % of Shareholders/ Shareholders/ Shares Share Shareholders/ Shareholders/ Shares Share Depositors Depositors Held Capital Depositors Depositors Held Capital 1 - 99 73 1.0738 678 0.0001 3 0.0441 83 0.0000 100 - 1,000 3,678 54.1041 3,426,217 0.6238 98 1.4416 80,230 0.0146 1,001 - 10,000 2,215 32.5831 8,122,639 1.4790 132 1.9417 559,251 0.1018 10,001 - 100,000 364 5.3545 10,718,900 1.9517 84 1.2357 3,069,675 0.5589 100,001 - 27,460,649 84 1.2357 101,159,027 18.4189 64 0.9415 100,897,029 18.3712 27,460,650 and above 3 0.0441 321,179,273 58.4799 0 0.0000 0 0.0000 Total 6,417 94.3954 444,606,734 80.9534 381 5.6046 104,606,268 19.0466
SUBSTANTIAL SHAREHOLDERS
Name Shareholding %
1 KHAZANAH NASIONAL BERHAD 210,484,693 38.3248 2 EMPLOYEES PROVIDENT FUND BOARD 67,573,900 12.3038 3 PETROLIAM NASIONAL BERHAD 43,120,680 7.8514 321,179,273 58.48
PROTON 2007 ANNUAL REPORT 225 shareholdings statistics as at 16 July 2007 (continued)
THIRTY LARGEST SHAREHOLDERS
Name of Shareholders No. of Shares %
1 KHAZANAH NASIONAL BERHAD 210,484,693 38.3248 2 EMPLOYEES PROVIDENT FUND BOARD 67,573,900 12.3038 3 CARTABAN NOMINEES (TEMPATAN) SDN BHD 43,120,680 7.8514 PETROLIAM NASIONAL BERHAD (STRATEGIC INV) 4 CIMSEC NOMINEES (TEMPATAN) SDN BHD 24,250,000 4.4154 SECURITY TRUSTEE (KCW ISSUE 2) 5 LEMBAGA TABUNG HAJI 16,820,427 3.0626 6 HSBC NOMINEES (ASING) SDN BHD 11,832,198 2.1544 TNTC FOR SAUDI ARABIAN MONETARY AGENCY 7 CITIGROUP NOMINEES (ASING) SDN BHD 9,632,117 1.7538 EXEMPT AN FOR MELLON BANK (MELLON) 8 CARTABAN NOMINEES (ASING) SDN BHD 7,882,800 1.4353 GOVERNMENT OF SINGAPORE INVESTMENT CORPORATION PTE LTD FOR GOVERNMENT OF SINGAPORE (C) 9 HSBC NOMINEES (ASING) SDN BHD 5,723,300 1.0421 TNTC FOR BRANDES INSTITUTIONAL EQUITY TRUST 10 CARTABAN NOMINEES (TEMPATAN) SDN BHD 5,427,500 0.9882 AMANAH SSCM NOMINEES (TEMPATAN) SDN BHD FOR EMPLOYEES PROVIDENT FUND BOARD (JF404) 11 CITIGROUP NOMINEES (ASING) SDN BHD 5,200,100 0.9468 GSI FOR INDUS EVENT DRIVEN MASTER FUND LTD 12 CARTABAN NOMINEES (ASING) SDN BHD 4,856,700 0.8843 SSBT FUND NDS6 FOR NORTHROP GRUMMAN PENSION MASTER TRUST 13 MALAYSIA NOMINEES (TEMPATAN) SENDIRIAN BERHAD 4,782,500 0.8708 MIDF AMANAH ASSET MANAGEMENT BERHAD FOR AMANAH MILLENIA FUND BERHAD (JM730) 14 PERMODALAN NASIONAL BERHAD 4,599,900 0.8375 15 CITIGROUP NOMINEES (TEMPATAN) SDN BHD 4,344,500 0.7910 EXEMPT AN FOR PRUDENTIAL ASSURANCE MALAYSIA BERHAD 16 HSBC NOMINEES (ASING) SDN BHD 3,856,014 0.7021 BNY BRUSSELS FOR ING EMERGING COUNTRIES FUND 17 VALUECAP SDN BHD 3,829,600 0.6973 18 CARTABAN NOMINEES (ASING) SDN BHD 3,769,600 0.6864 INVESTORS BANK AND TRUST COMPANY FOR ISHARES, INC. 226 PROTON 2007 ANNUAL REPORT shareholdings statistics as at 16 July 2007 (continued)
THIRTY LARGEST SHAREHOLDERS (CONTINUED)
Name of Shareholders No. of Shares %
19 CITIGROUP NOMINEES (ASING) SDN BHD 3,652,500 0.6650 CBNY FOR DFA EMERGING MARKETS FUND 20 HSBC NOMINEES (ASING) SDN BHD 3,152,900 0.5741 EXEMPT AN FOR JPMORGAN CHASE BANK, NATIONAL ASSOCIATION (AUSTRALIA) 21 CARTABAN NOMINEES (ASING) SDN BHD 3,033,700 0.5524 GOVERNMENT OF SINGAPORE INVESTMENT CORPORATION PTE LTD FOR MONETARY AUTHORITY OF SINGAPORE (H) 22 HSBC NOMINEES (ASING) SDN BHD 2,775,476 0.5054 TNTC FOR UTAH STATE RETIREMENT SYSTEMS 23 CITIGROUP NOMINEES (ASING) SDN BHD 2,741,100 0.4991 EXEMPT AN FOR AMERICAN INTERNATIONAL ASSURANCE LIMITED 24 CARTABAN NOMINEES (ASING) SDN BHD 2,612,466 0.4757 SSBT FUND NXW3 FOR BRANDES GLOBAL SMALL CAP EQUITY FUND 25 CARTABAN NOMINEES (TEMPATAN) SDN BHD 2,302,000 0.4191 EXEMPT AN FOR AMANAH SSCM NOMINEES (TEMPATAN) SDN BHD (ACCOUNT 1) 26 HSBC NOMINEES (ASING) SDN BHD 2,201,875 0.4009 EXEMPT AN FOR FORTIS BANQUE LUXEMBOURG (OPCVM A/C) 27 BANK SIMPANAN NASIONAL 1,883,000 0.3429 28 MAYBAN NOMINEES (TEMPATAN) SDN BHD 1,865,400 0.3396 AVENUE INVEST BERHAD FOR KUMPULAN WANG AMANAH PENCEN (E00170-220136) 29 BANK SIMPANAN NASIONAL 1,861,600 0.3390 30 BANK SIMPANAN NASIONAL 1,839,000 0.3348 TOTAL 467,907,546 85.1960
DIRECTOR’S SHAREHOLDINGS None of the Directors hold any shares in the Company. PROTON 2007 ANNUAL REPORT 227 properties owned by PROTON Group as at 31 March 2007
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 Freehold 05.09.1983 22 years Land: 68.4 Mukim of Damansara, District 6,231,080 sq. ft. with main Buildings: 141.7 of Petaling, Selangor Darul office, main factory, engine Ehsan. (Formerly, HICOM factory, medium volume Industrial Estate encompassing factory, canteen buildings, part of Lots 563, 564, 568, sports facilities, car park for 570 and Lot 15, Mukim of production cars and additional Damansara, District of R&D laboratories building. Petaling, Selangor Darul Total built-up area is Ehsan). 2,594,603 sq. ft.
HICOM Industrial Estate 3 units of flats currently Freehold 09.04.1986 22 years Flats: 0.04 encompassing Lot 572, Mukim rented out. of Damansara, District of Petaling, Selangor Darul Ehsan.
No. H.S.(D) 71309, No. P.T. 80, Land with an area of 158,107 Freehold 19.11.1993 - Land: 2.6 Mukim of Damansara, District of sq. ft. used as the car park for Petaling, Selangor Darul Ehsan. staff. (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).
Lot 25, HICOM Glenmarie Land with an area of Freehold 30.12.1992 13 years Flats: 20.6 Industrial Park, Mukim of 1,036,728 sq. ft. with office, Buildings: 42.9 Damansara, District of factory and canteen buildings Petaling, Selangor Darul and sports facilities used for Ehsan. the Casting Plant. Total built- up area is 194,579 sq. ft. 228 PROTON 2007 ANNUAL REPORT properties owned by PROTON Group as at 31 March 2007 (continued)
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) 86554, No. P.T. Land with an area of Freehold 18.04.1994 13 years Land: 54.9 257 encompassing Lot 54,60 2,396,727sq. ft. adjoining the Track and and 62, Sime UEP Industrial Company's northern boundary buildings: 20.0 Park, Mukim of Damansara, housing the semi-high speed District of Petaling, Selangor test track and control building. Darul Ehsan. Total built-up area is 2,102,731 sq. ft.
No. H.S. (D) B.P.5653 and Land with an area of Freehold 03.02.1999 4 years Land: 1.0 5654 Bil P.T. 16162 and 55,444,116 sq. ft, for the Buildings: 427.0 10163, District of Batang construction of a second Padang, Mukim of Ulu Bernam automobile plant, Timur, Perak Darul Ridwan. administrative building and sports complex facilities. Total built-up area is 3,374,577 sq.ft.
PROPERTY OWNED BY PROTON CARS (UK) LTD.
Ref. AV 915, Units 1-3, Crawley Land with an area of 162,479 Freehold 31.03.1994 31 years Land: 6.5 Way, Avonmouth, Bristol Avon sq. ft. with a parts warehouse Buildings: 1.9 BS11 9YR, England. building.
PROPERTIES OWNED BY PROTON EDAR SDN. BHD.
Vehicel Preparation Centre Vehicle Preparation Centre Freehold 01.12.2000 6 years Buildings: 5.1 (VPC) and stock control building with No H.S. (D) 86555, PT No. 258 total built up area of 101,956 and H.S. (D) 86557, PT sq.ft. No.260, TP 5 Road, Sime UEP Industrial Park, 47600 Subang Jaya, Selangor Darul Ehsan.
PROTON 2007 ANNUAL REPORT 229 properties owned by PROTON Group as at 31 March 2007 (continued)
Location Date of acquisition / Age of Net book value Description and existing use Tenure revaluation building RM’million
PROPERTIES OWNED BY PROTON EDAR SDN. BHD. (CONTINUED)
Centre of Excellence (COE) & Administration & Operations Freehold 01.03.2001 6 years Land: 35.7 Pre-Delivery and Inspection Office and Pre-Delivery & Buildings: 139 Centre (PDI) Inspection Centre with total No H.S. (D) 86596, PT No. built up area of 30,212 sq. ft. 299 and H.S. (D) 86597, PT No. 300, TP 5 Road, Sime UEP Industrial Park, 47600 Subang Jaya, Selangor Darul Ehsan.
No. 2, Lrg. Samarinda 6A, Off 3 storey shop units with Freehold 10.05.2002 5 years Buildings: 0.7 Jalan Kebun H.S (D) 60042, approximately 2,475.7 sq. ft. P.T.No. 64566 Mukim Klang in built-up area. Selangor Darul Ehsan,
Lot 859, Block 16 Kuching Land with an area of Freehold 29.04.2002 5 years Land: 2.8 Central Land District, Stampin 48,383.73 sq. ft. to be used 41/2 Mile, Penrissen Road for sales outlet and service Kuching, Sarawak centre.
No. 218089. Mukim Plentong, Land with an area of 87,120 Freehold 29.04.2002 5 years Land: 8.1 Daerah Johor Bahru, Johor sq. ft. to be used for sales Buildings: 6.6 outlet and service centre.
H.S(D) 63313, P.T.No. 9671 Land with an area of 79,949 Freehold 19.07.2002 41/2 years Land: 3.1 Mukim of Ampangan District of sq.ft. used for sales outlet and 3 years Buildings: 2.9 Seremban, Negeri Sembilan service centre is 7,175 sq.ft. 230 PROTON 2007 ANNUAL REPORT properties owned by PROTON Group as at 31 March 2007 (continued)
Date of acquisition / Age of Net book value Location Description and existing use Tenure revaluation building RM’million
PROPERTIES OWNED BY PROTON EDAR SDN. BHD. (CONTINUED)
H.S.(D) 318392, PTD 81816, Land with an area of 57,267 Freehold 06.08.2002 41/2 years Land: 5.1 Mukim of Pulai, District of sq.ft. to be used for sales Johor Bahru. outlet and service centre.
Part of Lot 45, Held under Land with an area of 87,120 Freehold 01.08.2002 41/2 years Land: 9.7 Master Title geran 29164 Lot sq. ft. to be used for sales 5458, Mukim & District of outlet and service centre. Petaling, Selangor Darul Ehsan.
Lot PT 22489, Mukim Batu Land with an area of 87,120 Freehold 26.08.2002 41/2 years Land: 7.6 District of Gombak, Selangor sq. ft. to be used for sales Darul Ehsan. outlet and service centre.
Lot PT 4352, Mukim Kuah Land with an area of 51,979 Freehold 13.09.2002 41/2 years Land: 1.4 District of Langkawi, Kedah sq. ft. to be used for sales Darul Aman. outlet and service centre.
H.S. (D) 144330, PT 40019 Land with an area of 61,524 Freehold 02.09.2002 41/2 years Land: 9.3 Mukim of Sungai Buloh, sq. ft. to be used for sales 01.03.2004 3 years Buildings: 6.5 District of Petaling, Selangor outlet and service centre. Darul Ehsan.
H.S. (D) 159654, PT.1 Jalan Land with an area of 99,862 Freehold 24.08.2005 11/2 years Land: 13.5 Kemajuan, District of Petaling sq. ft. to be used for sales Jaya, Selangor Darul Ehsan. outlet and service centre. PROTON 2007 ANNUAL REPORT 231 properties owned by PROTON Group as at 31 March 2007 (continued)
Location Date of acquisition / Age of Net book value Description and existing use Tenure revaluation building RM’million
PROPERTIES OWNED BY PROTON EDAR SDN. BHD. (CONTINUED)
No H.S. (D) 86596, PT No. Land with an area of 123,853 Freehold 05.12.2005 11/2 years Land: 5.7 302, TP 5 Road, Sime UEP sq. ft. to be used for Industrial Park, 47600 Subang stockyard area. Jaya, Selangor Darul Ehsan.
PROPERTIES OWNED BY PROTON EDAR VENTURES SDN. BHD.
No. H.S. (D) 588, No. PT. Land with an area of Freehold 11.12.1990 17 years Land: 1.7 2361, Mukim Gelung, District 1,373,925 sq. ft. to be used of Kubang Pasu, Kedah Darul as site for industrial building. Aman.
Lot 1229, Mergong Industrial Land with an area of 45,025 Long 15.05.1977 30 years Land: 0.3 Estate Phase 11, Mukim of sq.ft. with a 1 1/2 storey leasehold Building: 0.2 Mergong, District of Kota building leased to Proton Edar (Year of expiry: Setar, Kedah Darul Aman. Sdn. Bhd. Used as 2076) Pre-Delivery inspection and service centre.
PROPERTY OWNED BY PROTON CORPORATION SDN. BHD.
Lot No. 23 & 24, Section 7 Industrial land with an area of Long 25.02.1998 9 years Land: 10.1 Phase 1A, Pulau Indah approximately 671,204 sq. ft. leasehold of Industrial Park, Westport, used as warehouse for 99 years Pelabuhan Klang, Selangor production export car. (Year of expiry: Darul Ehsan. 2097) 232 PROTON 2007 ANNUAL REPORT properties owned by PROTON Group as at 31 march 2007 (continued)
Date of acquisition / Age of Net book value Location Description and existing use Tenure revaluation building RM’million
PROPERTIES OWNED BY LOTUS CARS LTD. (UK)
Lotus Cars Limited Two parcels of land with a Freehold 26.09.1968 40 years Land: 6.4 Land adjacent to Potash Lane, total area of 6,286,550 sq. ft. Buildings: 80.9 Hethel, Norwich, Norfolk NR with the factory, engineering 14 8EZ, England facilities, offices and test track and of Lotus Group International Land north of Browick Road, Ltd. Total built up area is Hethel, Norwich, Norfolk NR14 515,500 sq. ft. 8EZ, England.
PROPERTY OWNED BY GROUP LOTUS PLC.
Potash Lane Hethel, Norwich, R&D building rented to Freehold 01.03.2000 8 years Buildings: 14.4 Norfolk NR14 8EZ, England. Group’s companies. Total built up area is 86,600 sq.ft.
PROPERTY OWNED BY MARCO ACQUISITION CORPORATION
1254 North Main St, Ann Land with an area of Freehold 24.02.2000 Office: Land: 0.9 Arbor, Michigan, USA. approximately 165,528 sq. ft. 87 years Buildings: 7.1 with office and workshop. Total built up area is 73,000 Workshop: sq. ft. 41 years PROTON 2007 ANNUAL REPORT 233 share price and volume traded
Share Volume Price (RM) (’000)
10.00 5000
9.00 4500
8.00 4000
7.00 3500
6.00 3000
5.00 2500
4.00 2000
3.00 1500
2.00 1000
1.00 500
0.00 0
Apr May Jun July Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul 06 07
Share Price Volume 234 PROTON 2007 ANNUAL REPORT notice of annual general meeting
NOTICE IS HEREBY GIVEN that the Fourth (4th) 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 Thursday, 6 September 2007 at 10.00 a.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 2007;
2. To elect the following Directors who retire in accordance with the Company's Articles of Association:-
Article 104 (i) Encik Mohammad Zainal Bin Shaari RESOLUTION 1 (ii) Tuan Haji Abdul Kadir Bin Md Kassim RESOLUTION 2
Article 111 (i) Dato' Michael Lim Heen Peok RESOLUTION 3 (ii) Dato' Mohd Izzaddin Bin Idris RESOLUTION 4
3. To approve the Directors' fees for the year ended 31 March 2007. RESOLUTION 5
4. To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company and to authorise the Directors to fix their remuneration. RESOLUTION 6
5. To transact any other ordinary business for which due notice has been given. RESOLUTION 7
6. AS SPECIAL BUSINESS To consider and, if thought fit, to pass the following Ordinary Resolution:-
Authority to allot and issue shares pursuant to Section 132D of the Companies Act, 1965 RESOLUTION 8
“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 authorised 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”. PROTON 2007 ANNUAL REPORT 235 notice of annual general meeting
By Order of the Board
MOHD NIZAMUDDIN BIN MOKHTAR (LS NO. 006128) Company Secretary
Shah Alam 15 August 2007
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. If the Form of Proxy is signed under the hand of an officer duly authorised, it should be accompanied by a statement reading “signed as authorised officer under Authorisation Document which is still in force, no notice of revocation having been received.” If the Form of Proxy is signed under the attorney duly authorised, it should be accompanied by a statement reading “signed under Power of Attorney which is still in force, no notice of revocation having been received”. A copy of the Authorisation Document or the Power of Attorney, which should be valid in accordance with the laws of the jurisdiction, in which it was created and is exercised, should be enclosed. 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 28 August 2007. Only a depositor whose name appears on the General Meeting Record of Depositors as at 28 August 2007 shall be entitled to attend the said meeting or appoint proxies to attend and/or vote on his stead.
EXPLANATORY NOTES TO THE SPECIAL BUSINESS:- The Ordinary Resolution No. 8, 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.
236 PROTON 2007 ANNUAL REPORT statement accompanying the notice of annual general meeting
"STATEMENT ACCOMPANYING THE NOTICE OF FOURTH (4TH) 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 Fourth (4th) 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 Thursday, 6 September 2007 at 10.00 a.m. pursuant to the Company's Articles of Association.
Article 104 (i) Encik Mohammad Zainal Bin Shaari Refer to Page 27 of the Annual Report (ii) Tuan Haji Abdul Kadir Bin Md Kassim Refer to Page 28 of the Annual Report
Article 111 (i) Dato' Michael Lim Heen Peok Refer to Page 30 of the Annual Report (ii) Dato’ Mohd Izzaddin Bin Idris Refer to Page 31 of the Annual Report FORM OF PROXY
No. of Shares held
CDS Account No. of Authorised Nominee
I/We (name of shareholder, in capital letters) NRIC No. (new) (old) ID No./Company No. of (full address)being a member 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 Fourth (4th) 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 Thursday, 6 September 2007 at 10.00 a.m and at any adjournment thereof.
My/Our proxy is to vote as indicated below:-
ORDINARY RESOLUTIONS FOR AGAINST 1. To elect the following Directors who retire in accordance with the Company's Articles of Association:- Article 104 i. Encik Mohammad Zainal Bin Shaari Resolution 1 ii. Tuan Haji Abdul Kadir Bin Md Kassim Resolution 2 Article 111 i. Dato' Michael Lim Heen Peok Resolution 3 ii. Dato' Mohd Izzaddin Bin Idris Resolution 4 2. To approve the Directors' fees for the year ended 31 March 2007. Resolution 5 3. To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company and to authorise the Directors to fix their remuneration. Resolution 6 4. To transact any other ordinary business for which due notice has been given. Resolution 7 AS SPECIAL BUSINESS 5. To consider and, if thought fit, to pass the following resolution:- Ordinary Resolution - Authority to allot and issue shares pursuant to Section 132D of the Companies Act, 1965. Resolution 8
(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 2007. 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. If the Form of Proxy is signed under the hand of an officer duly authorised, it should be accompanied by a statement reading “signed as authorised officer under Authorisation Document which is still in force, no notice of revocation having been received.” If the Form of Proxy is signed under the attorney duly authorised, it should be accompanied by a statement reading “signed under Power of Attorney which is still in force, no notice of revocation having been received”. A copy of the Authorisation Document or the Power of Attorney, which should be valid in accordance with the laws of the jurisdiction, in which it was created and is exercised, should be enclosed. 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 28 August 2007. Only a depositor whose name appears on the General Meeting Record of Depositors as at 28 August 2007 shall be entitled to attend the said meeting or appoint proxies to attend and/or vote on his stead.
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TENAGA KOPERAT SDN. BHD. 20th Floor, Plaza Permata Jalan Kampar, Off Jalan Tun Razak 50400 Kuala Lumpur
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