Financial Statements (Expressed In Ringgit Malaysia) 90 Directors’ Report 107 Report Of The Auditors 108 Balance Sheets 109 Income Statements 110 Statements Of Changes In Equity 113 Cash Flow Statements 116 Notes To The Financial Statements 221 Statement By Directors 221 Statutory Declaration Directors’ Report The directors have pleasure in presenting their report together with the audited financial statements of AMMB HOLDINGS BERHAD for the financial year ended 31 March 2004 which have been prepared in accordance with the provisions of the Companies Act, 1965, the Banking and Financial Institutions Act, 1989, the Insurance Act, 1996 and the applicable approved accounting standards in Malaysia. Principal Activities The principal activity of the Company is that of an investment holding company. The subsidiary companies, as listed in Note 13 to the Financial Statements, provide a wide range of merchant banking, commercial banking, retail financing and related financial services which also include the Islamic Banking Business, underwriting of general and life insurance, stock and share-broking, futures broking, investment advisory and asset, property and unit trust management. There have been no significant changes in the nature of the activities of the Group and the Company during the financial year. Significant Events 1. On 30 April 2003, AmFinance Berhad (AmFinance) (formerly known as MBF Finance Berhad) issued RM200 million nominal amount of Negotiable Interest-Bearing Redeemable Unsecured Subordinated Bonds (Subordinated Bonds) to increase its capital funds.The subordinated bonds are issued for a period of ten years to be repaid on 30 April 2013 and bear interest varying from 7.95% to 10.45% per annum, payable on a half yearly basis. 2. On 2 April 2003, AmMerchant Bank Berhad (AmMerchant Bank) entered into a conditional sale and purchase agreement with Symphony House Berhad (Symphony House) to dispose of its entire 25.5% equity interest amounting to 637,500 ordinary shares of RM1.00 each in Malaysian Issuing House Sdn Bhd (MIH), to Symphony House for a cash consideration of RM624,272. 90 The purchase consideration was arrived at on a willing-buyer and willing-seller basis, based on the adjusted pro- forma unaudited net tangible assets of MIH as at 31 December 2002. The disposal was completed on 30 July 2003.The final cash consideration in respect of the disposal was revised from RM624,272 to RM637,500 based on the pro-forma audited net tangible assets of MIH as at 30 June 2003 of RM2,500,000 (after adjusting for the final dividend paid to all the shareholders of MIH, including AmMerchant Bank, for the year ended 30 June 2003). 3. On 10 April 2003, Frasers International Pte Ltd (FIPL) completed a capital reduction exercise wherein all redeemable convertible cumulative preference shares and irredeemable convertible cumulative preference shares were converted to ordinary shares in FIPL. This exercise resulted in a capital reduction of 9.8 million ordinary shares and repayment of S$9.8 million to all shareholders in proportion to their respective equity interests in FIPL, of which capital repayment to AmMerchant Bank amounted to S$4,844,032. 4. On 10 May 2003, the Company received the approval of Bank Negara Malaysia (BNM) for the Company to commence negotiations with EON Capital Berhad for a possible merger between the two banking groups. However, the discussion were mutually terminated on 25 June 2003. 5. On 10 June 2003, the Company acquired 2 ordinary shares of RM1.00 each representing the entire issued share capital of AmNotes Series-A Sdn Bhd (AmNotes), a dormant company for a cash consideration of RM2.00, thereby making AmNotes a wholly owned subsidiary of the Company. AmNotes was incorporated on 2 August 1997 and has an authorised share capital of RM10 million divided into 10 million ordinary shares of RM1.00 each with an issued and paid-up share capital of RM2.00. The intended principal activity of AmNotes is to provide management services to the companies within the AmBank Group. On 24 June 2003, AmNotes changed its name to AmManagement Services Sdn Bhd. AMMB Holdings Berhad • (Incorporated In Malaysia) Directors’ Report (Cont’d) 6. Arab-Malaysian Credit Berhad (AMCB) increased its issued and fully paid-up share capital from RM165,000,000 to RM215,000,000 through rights issues of 50,000,000 new ordinary shares of RM1.00 each at par in cash for the purpose of meeting its working capital requirements. 7. On 9 July 2003, the Company had received the approval of BNM to commence discussions with Commerce Asset- Holding Berhad for the possible merger of AmBank Berhad (AmBank) with Bumiputra-Commerce Bank Berhad and AmFinance with Bumiputra-Commerce Finance Berhad. The discussions were mutually terminated on 5 September 2003. 8. Pursuant to the Sale and Purchase Agreement entered into between AMFB Holdings Berhad (AMFB) and Danamodal Nasional Berhad (Danamodal) dated 3 August 2001 for the acquisition of AmFinance, a contingent sum of up to RM450.0 million is payable to Danamodal as part of the consideration. The contingent cash payment of up to RM450.0 million,shall be payable if and only if AmFinance recovers in cash over a five year period from 30 September 2001, any amount in excess of the net book value of all non-performing loans (NPLs), NPLs sold to Danaharta and NPLs written off in the books of AmFinance, as at 30 September 2001 on an account to account basis; and all investments securities, collateralised debts, other assets, liabilities or contingent items in respect of amounts which have been written down or an adjustment/provision made. On 14 October 2003, AMFB entered into a Settlement Agreement with Danamodal for an early settlement of the Contingent Amount for RM255.0 million (Settlement Amount). The Settlement Amount together with the total interest of RM16.915 million in respect of the recoveries of NPLs and securities were paid to Danamodal on 15 October 2003. Accordingly, the total final purchase consideration for the acquisition of AmFinance is RM730 million. 9. On 28 October 2003, the Company entered into a Supplemental Facility Agreement with Danamodal, whereby the RM680 million Subordinated Term Loan obtained from Danamodal was novated to Astute Assets Berhad. The terms and conditions of the loan remain the same, except for interest payable on the loan, which is charged at 6.5% per annum until 19 December 2006, 7.0% per annum from 20 December 2006 until 19 December 2007, and 7.5% per annum from 20 December 2007 until 19 December 2011. 91 10. On 29 December 2003, AmAssurance Berhad (AmAssurance) entered into four (4) separate sale and purchase agreements (SPAs) with Melawangi Sdn Bhd (MSB), a wholly-owned subsidiary of Arab-Malaysian Corporation Berhad (AMCORP) for the acquisition of four (4) units of office premises (Office Premises) located at the AMCORP Trade Centre (ATC) for a total cash consideration of RM7,239,210 (The Acquisition). The Office Premises have a leasehold term of 99 years which will be expiring on 11 September 2088. The Office Premises are currently tenanted. Upon the completion of The Acquisition, MSB will assign all its rights under the tenancy agreements with the existing tenants to AmAssurance. The Acquisition would provide an opportunity for AmAssurance to receive better returns on its investments as compared to the prevailing low fixed deposit rate and take advantage of the potential capital appreciation in properties in the medium to long term. 11. AmBank increased its issued and fully paid-up share capital from RM505,468,750 to RM708,593,750 through a rights issue of 203,125,000 new ordinary shares of RM1.00 each at par in cash for the purpose of further increasing its working capital. AMMB Holdings Berhad • (Incorporated In Malaysia) Directors’ Report (Cont’d) 12. The Company proposed and implemented the following: (a) Increase in the authorised share capital of the Company from RM2,000,000,000 comprising 2,000,000,000 shares of RM1.00 each to RM5,000,000,000 by the creation of 3,000,000,000 new shares of RM1.00 each. (b) Bonus issue of 505,761,819 new ordinary shares of RM1.00 each in the Company on the basis of one (1) new ordinary share for every two (2) existing ordinary shares held in the Company (Bonus Issue) through the capitalisation of RM505,761,819 from the Company’s share premium account. (c) Renounceable rights issue of 303,457,091 new ordinary shares in the Company at an issue price of RM1.10 per new ordinary share on the basis of one (1) new ordinary share for every five (5) existing ordinary shares held in the Company after the Bonus Issue (Rights Issue). The Rights Issue proceeds have been used by the Company to subscribe for a RM325 million non-renounceable rights issue in AmBank, as well as to fund the working capital requirements of the Group. (d) Adjustment to the Warrants 1997/2007 exercise price from RM10.73 per share to RM6.51 per share and an increase of 56,521,708 additional Warrants 1997/2007 pursuant to the adjustments arising from the Bonus and Rights Issues. (e) Adjustment to the Warrants 2003/2008 exercise price from RM3.60 per share to RM2.19 per share and an increase of 79,557,942 additional Warrants 2003/2008 pursuant to the adjustments arising from the Bonus and Rights Issues and (f) Increase of 136,079,650 new ordinary shares of RM1.00 each to be issued, upon the exercise of the 56,521,708 additional Warrants 1997/2007 and 79,557,942 additional Warrants 2003/2008 in (d) and (e) above. 13. On 25 February 2004,AmFinance,a subsidiary of AMFB,entered into a conditional sale and purchase agreement with MBf Corporation Berhad (MBf Corp) for the sale of AmFinance’s entire 100% equity interest consisting of 1,000,000 ordinary shares of RM1.00 each in MBf Property Trust Management Berhad (MBfPT) for a cash consideration of RM1.00.