TRAPPING
M
C
12
10
Y
75 62 60
75 62 60
50%
K
M
TRAPPING
75 62 60
75 62 60
C
Y
Y
40%
50%
K
K
80%
75 62 60
75 62 60
80%
CYAN
C
Y
40%
40%
M
K
80%
75 62 60
CYAN
80%
C
75 62 60
C
40%
40%
M
M
80%
75 62 60
Y
75 62 60
C
40%
MAGENTA
M
80%
K
Y
MAGENTA 75 62 60
K
YELLOW
75 62 60
K
40%
K
YELLOW
75 62 60
75 62 60
80%
40%
Y
BLACK
80%
10
Y
BLACK
M
M
50%
ANNUAL REPORT 2005
C
50%
C
12
75 62 60
(2511-M)
75 62 60
JAVA INCORPORATED BERHAD
15
8
6
15
6
8
Contents 2 Notice of Annual General Meeting 4 Statement Accompanying the Notice of Annual General Meeting
5 6
Corporate Information Profile of Directors
9 Chairman’s Statement 12 Statement on Corporate Governance 20 Audit Committee Report 22 Statement on Internal Control 25 Financial Statements 80 Analysis of Shareholdings 86 List of Properties Held Proxy Form
Notice of Annual General Meeting NOTICE IS HEREBY GIVEN that the Fifty First Annual General Meeting of JAVA INCORPORATED BHD. (FORMERLY KNOWN AS AOKAM PERDANA BERHAD) will be held at Anggerik Room, Hotel Equatorial, Jalan Sultan Ismail, 50250 Kuala Lumpur on Friday, 23 December 2005 at 10:00 a.m. for the following purposes: AGENDA AS ORDINARY BUSINESS 1.
2.
3.
To receive the Audited Consolidated Financial Statements of the Group and of the Company for the year ended 30 June 2005 together with the Reports of the Directors and the Auditors.
(Resolution 1)
To re-elect Dr. Tee Choon Hwa, the Director who is retiring pursuant to Article 112 of the Company’s Articles of Association.
(Resolution 2)
To re-elect the following Directors who are retiring pursuant to Article 83 of the Company’s Articles of Association:(i) Tunku Mahmood Bin Tunku Mohammed (ii) Dato’ Choo Keng Weng (iii) Mr. Sy Choon Yen
(Resolution 3) (Resolution 4) (Resolution 5)
4.
To approve the Directors’ fees for the year ended 30 June 2005.
(Resolution 6)
5.
To re-appoint Messrs. Monteiro & Heng as Auditors of the Company until the conclusion of the next Annual General Meeting and to authorise the Directors to fix their remuneration.
(Resolution 7)
AS SPECIAL BUSINESS To consider and, if thought fit, to pass the following ordinary resolutions:6.
ORDINARY RESOLUTION 1: “THAT pursuant to Section 132D of the Companies Act, 1965, the Directors be and are hereby authorised to issue shares in the Company at any time until the conclusion of the next Annual General Meeting and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares to be issued does not exceed 10% of the issued share capital of the Company for the time being, subject always to the approval of the relevant regulatory bodies being obtained for such allotment and issue.”
7.
ORDINARY RESOLUTION 2: PROPOSED ISSUE OF ESOS OPTIONS TO DATO’ CHOO KENG WENG “THAT, the Board of Directors of the Company be and is hereby authorised at any time, and from time to time, during the subsistence of the ESOS Scheme, to offer and to grant to Dato’ Choo Keng Weng, the Executive Chairman of the Company, options to subscribe for new shares available under the ESOS Scheme as determined by the ESOS Committee and if such Options are
02
JAVA Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
(Resolution 8)
Notice of Annual General Meeting (cont’d)
accepted and exercised, to allot and issue such number of new shares to him under the ESOS Scheme, subject always to: (i) not more than fifty percent (50%) of the new shares under the ESOS Scheme shall be allocated, in aggregate, to Directors (including Dato’ Choo Keng Weng) and other senior management of the Group; and (ii) not more than ten percent (10%) of the new shares available under the ESOS Scheme would be allocated to any individual eligible employee and Directors of the Group (including Dato’ Choo Keng Weng) who singly or collectively through his associates holds twenty percent (20%) or more of the issued and paid-up share capital of the Company.” 8.
(Resolution 9)
ORDINARY RESOLUTION 3 PROPOSED ISSUE OF ESOS OPTIONS TO SY CHOON YEN “THAT, the Board of Directors of the Company be and is hereby authorised at any time, and from time to time, during the subsistence of the ESOS Scheme, to offer and to grant to Mr. Sy Choon Yen, the Executive Director of the Company, options to subscribe for new shares available under the ESOS Scheme as determined by the ESOS Committee and if such Options are accepted and exercised, to allot and issue such number of new shares to him under the ESOS Scheme, subject always to: (i) not more than fifty percent (50%) of the new shares under the ESOS Scheme shall be allocated, in aggregate, to Directors (including Mr. Sy Choon Yen) and other senior management of the Group; and (ii) not more than ten percent (10%) of the new shares available under the ESOS Scheme would be allocated to any individual eligible employee and Directors of the Group (including Mr. Sy Choon Yen) who singly or collectively through his associates holds twenty percent (20%) or more of the issued and paid-up share capital of the Company.”
(Resolution10)
By order of the Board
NG SEE YEN Secretary Kuala Lumpur 1 December 2005
ANNUAL REPORT 2005 •
JAVA Incorporated Bhd (2511-M)
03
Statement Accompanying The Notice of Annual General Meeting 1.
THE DIRECTORS STANDING FOR RE-ELECTION The following are the Directors standing for re-election: (i) (ii) (iii) (iv)
Dr. Tee Choon Hwa; Tunku Mahmood Bin Tunku Mohammed; Dato’ Choo Keng Weng; Mr. Sy Choon Yen
Their profiles and details are set out in the section entitled Profile of Directors on page 6 & 7. Information on their direct and indirect securities holding in the Company and Group are set out in the Statement of Directors’ Interest on pages 31 & 32.
2.
DETAILS OF ATTENDANCE OF DIRECTORS A total of five (5) Board Meetings were held during the financial year ended 30 June 2005. The attendance of the Directors standing for re-appointment and re-election at the Annual General Meeting are disclosed in the section entitled Board Meetings on page 7.
3.
DATE, TIME AND PLACE OF THE ANNUAL GENERAL MEETING The Fifty First Annual General Meeting of JAVA INCORPORATED BHD. (formerly known as Aokam Perdana Berhad) will be held as follows: Date Time Place
4.
: Friday, 23 December 2005 : 10:00 a.m. : Anggerik Room, Hotel Equatorial, Jalan Sultan Ismail, 50250 Kuala Lumpur.
CONTACT PERSON ON MATTERS RELATING TO: (A) QUERIES AND/OR ASSISTANCE RELATING TO THE CD-ROM (B) REQUESTS FOR PRINTED COPY OF THE ANNUAL REPORT Contact Person Tel Website E-mail
: Mr. Ng See Yen : 03 –2713 3277 : www.java-inc.com.my :
[email protected]
Fax: 03 – 2094 9154
Request for the printed copy of the Annual Report could be made either verbally and/or in writing by the shareholders. The printed copy of the Annual Report will be forwarded to the shareholders within 4 market days from the date of receipt of their verbal and/or written request. For shareholders who are making their request in writing, please complete the enclosed Request Form and thereafter, fax or mail us your request.
04
JAVA Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Corporate Information BOARD OF DIRECTORS
REGISTERED OFFICE
Dato’ Choo Keng Weng (Executive Chairman)
Sy Choon Yen (Executive Director)
M.02, Mezzanine Floor Wisma E & C No. 2 Lorong Dungun Kiri Damansara Heights 50490 Kuala Lumpur Malaysia Tel : 03 - 2092 3535 Fax : 03 - 2093 9690
Mohd Zulkhairis Bin Mohd Zain (Independent/Non-Executive Directors)
SHARE REGISTRAR
Dr. Tee Choon Hwa (Managing Director)
Tunku Mahmood Bin Tunku Mohammed (Independent/Non-Executive Directors)
AUDIT COMMITTEE Mohd Zulkhairis Bin Mohd Zain (Chairman/Independent Non-Executive Director)
Tenaga Koperat Sdn Bhd 20th Floor, Plaza Permata Jalan Kampar, Off Jalan Tun Razak, 50400 Kuala Lumpur Malaysia Tel : 03 - 4041 6522 Fax : 03 - 4042 6352
SOLICITORS Tunku Mahmood Bin Tunku Mohammed (Member/Independent Non-Executive Director) Sy Choon Yen (Member/Executive Director)
Ansari & Co. Chellam Wong Teh & Lee Lee Choon Wan & Co.
PRINCIPAL BANKERS NOMINATION COMMITTEE Tunku Mahmood Bin Tunku Mohammed (Chairman/Independent Non-Executive Director)
Alliance Bank Malaysia Berhad RHB Bank Berhad Citibank Berhad
Mohd Zulkhairis Bin Mohd Zain (Member/Independent Non-Executive Director)
AUDITORS
REMUNERATION COMMITTEE
LISTING
Tunku Mahmood Bin Tunku Mohammed (Chairman/Independent Non-Executive Director)
Main Board Bursa Malaysia Securities Berhad Stock Name: JAVA Stock Code: 2747 ISIN Code: MYL2747OO003
Mohd Zulkhairis Bin Mohd Zain (Member/Independent Non-Executive Director)
Monteiro & Heng
WEBSITE SECRETARY
www.java-inc.com.my
Ng See Yen ANNUAL REPORT 2005 •
JAVA Incorporated Bhd (2511-M)
05
Profile of Directors DATO’ CHOO KENG WENG Executive Chairman Dato’ Choo Keng Weng, aged 55, Malaysian, is the Executive Chairman of the Company. He was appointed to the Board of Directors on 1 March 2005. He holds a Bachelor of Science degree and a Master in Business Administration (majoring in finance) from the Louisiana State University, USA. He was the General Manager / Director of Chocolate Products Malaysia Berhad from 1976 till 1986 and Chief Executive Officer / Director of United Brands Industries Sdn Bhd from 1986 to 1989. He is also the Managing Director of Sin Heng Chan (Malaya) Berhad since 17 June 1995. Prior to joining Sin Heng Chan (Malaya) Berhad, he was an Executive Director of Kelanamas Industries Berhad from 1989 to 1995.
DR. TEE CHOON HWA Managing Director Dr. Tee, aged 51, a Malaysian citizen, is a Professional Engineer registered with the Board of Engineers Malaysia, a Fellow of the Institution of Engineers Malaysia and a Corporate Member of the Institute of Foresters Malaysia. He holds a Bachelor of Engineering with Honours in Mechanical Engineering from University of Technology Malaysia (1978), a Certificate in Timber Harvesting and Transport from Finland National Board of Vocational Education (1981), a Certificate in Management of Forests and Wood Industries from Swedish University of Agricultural Sciences (1987) and Doctor of Business Administration from Ansted University (2001). He was a Lecturer of Tunku Abdul Rahman College (1978-1979), a Senior Industrial Engineer in the Forestry Department Peninsular Malaysia (19781988), served as an Industry Expert of the Asia Pacific Forest Industries Development Group (19861990) and was Senior Manager of the ASEAN Timber Technology Centre (1989-1993). He was appointed as the Executive Director of Aokam Industries Sdn Bhd, a wholly owned subsidiary of Aokam in 1994 after early retirement from the Public Works Department. He was a Director of Jilin Junxin Forestry Company Limited, China (1995-1996) and a Director of Golden Plus Holdings Berhad (1995-2001). He was appointed the Executive Director of JIB on 20 October 1997 and subsequently the Managing Director on 22 March 1999. He is also currently a Director of TSH Resources Berhad and Ekowood International Berhad.
SY CHOON YEN Executive Director Mr. Sy Choon Yen, aged 37, a Malaysian citizen, is a LLB (Hons) graduate from Manchester University, England. He is a Barrister-at-Law of England and Wales, an Advocate & Solicitor of the High Court of Malaya and was recently conferred as a Justice of Peace by the Governor for the State of Melaka. He co-founded the legal firm of Chellam Wong in July 1997 and was the Senior Partner of the firm up to April 2004. He was appointed the Chief Executive Director of Kumpulan Kinabatangan Timber Sdn Bhd and Pinawantai Sdn Bhd in the year 2000 and the Executive Director of Bizkaya Sdn Bhd and Wincohasil Sdn Bhd in the year 2002. He joined Java Incorporated Bhd as an Executive Director on 1 March 2005 and is also a member of the Audit Committee of the Company.
YM TUNKU MAHMOOD BIN TUNKU MOHAMMED Independent Non-Executive Director YM Tunku Mahmood bin Tunku Mohammed, aged 60, Malaysian, is a businessman. He also sits on the board of several private companies. He served the military for many years and currently runs a holiday resort in Johore. He was appointed as Director of the Company on 6 January 2005. He is also a Member of the Audit Committee and the Chairman of Nomination Committee and Remuneration Committee of the Company. He is also appointed the Senior Independent Non-Executive Director.
06
JAVA Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Profile of Directors (cont’d)
MOHD ZULKHAIRIS BIN MOHD ZAIN Independent Non-Executive Director Encik Mohd Zulkhairis bin Mohd Zain, aged 37, a Malaysian citizen, holds a Bachelor of Science (Economics) degree from the London School of Economics and Political Science. He started his career in Petronas Berhad as a Project Analyst in July 1981 before joining Arthur Andersen Economic and Financial Consulting in December 1991. He worked there for nearly 9 years before joining Intria Berhad as the Chief General Manager in December 1999. He later joined Andersen in July 2000 as a Senior Manager heading the Project Finance and Capital Markets team and subsequently left in June 2002. He is presently the Managing Director of Asia Capital Alliance Sdn Bhd, a financial advisory concern with offices in Kuala Lumpur and Bangkok, Thailand. He was appointed an Independent Non-Executive Director of Java Incorporated Bhd on 16 September 2004. He was also appointed the Chairman of the Audit Committee and members of the Nomination Committee and Remuneration Committee on the same date.
FAMILY RELATIONSHIP OF DIRECTORS A substantial shareholder, Datin Ong Sok Hean who holds 23,683,402 ordinary shares of RM 1.00 each in the Company is the wife of Dato’ Choo Keng Weng (Executive Chairman of Java Incorporated Bhd). Mr. Sy Choon Yen (Executive Director of Java Incorporated Bhd) and his wife Madam Looh Yen Loo are the Executive Directors of Amalan Menang Sdn Bhd, the major shareholder of the company, holding 25,779,899 ordinary shares of RM 1.00 each in the Company.
CONFLICT OF INTEREST AND CONVICTIONS FOR OFFENCES OF DIRECTORS None of the Directors has any conflict of interest with the Company, or has been convicted of any offence within the past ten (10) years.
BOARD MEETINGS The Board met 5 times during the financial year. The meeting attendance of the individual Directors is as follows:Name of Director Dato’ Choo Keng Weng (appointed on 01.03.2005) Dr. Tee Choon Hwa Sy Choon Yen (appointed on 01.03.2005) Tunku Mahmood Bin Tunku Mohammed (appointed on 06.01.2005) Mohd Zulkhairis Bin Mohd Zain (appointed on 16.09.2004) Dato’ Mohd Salleh Bin Zakaria (resigned on 16.09.2004) Tan Sri Dato’ Samshuri Bin Haji Arshad(retired on 31.12.2004) Andrew Gerard Purcell (resigned on 31.12.2004) Peter Lee Pui Tet (resigned on 15.04.2005)
No. of Meetings Attended 2/2 4/5 2/2 2/3 4/4 1/1 2/2 2/2 3/3
ANNUAL REPORT 2005 •
JAVA Incorporated Bhd (2511-M)
07
08
JAVA Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Chairman’s Statement On behalf of the Board of Directors, I am pleased to present herewith the Annual Report and the Audited Consolidated Financial Statements of Java Incorporated Bhd (“Company”) and its group of companies (“Group”) for the financial year ended 30th June 2005. SIGNIFICANT EVENT The year saw the completion of the Company’s corporate restructuring exercise and the re-listing of the Company’s securities on the Main Board of Bursa Malaysia Securities Berhad on 20th December 2004. The corporate restructuring exercise which started in November 2002 was successfully completed during the financial year after the full implementation of the following:(a) Capital Reconstruction The original issued and paid-up share capital of the Company was reduced from RM83,415,11300 to RM4,170,756-00 by the cancellation of RM0-95 of the par value of each existing share and the subsequent consolidation into ordinary shares of RM1-00 each in the proportion of twenty (20) ordinary shares of RM0-05 each into one (1) ordinary share of RM1-00 each. The share premium of the Company of RM15,543-00 was also written off against accumulated losses of the Company. (b) Debt Settlement The entire debts of the Scheme Companies were fully settled by way of a cash payment of RM53,169-00 and the total issuance of 41,757,137 new ordinary shares to the Secured Creditors and the Unsecured Creditors. (c) Acquisition The Company’s acquisition of Key Heights Sdn Bhd (“KHSB”) was fully satisfied by the issuance of 71,036,000 new ordinary shares and 23,500,000 nominal value of 1.5% 3-year 2004/2007 Irredeemable Cumulative Convertible Preference Shares (“ICCPS”) of RM1-00 each. (d) Rights Issue A renounceable rights issue of 14,597,646 new ordinary shares at an issue price of RM1-00 per share together with 14,597,646 free detachable warrants on the basis of seven (7) rights shares for every two (2) existing ordinary shares held after the Capital Reduction & Consolidation.
ANNUAL REPORT 2005 •
JAVA Incorporated Bhd (2511-M)
09
Chairman’s Statement (cont’d)
(e) Special Issue A special issue of 10,000,000 new ordinary shares at an issue price of RM1-00 per share together with 10,000,000 free detachable warrants were issued to the approved Bumiputra Investor.
financial footing after its remarkable turnaround in its profit performance for the financial year under review. For the financial year ended 30th June 2005, the Group recorded a significant increase in revenue of RM268.5 million and profit before taxation of RM60.6 million as compared to revenue of RM9.7 million and a net loss position of RM9.1 million recorded in the previous financial year.
(f) Share Placement The Scheme Creditors had made placements and sold part of their shares to the public which enabled the Company to comply with the 25% public shareholding requirement. (g) Exemption from Mandatory Offer The vendors of KHSB were exempted by the Securities Commission from undertaking a mandatory offer pursuant to the Malaysian Code on Take-overs and Mergers, 1998. (h) Increase in Authorised Share Capital The Authorised Share Capital of the Company was increased from RM500,000,000-00 to RM600,000,000-00 to facilitate the issuance of the new ICCPS pursuant to the Acquisition. (i) Amendment to the Memorandum and Articles of Association Amendment was made to the Memorandum and Articles of Association of the Company for the increase in its authorised share capital and to facilitate the issuance of the new ICCPS. (j) Employee Share Option Scheme (“ESOS”) An ESOS was established to grant options to eligible employees and Executive Directors to subscribe up to 10% of the issued and paid-up share capital of the Company.
CHANGE OF NAME A new name “Java Incorporated Bhd” was adopted by the Company on 7th February 2005 pursuant to the Extraordinary General Meeting convened on 28th January 2005 so as to reflect a new beginning for the Company post completion of the corporate restructuring scheme. The ordinary shares, ICCPS and Warrants of the Company are currently being traded under the name of “JAVA”, “JAVAPA” and “JAVA-WA” respectively.
FINANCIAL PERFORMANCE The successful completion of the corporate restructuring scheme had repositioned the Group onto a stronger
10
JAVA Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Profit after taxation of the Group was RM51.1 million or the equivalent earnings of 39.3 cents per share (on a fully diluted basis) as compared with the previous financial year of loss of 10.9 cents per share. The Company’s shareholders’ funds also achieved a favourable reversal from a capital deficiency of 111 million to a positive shareholders’ fund of 144.7 million during the year under review. The significant improvement in performance was mainly due to the contribution from the Company’s newly acquired business, the higher throughput from the existing manufacturing facilities and accounting adjustments made from the previous financial year.
PROSPECTS & FUTURE CHALLENGES The core business of the Group will continue and be centred on timber and the manufacturing of wood-based products. The Group has one of the largest integrated timbermanufacturing complex in East Malaysia and having revitalized itself through the corporate restructuring scheme, the Group is well placed to benefit from the continued global demand for timber and wood-based products. The timber industry had benefited from the sustained economic growth in China, India and the other developed nations and the stringent regulations and enforcement measures implemented by the major tropical timber producing countries to curb illegal logging had also contributed to the resurgence of a stable timber industry. The prospects of the Group will be dependent on the continued stability of the timber prices and the sustained demand for wood based products, both in the local and export markets. Continuous effort will be made by the Group to secure new concessions or timber rights to ensure future log supply and the sustainable growth of the manufacturing division. To this end, Pembangunan Papan Lapis (Sabah) Sdn Bhd, the Company’s wholly owned subsidiary, had entered into a Deed of Assignment with Innokinta Sdn Bhd and secured the entire rights and interests over a timber concession area designated as Block YK01/05 measuring 1,630 ha, situated at the Sungai Pinangah Forest Reserve, Keningau, Sabah. The Group is also actively pursuing the possibility of securing the timber rights over the remaining Blocks under a similar arrangement.
Chairman’s Statement (cont’d)
It is the intention of the Group to expand the scope of its business beyond the timber sector and broaden the income base in the long term by diversifying into oil palm plantation. The Group had embarked on the diversification through the acquisition of RSJ Trading Sdn Bhd, a company which has entered into a joint-venture agreement with Kumpulan Pertanian Kelantan Berhad for the development and cultivation of a parcel of land situated in Jeli, Kelantan measuring approximately 3120 acres in area into an oil palm plantation. The Group will accelerate the development of the oil palm plantation and will continue to source for suitable lands for oil palm cultivation with the view of achieving a sizeable acreage in the next few years. The thrust of any manufacturing business has to be the continuing effort to improve efficiency and productivity. The Group will continue to upgrade and invest in new machineries for the timber-manufacturing complex so as to improve the recovery rate and maximize the use of the round logs. To remain competitive in the industry, the Group will emphasize on building a brand name for its existing woodbased products and the development of other value added timber products for both the domestic and international market, through strategic alliances with existing customers and appointment of agents to tap into new markets. With the removal of the Malaysian Ringgit peg to the US Dollar, the Group will be faced with the inherent fluctuating risks in respect of certain markets. Other factors such as shortage of workers, the escalating price of fuel and its resultant mounting inflation and the cost of spare parts will remain as the Group’s most challenging aspect in relation to its business operation. The outlook for the timber sector remains positive. The Group is expected to benefit positively from the growing demand for timber while seeking other opportunities for
growth. Against this background, the Board of Directors is optimistic that the results for the Group in respect of the financial year ending 30 June 2006 will be satisfactory.
ACKNOWLEDGEMENTS On behalf of the Board of Directors, I wish to express our sincere gratitude to the shareholders, creditors, authorities, advisers and others who had contributed towards the successful implementation of the Company’s corporate restructuring scheme. We are grateful to our past directors, Tan Sri Dato’ Samshuri Bin Haji Arshad, Mr Andrew Gerard Purcell, Dato’ Mohd Salleh Bin Zakaria and Mr Peter Lee Pui Tet for their invaluable contribution and services rendered to the Company during its difficult times. It is also my pleasure to welcome on board our new directors, Mr Sy Choon Yen, YM Tunku Mahmood Bin Tunku Mohammed and En Mohd Zulkhairis Bin Mohd Zain. Finally, we are indebted to the management and staff of the Group for their patience, loyalty and commitment and our sincere appreciation to our valued customers, bankers, suppliers, business associates and shareholders for their continued support and confidence towards the Group. I would also like to thank my fellow Board members for their unwavering support and contributions made during the year.
DATO’ CHOO KENG WENG Executive Chairman Kuala Lumpur 16th November 2005
ANNUAL REPORT 2005 •
JAVA Incorporated Bhd (2511-M)
11
Statement on Corporate Governance The Board of Directors (the “Board”) of the Java Incorporated Bhd. (“JIB”) Group recognise that practices of good Corporate Governance form the cornerstone of a responsible, progressive and effective organisation. Such practices are essential to maintain the trust, confidence and good relationship of the JIB Group with its shareholders, employees, customers, suppliers, business associates, regulatory authorities, as well as the members of the communities in which it operates. This good relationship with the stakeholders is crucial to the continuous growth and success of the Group. The Board is committed to ensure that the principles and highest standards of Corporate Governance are practised throughout the Group as a fundamental part of discharging its responsibilities and the affairs of the Group are always conducted with integrity, transparency and professionalism with the objective of safeguarding the shareholders’ investment and ultimately enhancing the shareholders’ interest.
BOARD OF DIRECTORS The Group is being led and managed by a Board comprising members with wide range of experience in business, financial, technical, marketing, legal and public service sectors. The profiles of the Board members which appear on page 6 to 7 of this Annual Report illustrate the spectrum of skills and experience available. The depth and diversity in expertise and perspectives provides the added strength to enable an accountable, competent and responsible leadership in the management of the Group.
ROLES AND RESPONSIBILITIES The Board’s principal responsibility is to create, enhance and deliver sustainable shareholder value through an effective system of management of the business and resources of the Group. The Board provides the overall strategic direction, development and control of all activities of the Group. The Board has the overall responsibility for corporate governance, setting business goals and targets in relation to the prevailing economic and market environment and the regular oversight of the Group’s overall operations and performance to ensure consistent and sustainable performance and growth.
Board Composition The Board comprises five (5) members of whom three (3) are Executive Directors and the balance two (2) are Independent Non-Executive Directors. The Board members with executive functions are : the Executive Chairman, the Managing Director and the Executive Director. To gain maximum benefits from the skills and expertise of the Chairman of the Board on operational matters, the Chairman is also holding an executive position in the Company. Although the Board is mindful of the dual role held by the Chairman, it is of the opinion that effective check and balance is in place with the strong presence of the Independent NonExecutive Directors. The Independent Non-Executive Directors have participated actively and exercised their independent judgements and provided objective views and opinions on all deliberations and decisions of the Board. The Chairman provides the overall guidance and is responsible for the orderly conduct and working of the Board. The Executive Directors are responsible for the overall operation of the business and the implementation of Board strategies and policies with the assistance of the other Management staff on the day-to-day operations. All the Independent Non-Executive Directors are independent of management and free from any business tie or other relationships that could materially interfere with the exercise of their independent judgement. They have the calibre and responsibility to ensure that the strategies proposed by the Management are deliberated and examined in the long term interest of the Group, as well as that of the shareholders, employees, customers, suppliers, business associates and other stakeholders.
The profiles of the Directors are provided on pages 6 and 7 of this Annual Report.
12
JAVA Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Statement on Corporate Governance (cont’d)
Board Meetings The Board met 5 times during the financial year. The meeting attendance of the individual Directors are as follows:Name of Director Dato’ Choo Keng Weng (appointed on 01.03.2005) Dr. Tee Choon Hwa Sy Choon Yen (appointed on 01.03.2005) Tunku Mahmood Bin Tunku Mohammed (appointed on 06.01.2005) Mohd Zulkhairis Bin Mohd Zain (appointed on 16.09.2004) Dato’ Mohd Salleh Bin Zakaria (resigned on 16.09.2004) Tan Sri Dato’ Samshuri Bin Haji Arshad (retired on 31.12.2004) Andrew Gerard Purcell (resigned on 31.12.2004) Peter Lee Pui Tet (resigned on 15.04.2005)
No. of Meetings Attended 2/2 4/5 2/2 2/3 4/4 1/1 2/2 2/2 3/3
Supply of Information All Board members are supplied with information in a timely manner. The Agenda and Board Papers are distributed to them (by traditional mode of delivery and/or via electronic media) prior to each meeting so that the Directors can have sufficient time to review them and to obtain further information and explanation, where necessary, before the meeting to enable them to make the informed decisions. The Directors have full and timely access to all relevant information on the business and affairs of the Group to effectively discharge their duties in the interest of the Group. The Directors can also obtain the advice and services of the Company Secretary who is responsible to provide constant updates on statutory and regulatory requirements pertaining to their roles, duties and responsibilities as Directors of the Company. The Directors are also guided by the Company Secretary in ensuring that Board Meeting Procedures are adhered to and all applicable rules and regulations are complied with which includes inter alia the proper maintainance of the Minutes of all Board Meetings. . Besides the Company Secretary, the independent non-executive directors also have unfettered access to the financial and other officers of the Company as well as the internal and external auditors. In ensuring their duties, the Directors are also entitled to obtain independent professional advice on specific matters in the interest of the Group after due consultation with other members of the Board.
Appointment of Board Members A Nomination Committee was established on 12 December 2001. This Committee is responsible to identify and recommend suitable candidates for appointment as Directors to the Board based on the required mix of skills, expertise, experience and other qualities of the individuals concerned to constitute an effective board as well as Board Committees. Similar considerations are made on the re-appointment and re-election of Directors. . Re-election of Directors In accordance with Article 83 of the Company’s Articles of Association, all Directors who are appointed by the Board are subject to election by shareholders at the immediate Annual General Meeting following their appointment. In accordance with Article 76 of the Company’s Articles of Association, one-third of the remaining Directors are required to submit themselves for re-election by rotation at each Annual General Meeting. All Directors are required to submit themselves for re-election at least once every three years. In accordance with Article 112 of the Company’s Article of Association, the Chief Executive, Managing Director, Deputy Managing Director and Executive Directors, are required to submit themselves for re-election at least once every three years. ANNUAL REPORT 2005 •
JAVA Incorporated Bhd (2511-M)
13
Statement on Corporate Governance (cont’d)
In accordance with Section 129(6) of the Companies Act, 1965, Directors over seventy years of age are required to submit themselves for re-appointment annually and shall so be re-appointed if the resolution is passed by the majority of not less than three-fourths of such members entitled to vote in person or by proxy.
DIRECTORS’ REMUNERATION A Remuneration Committee was established on 12 December 2001. The Committee is responsible to develop the remuneration policies and determining the remuneration packages for the Executive Directors of the Group. The Committee proposes the remuneration policies and packages but the Board as a whole determines the remuneration of each Director. The interested Directors abstain from all discussions regarding their own remuneration packages. The remuneration for the Independent Non-Executive Directors are proposed by the Board and approved by the Shareholders at the Annual General Meeting. The details of the remuneration of Directors of the Company comprising remuneration received or receivable from the Company and subsidiary companies during the financial year are as follows: 1.
Details of the aggregate remuneration of Directors for the financial year are as follows: -
Executive Directors Non-Executive Directors
Salaries* RM’000 775 -
Fees RM’000 80 103
Retirement Gratuity RM’000 300
Benefit-in-kind RM’000 14 -
Total RM’000 869 403
*Salaries is inclusive of statutory employer contribution to the Employees Provident Fund. 2.
The number of Directors whose total remuneration falls within the respective bands are as follows: Number of Directors Range of remuneration Below RM50,000 RM50,001 to RM100,000 RM100,001 to RM150,000 RM150,001 to RM200,000 RM200,001 to RM250,000 RM 250,001 to RM300,000 RM350,001 to RM400,000 RM400,001 to RM500,000
Executive 1 1 1 1
Non-Executive 3 1 -
The Board does not consider disclosure of details of remuneration of each Director to be appropriate.
Directors’ Training All the Directors have attended the Mandatory Accreditation Programme conducted by Bursa Malaysia Training Sdn Bhd (formerly known as KLSE Training Sdn Bhd), the training and education arm of Bursa Securities Malaysia Berhad (Bursa Malaysia). During the financial year, the relevant Directors had attended the various courses accredited by Bursa Malaysia under the Continuing Education Programme (CEP). Notwithstanding the repeal of the Practice Note 15 issued by Bursa Malaysia for CEP effective 1 January 2005, the Directors will continue to attend relevant training programmes and seminars to keep abreast with the developments in business and the market place on a continuous basis to further enhance their professional knowledge and capability to discharge their duties and responsibilities more effectively.
14
JAVA Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Statement on Corporate Governance (cont’d)
Board Committees The Board has established the following Board Committees to assist and support the Board in the discharge of its fiduciary duties and responsibilities. These Committees do not have executive powers but reports to the Board on all matters considered and with their recommendations thereon. The Terms of Reference of each Committee have been approved by the Board and, where applicable, comply with the recommendations of the Malaysian Code on Corporate Governance (“the Code”). (i) Audit Committee The Audit Committee is made up of the following members: · Mohd Zulkhairis Bin Mohd Zain · Tunku Mahmood Bin Tunku Mohammed · Sy Choon Yen
- Chairman/Independent Non-Executive Director - Member/Independent Non-Executive Director - Member/Executive Director
The composition of the Audit Committee meets the Listing Requirements of Bursa Malaysia. The Audit Committee meets periodically as and when required and at least twice a year to carry out its functions and duties pursuant to its terms of reference. Other Board members, senior management staff, the internal auditors and the external auditors may also attend the meetings upon invitation by the Audit Committee. The minutes of the Audit Committee Meetings are maintained by the Company Secretary. A full Report of the Audit Committee enumerating its membership, terms of reference, its role in relation to the external auditors, meeting attendance and other activities during the financial year is set out on pages 20 to 21 of this Annual Report.
(ii) Nomination Committee The Nomination Committee is made up entirely of the Independent Non-Executive Directors as follows: · Tunku Mahmood Bin Tunku Mohammed · Mohd Zulkhairis Bin Mohd Zain
- Chairman/Independent Non-Executive Director - Member/Independent Non-Executive Director
The Nomination Committee is responsible for the regular review of the composition and structure of the Board and to recommend any changes deemed necessary so that the appropriate mix of skills, experience, competence and other qualities of its members are always maintained to ensure effective management of the Group. This Committee recommends the appointment of new members and reappointment and re-election of Directors. The Nomination Committee meets as and when required and at least once a year. During the financial year, this Committee met twice i.e. on 30 August 2004 and 28th February 2005. The minutes of the Nomination Committee meetings are maintained by the Company Secretary.
(ii) Remuneration Committee The Remuneration Committee is made up entirely of the Independent Non-Executive Directors as follows: · Tunku Mahmood Bin Tunku Mohammed · Mohd Zulkhairis Bin Mohd Zain
- Chairman/Independent Non-Executive Director - Member/Independent Non-Executive Director
The Remuneration Committee is entrusted with the responsibility of setting the policy framework and to make periodic recommendations to the Board on the components of remuneration packages, general employment terms and other benefits for the Executive Directors and the general remuneration structure for the Group so as to attract, retain and motivate individuals of high calibre and quality to serve the Group. ANNUAL REPORT 2005 •
JAVA Incorporated Bhd (2511-M)
15
Statement on Corporate Governance (cont’d)
The Remuneration Committee meets as and when required and at least once a year. During the financial year, this Committee met twice i.e. on 30 August 2004 and 30th May 2005. The minutes of the Remuneration Committee meetings are maintained by the Company Secretary. (iii) Employee Share Option Scheme (‘ESOS’) Committee The ESOS Committee is made up of the following members: · Mohd Zulkhairis Bin Mohd Zain · Tunku Mahmood Bin Tunku Mohammed · Sy Choon Yen
- Chairman/Independent Non-Executive Director - Member/Independent Non-Executive Director - Member/Executive Director
The ESOS Committee is entrusted with the responsibility of administering the Company’s ESOS scheme and to offer and to grant to the eligible employees and Directors of the Company and the Group, options to subscribe for new shares of the Company available and to be issued under the ESOS Scheme at any time upon such terms and conditions in accordance with the provisions of the ESOS Bye-laws. The ESOS Committee is also responsible to recommend to the Board the offer of ESOS options to the Directors for approval of the Shareholders of the Company in accordance with the provisions of the ESOS Bye-laws. The ESOS Committee only meets as and when required. There was no meeting held during the financial year. The minutes of the ESOS Committee meetings are maintained by the Company Secretary.
RELATIONSHIP WITH SHAREHOLDERS AND INVESTORS The Group recognises the importance of effective communication with the shareholders and investors through various appropriate channels. Periodic dissemination of information on performance and development of the Group is done through the quarterly financial reports and various disclosures and announcements made to Bursa Malaysia. The Annual Report of the Company provides comprehensive details on the activities and financial performance of the Group for the consumption of the shareholders and the investing public. The Annual General Meeting is an important forum for dialogues and interaction with the shareholders. At each Annual General Meeting, the Chairman of the Board presents the progress and performance of the Group and the shareholders are encouraged to participate in the question and answer session. Informal discussion between the Directors, senior management staff and the shareholders are always active before and after the Annual General Meeting. The Group gives clarification and explanation from time to time to individual shareholders and investors who telephone or call personally on matters mostly related to their shareholdings besides other announcement made publicly through Bursa Malaysia and other form of news release to the media from time to time in addition to the Annual Reports and financial statements, which are mailed directly to the shareholders. The Board has appointed Tunku Mahmood Bin Tunku Mohammed, the Senior Independent Non-Executive Director to whom all concerns may be conveyed. In addition, the Company Secretary is available at all times to provide the relevant information required by the shareholders and investors. The Company also maintains a web-site at www.java-inc.com.my dedicated to provide updated information of the Group to the shareholders, investors and the general public who have an interest in the business and affairs of the Group.
16
JAVA Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Statement on Corporate Governance (cont’d)
ACCOUNTABILITY AND AUDIT FINANCIAL REPORTING It is the responsibility and intention of the Board to present a balanced and comprehensive assessment of the Group’s financial performance through the annual audited financial statements and the unaudited quarterly results of the Group to the shareholders. The Audit Committee assists the Board in ensuring the accuracy and adequacy of the information disclosed.
Directors’ Responsibility Statement The Company’s financial statements are prepared in accordance with the provisions of the Companies Act, 1965 and the applicable approved accounting standards in Malaysia. The Board is responsible to ensure that the financial statements give a true and fair view and is a balanced and understandable assessment of the state of affairs of the Company and the Group. The Directors have consistently used and applied the appropriate and relevant accounting policies and made judgements and estimates which are prudent and reasonable. The Directors are also responsible to take all reasonable steps and effort to safeguard the assets of the Group and to prevent and detect any fraud and/or irregularity.
Internal Control The Board recognises its responsibility in maintaining a sound system of internal control, covering not only financial controls but also operational and compliance controls and reviewing its effectiveness. As with such system, controls can only provide reasonable but not absolute assurance against any material misstatements or loss. The Group endeavours to look into the adequacy and integrity of its system of internal controls through improvement and updating of regular operational reports and management information system with built-in of some forward warning checks. The Company out-sourced the risk-based internal audit and control function of the Group to Nex Consulting Sdn Bhd who reports directly to the Audit Committee on all matters relating to internal controls, regulatory compliance and the assessment and management of risks. The internal auditors review the operation and management systems and control mechanism of the Group and recommend measures required to eliminate or mitigate risks and weakness of the Group. The Statement of Internal Control which is set out on pages 22 and 23 of this Annual Report provides an overview of the state of internal control within the Group.
Relationship with External Auditors The Board ensures that there are formal and transparent arrangements for the achievement of objectives and maintenance of professional relationship with the external auditors. The external auditors have full access to the books and records of the Group at all times. They also participate in the annual stock counts of the Group. The Audit Committee meets the External Auditors at least once a year to discuss their audit plan, audit findings and the financial statements. The Audit Committee also meets the External Auditors without the presence of the Executive Directors and any member of the Management whenever deemed necessary. The roles of both the External and Internal Auditors are further described in the Audit Committee Report which is set out on pages 20 to 21 of this Annual Report. .
ANNUAL REPORT 2005 •
JAVA Incorporated Bhd (2511-M)
17
Statement on Corporate Governance (cont’d)
ADDITIONAL COMPLIANCE DISCLOSURES Utilisation of Proceeds The proceeds raised from the renounceable Rights Issue amounting to RM 14,597,646 had not been utilised as at the end of the financial year. The proceeds raised from the Special Issue of RM 10,000,000 had been utilised in the following manner;(i) working capital : RM 6,560,000 (ii) Expenses of Corporate Restrusturing : RM 2,500,000 with the balance of RM 940,000 remained unutilised at the end of the financial year.
Share Buy-Backs The Company did not enter into any share buy-back transactions during the financial year.
Options, Warrants or Convertible Securities The Company issued 23,500,000 1.5% 3-year 2004/2007 Irredeemable Cumulative Convertible Preference Shares (ICCPS) pursuant to its acquisition of Key Heights Sdn Bhd as part of its corporate restructuring exercise. As at the end of the financial year, 2,700,000 ICCPS had been converted to ordinary shares of the Company. The Company issued 24,597,646 2004/2014 detachable warrants pursuant to the Rights Issue and the Special Issue as part of its corporate restructuring exercise. As at the end of the financial year, no warrants had been exercised. The Company has established an ESOS scheme to grant options to the eligible Directors and employees of the Group to subscribe in accordance with the ESOS Bye-laws a total aggregate number of new ESOS shares of not exceeding ten per centum (10 %) of the total issued and paid-up ordinary share capital of the Company. However no ESOS options were issued during the financial year.
American Depository Receipt (“ADR”) or Global Depository Receipt (“GDR”) The Company did not sponsor any ADR or GDR during the financial year.
Sanctions and/or Penalties Apart from the late filing fee of RM150.00 paid to the Companies Commission of Malaysia in respect of late filing of Form 28 – Notice of Share Capital, there were no sanctions and/or penalties imposed on the Company and its subsidiaries, Directors or Management by the relevant authorities during the financial year.
Non-Audit Fees During the financial year, the Company paid non-audit fees amounting to RM 47,456.80 to the external auditor for professional services rendered in connection with review of profit forecast prepared for a corporate proposal. Variation in Results There were no variances of 10% or more between the results for the financial year and the unaudited results. The Company did not make any release on the profit estimate, forecast or projection for the financial year.
18
JAVA Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Statement on Corporate Governance (cont’d)
Profit Guarantee The Company did not grant any profit guarantee during the financial year.
Revaluation Policy on landed properties The Company does not have any revaluation policy on landed properties.
Material Contracts or Loans Involving Directors and Major Shareholders There is no material contract or loan entered into between the Company and a director or a substantial shareholder during the financial year except for the rental of office premises paid to a company in which a Director has financial interest. The transaction is entered into in the normal course of business and is established on normal commercial terms.
Best Practices of Corporate Governance The Company has complied significantly with the Code and the Best Practices of Corporate Governance save as disclosed in this Statement.
This statement is made in accordance to the resolution of the Board dated 28 September 2005.
ANNUAL REPORT 2005 •
JAVA Incorporated Bhd (2511-M)
19
Audit Committee Report 1.
Establishment and Composition The Audit Committee (“the Committee”) of the Company was established by a Board Resolution on 6 June 1994, as a Sub-Committee of the Board. For the financial year ended 30 June 2005, the Committee comprises the following Directors: Mohd Zulkhairis Bin Mohd Zain Tunku Mahmood Bin Tunku Mohammed Sy Choon Yen
2.
- Chairman/Independent Non-Executive Director - Independent Non-Executive Director - Executive Director
Audit Committee Report for the financial year ended 30 June 2005 The Audit Committee met 4 times during the financial year ended 30 June 2005. The meeting attendance of the Audit Committee Members is as follows: Name of Director Dato’ Mohd Salleh Bin Zakaria (Resigned on 16.9.2004) Mohd Zulkhairis Bin Mohd Zain (Appointed on 16.9.2004) Tan Sri Dato’ Samshuri Bin Haji Arshad (Retired on 31.12.2004) Peter Lee Pui Tet (Resigned on 15.4.2005) Tunku Mahmood Bin Tunku Mohammed (Appointed on 6.1.2005) Sy Choon Yen (Appointed on 1.3.2005)
3.
No. of Meetings Attended 1/1 3/3 2/2 3/3 1/2 1/1
Activities of the Committee during the year In line with the Terms of Reference of the Committee, the following activities were carried out by the Committee during the year ended 30 June 2005 in the discharge of its functions and duties: 1. 2. 3. 4. 5.
6. 7. 4.
Reviewed the audited accounts for the year ended 30 June 2005 and unaudited quarterly financial results announcement of the Group and making recommendations to the Board. Reviewed, with the External Auditors, the results of their audits, the Auditors’ Report and recommendations. Reviewed, with the External Auditors, scope of work and audit plan of the Group for the financial year ended 30 June 2005. Reviewed all the activities and findings of the Internal Auditors. Reviewed the Company’s compliance with regards to the Bursa Securities Listing Requirements and compliance with updates of new developments on accounting standards issued by the Malaysian Accounting Standards Board. Monitored and reviewed the Financial and Operations Reports. Observed, identified, monitored and reviewed any related party transactions.
Internal Audit and Control Nex Consulting Sdn Bhd was appointed as the Internal Auditors of the Group by the Board to work as a functional arm to the Audit Committee for the purpose of providing internal audit advisory services to assist the Board to continuously review the operations and system of internal control of Java Incorporated Bhd and its subsidiaries. The Internal Auditors independently reviews the risk identification practices and control processes implemented by the management and reports to the Audit Committee on a quarterly basis and whenever there is a need to do so.
5.
TERMS OF REFERENCE Membership The Committee shall be appointed by the Board of Directors from among its members and shall consist of no fewer than three (3) members, with a majority of the Committee being Independent Non-Executive Directors and at least one (1) member of the Committee being a member of the Malaysian Institute of Accountants or one of the associations
20
JAVA Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Audit Committee Report (cont’d)
of accountants specified in Part II of the 1st Schedule of the Accountants Act, 1967. Alternate Director shall not be appointed as members of the Committee. The Chairman of the Committee shall be an Independent Non-Executive Director. The performance of the Committee and each of the members shall be reviewed by the Board of Directors at least once every three (3) years to determine whether the Committee and its members have carried out their duties in accordance with their terms of reference. The Company Secretary shall be the Secretary of the Committee. Quorum The quorum for the Committee shall be two (2) members. Authority The Committee is authorised by the Board to investigate the activities within its terms of reference. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Committee. The Committee is authorised by the Board to obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise if it considers this necessary. Duties and Responsibilities (i) To review with the auditors, their audit plan, their evaluation of the system of internal accounting controls and their audit reports. (ii) To review the assistance given by the Company's officers to the auditors. (iii) To review the scope and results of the internal audit procedures. (iv) To review the balance sheet and profit and loss account of the Company and of the Group, submitted to it by the Company, and thereafter to submit them to the Directors of the Company. (v) To review any related party transactions that may arise within the Company or Group. (vi) To consider the nomination of a person or persons as auditors. (vii) To perform such other functions as may be agreed by the Committee and the Board. Frequency of Meetings and Procedures The Audit Committee shall meet at least twice a year. The external auditors may request a meeting if they consider one is necessary. Upon request of the auditors, the Chairman of the Committee shall convene a meeting of the Committee to consider any matters the auditors believe should be brought to the attention of the Directors or the shareholders. At each of these Audit Committee Meetings, presence of any other persons will be on invitation basis by the Audit Committee. Reporting Procedures The Minutes of the proceedings of each meeting are recorded by the Secretary of the Committee and will thereafter be circulated to the Board.
ANNUAL REPORT 2005 •
JAVA Incorporated Bhd (2511-M)
21
Statement on Internal Control INTRODUCTION This statement is made pursuant to the Listing Requirements of Bursa Malaysia Securities Berhad with regard to the Group’s compliance with the Principles and Best Practices provision relating to internal controls as stipulated in Malaysian Code on Corporate Governance.
BOARD’S RESPONSIBILITY The Board acknowledges their responsibility of ensuring the effectiveness and adequacy of the Group’s system of internal control to cover risk management, operational, compliance as well as financial controls, in order to safeguard shareholders’ investment and the Group’s assets. The Board is taking appropriate initiatives to further strengthen the transparency, accountability and efficiency of operations. The Board too recognizes the importance of ensuring that a sound system of internal control and effective risk management practices are in place in the Group. It is therefore committed to give due attention to improving the effectiveness of internal control, risk management and governance processes of the Group. However it should be noted that any system can only provide reasonable and not absolute assurance against material lost or risk of loss and/or misstatement. The concept of reasonable assurance recognizes that the cost of control procedures shall not exceed the expected benefits.
RISK MANAGEMENT FRAMEWORK The Board acknowledges that all areas of the Group’s business activities involve some degree of risk and is committed to ensure that the Group has effective risk management framework which allows the management to manage risks within defined risk parameters. The functional management has been given clear lines of accountability and delegated authorities has been established as part of the internal control efforts through the standard operating practices. In addition, the functional management is responsible for the identification and assessment of risks, and instituting adequate procedures and internal controls in order to mitigate and monitor such risks on an on-going basis. In addition, the Board has on 25 April 2005, appointed Nex Consulting Sdn. Bhd. as the internal auditors to assist the Group to identify and evaluate significant risks faced by the Group in a structured manner.
INTERNAL AUDIT FUNCTION The Audit Committee, assisted by the Internal Auditors, is responsible to provide independent and reasonable assurance to the Board on the adequacy, integrity and effectiveness of the system on internal controls of the Group. The Internal Auditors independently review the internal controls on the key activities of the Group’s businesses based on the detailed audit plan approved by the Audit Committee. The findings and any corrective actions are reported to the Audit Committee and also conveyed to the management from time to time if deemed necessary.
22
JAVA Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Statement on Internal Control (cont’d)
KEY ELEMENTS OF INTERNAL CONTROL The following are the key elements of the Group’s internal control effort: i)
The Board has put in place an organization structure, which defines lines of responsibilities and delegation of authority.
ii)
Internal control efforts were done through standard operating practices and guidelines involving operational planning, capital expenditure, safeguarding of assets against unauthorized use or disposition, financial and accounting records, reporting system and monitoring of Group’s businesses and performances. The Corporate Office at the holding company coordinates and monitors the monthly performance results of the independent operational units, based on actual against budgeted financial performances, key business indicators and highlights of the related happenings. Affairs of the business operation are monitored through the weekly operational reports, and minutes of the weekly management meeting of Java-Incorporated Timber Complex. The liquidity position of the Group is monitored daily through the online banking system and also through the weekly reportings of bank transactions of the business units.
iii) The Audit Committee reviews, on a quarterly basis, the quarterly unaudited financial results and the yearly audited financial statements, prior the approval by the Board. The Audit Committee also reviews the Internal audit function, internal audit reports and monitors the status of the implementation of corrective / prevention actions as proposed by the Internal Auditors.
REVIEW BY EXTERNAL AUDITORS The external auditors have reviewed this Statement of Internal Control for the inclusion in the annual report for the financial year ended 30 June 2005. The external auditors conducted the review in accordance with the “Recommended Practice Guide 5: Guidance for Auditors on the Review of Directors’ Statement on Internal Control” (“RPG5”) issued by the Malaysian Institute of Accountants. RPG 5 does not require the external auditors to consider whether the Directors’ statement on Internal Control covers all risks and controls, or to form an opinion on the effectiveness of the Group’s risk and control procedures. RPG 5 also does not require the external auditors to consider whether the processes described to deal with material internal control aspects of any significant matters disclosed in the annual report will, in fact, mitigate the risk identified or remedy the potential problems. The external auditors reported to the Board that nothing had come to their attention that caused them to believe that the Statement on Internal Control is inconsistent with their understanding of the process the Board has adopted in the review of the adequacy and integrity of internal control of the Group. This statement is made in accordance with the resolution of the Board of Directors dated 28 September 2005.
ANNUAL REPORT 2005 •
JAVA Incorporated Bhd (2511-M)
23
Financial Statements 25 Directors’ Report 34 Consolidated Balance Sheet 35 Balance Sheet 36 Consolidated Income Statement 37 Income Statement 38 Consolidated Statement Of Changes In Equity 39 Statement Of Changes In Equity 40 Consolidated Cash Flow Statement 43 Cash Flow Statement 44 Notes To The Financial Statements 77 Statement By Directors 78 Statutory Declaration 79
24
Report Of The Auditors
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Directors’ Report for the year ended 30 June 2005
The directors hereby submit their report together with the audited financial statements of the Group and of the Company for the financial year ended 30th June 2005.
PRINCIPAL ACTIVITIES The principal activities of the Company are investment holding and the provision of management services. The principal activities of the subsidiary companies are disclosed in Note 4 to the financial statements. There have been no significant changes in the nature of these principal activities during the financial year other than the acquisition of Key Heights Sdn. Bhd. and its subsidiary companies which are engaged in the business as timber contractors and trading of timber logs.
CHANGE OF NAME The Company changed its name from Aokam Perdana Berhad to Java Incorporated Bhd. on 7th February 2005.
RESULTS
Net profit for the year
Group RM'000
Company RM'000
51,182
94,605
DIVIDEND No dividend was paid or declared by the Company since the end of the previous financial year. The directors do not recommend the payment of any dividend in respect of the financial year ended 30th June 2005.
RESERVES AND PROVISIONS All material transfers to and from reserves and provisions during the financial year have been disclosed in the financial statements.
BAD AND DOUBTFUL DEBTS Before the income statements and balance sheets of the Group and of the Company were made out, the directors took reasonable steps to ascertain that 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. At the date of this report, the directors are not aware of any circumstances that would render the amount written off for bad debts, or the amount of the allowance for doubtful debts, in the financial statements of the Group and of the Company inadequate to any substantial extent.
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
25
Directors’ Report (cont’d) for the year ended 30 June 2005
CURRENT ASSETS Before the income statements and balance sheets of the Group and of the Company were made out, the directors took reasonable steps 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 of the Company have been written down to an amount that they might be expected to realise. At the date of this report, the directors are not aware of any circumstances that would render the values attributed to the current assets in the financial statements of the Group and of the Company misleading.
VALUATION METHODS At the date of this report, the directors are not aware of any circumstances which have arisen which render adherence to the existing methods of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate.
CONTINGENT AND OTHER LIABILITIES At the date of this report, there does not exist:(i) any charge on the assets of the Group and of the Company that has arisen since the end of the financial year which secures the liabilities of any other person, or (ii) any contingent liability in respect of the Group and of the Company that has arisen since the end of the financial year. No contingent liability or other liability of the Group and of the Company 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 of the Company to meet their obligations as and when they fall due.
CHANGE OF CIRCUMSTANCES 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 of the Group and of the Company that would render any amount stated in the financial statements misleading.
ITEMS OF AN UNUSUAL NATURE The results of the operations of the Group and of the Company for the financial year were not, in the opinion of the directors, substantially affected by any item, transaction or event of a material and unusual nature, other than as mentioned in Notes 29, 30 and 31 to the financial statements. 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, in the opinion of the directors, to affect substantially the results of the operations of the Group and of the Company for the financial year in which this report is made.
26
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Directors’ Report (cont’d) for the year ended 30 June 2005
ISSUE OF SHARES AND DEBENTURES During the financial year, the Company increased its authorised share capital from RM500,000,000/comprising 500,000,000 ordinary shares of RM1.00 each to RM600,000,000/- comprising 500,000,000 ordinary shares of RM1.00 each and 100,000,000 Irredeemable Cumulative Convertible Preference Shares of RM1/- each. The creation of Irredeemable Cumulative Convertible Preference Shares is to facilitate the issuance of the new Irredeemable Cumulative Convertible Preference Shares pursuant to the proposed acquisition of subsidiary companies. The existing issued and paid-up ordinary share capital of the Company was reduced during the financial year from RM83,415,113/- to RM4,170,756/- by the cancellation of RM0.95 of the par value of every existing ordinary share of RM1.00 each and subsequently consolidating the ordinary shares into RM1.00 each in the proportion of twenty (20) ordinary shares of RM0.05 each into one (1) ordinary share of RM1.00 each. The issued and paid-up share capital of the Company after the capital reduction and consolidation of RM4,170,756/- was increased to RM167,961,540/- through the following issues:a) 71,036,000 new ordinary shares of RM1.00 each as partial settlement of the purchase consideration for the acquisition of Key Heights Sdn. Bhd. and its subsidiary companies; b) 41,957,137 new ordinary shares of RM1.00 each as partial settlement of the secured and unsecured scheme creditors of the Company and three of its subsidiary companies under the capital reconstruction and restructuring scheme of the Company ("Scheme Creditors"); c)
A renounceable rights issue of 14,597,646 new ordinary shares of RM1.00 each ("Rights Shares") on the basis of seven (7) Rights Shares for every two (2) existing ordinary shares held after the capital reduction and consolidation together with 14,597,646 free detachable warrants on the basis of one (1) warrant for every one (1) Rights Share subscribed at an issue price of RM1.00 per share ("Rights Issue"). The purpose of the Rights Issue is either to expand the timber operations of the Group through acquisitions of new timber concessions in the future or to broaden the Group's earnings base by diversifying into the oil palm plantation sector.
d) A special issue of 10,000,000 new ordinary shares of RM1.00 each together with 10,000,000 free detachable warrants to Bumiputera investors at an issue price of RM1.00 each ("Special Issue") for working capital purposes; and e) 2,700,000 new ordinary shares of RM1.00 each pursuant to the conversion of 1.5% 3-year 2004/2007 Irredeemable Cumulative Convertible Preference Shares ("ICCPS"). f)
The Company issued 23,500,000 ICCPS at the nominal amount of RM1.00 each as partial settlement of the purchase consideration for the acquisition of Key Heights Sdn. Bhd. and its subsidiary companies. The ICCPS are listed on the Bursa Malaysia Securities Berhad. The principal terms of the ICCPS are as follows:a) The registered holder/(s) of the ICCPS will have the right at any time during the conversion period to convert the ICCPS at the conversion price into ordinary shares of RM1.00 each in the Company.
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
27
Directors’ Report (cont’d) for the year ended 30 June 2005
ISSUE OF SHARES AND DEBENTURES (CONTINUED) b) The conversion of ICCPS shall be at one (1) ICCPS for every one (1) new ordinary share of RM1.00 each of the Company. Subject to the Articles of Association of the Company and in consultation with its professional advisors, the Company will make provision for such adjustment/(s), if any, as the Company may deem appropriate to the conversion price in certain circumstances such as capitalisation of reserves or rights issue of shares or convertible securities which would, in the opinion of the Company, have effect of diluting the interests of the ICCPS holders. c)
The holder/(s) of ICCPS will have the right to convert the ICCPS at any time commencing from and including the date of issuance of ICCPS to and including the maturity date, i.e. the date preceding the third (3rd) anniversary of the issuance date. All outstanding ICCPS will be mandatorily converted into new ordinary shares of the Company on the maturity date at the conversion price.
d) The ICCPS shall bear dividend at the rate of 1.5% per annum cumulatively throughout the tenure of the ICCPS, subject to the availability of profits. e) The ICCPS holder/(s) shall have the same rights as the holders of ordinary shares as regards to receiving notices, reports and accounts and attending general meetings of the Company but shall only have the right to vote at any general meeting convened for the purposes of reducing the capital, or the disposal of the whole of the property, business or undertaking, or where the proposition to be submitted to the meeting directly affects their rights and privileges, or when the dividend or part of the dividend on such shares is in arrears for more than six (6) months or on a proposal to and during the winding-up of the Company. f)
The new ordinary shares to be issued pursuant to the conversion of ICCPS will, rank pari passu in all respects with the existing ordinary shares of the Company, except that they will not be entitled to any dividends, rights, allotment and/or other distributions declared, made or paid to shareholders, the entitlement date of which is prior to the allotment of the said shares.
g) The ICCPS will rank in priority to the ordinary shares of the Company in respect of return of capital on liquidation or otherwise for the par value of the ICCPS together with premium and accumulated dividends. As at the balance sheet date, 2,700,000 ICCPS have been converted to ordinary shares of RM1/- each. The balance of ICCPS stands at 20,800,000 as at the balance sheet date. No debenture was issued by the Company during the financial year. 2004/2014 WARRANTS ("Warrants") Pursuant to the Rights Issue and the Special Issue under the Capital Reconstruction and Restructuring Scheme ("Rescue Scheme") of the Company as mentioned in Note 29 to the financial statements, 14,597,646 and 10,000,000 free detachable warrants respectively were attached with the Rights Issue and the Special Issue. The warrants are constituted under a Deed Poll dated 18th August 2004 executed by the Company. The warrants are listed on the Bursa Malaysia Securities Berhad.
28
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Directors’ Report (cont’d) for the year ended 30 June 2005
2004/2014 WARRANTS ("Warrants") (CONTINUED) There is no movement of the warrants since the date of issuance:Number of Warrants
Warrants issued on 29th November 2004
At date of Issuance
Exercise
Expired
At 30.6.2005
24,597,646
-
-
24,597,646
The salient terms of the warrants are as follows:a) Each warrant entitles the registered holder/(s) at any time during the subscription period to subscribe for one (1) new ordinary share of RM1.00 each at an exercise price of RM1.00 per ordinary share. The warrants entitlement is subject to adjustments under the terms and conditions set out in the Deed Poll. b) The exercise price for the warrants is fixed at RM1.00 per new ordinary share of the Company, subject to adjustments under certain circumstances in accordance with the provision of the Deed Poll. c)
The subscription period is ten (10) years from the date of issuance until the maturity date, i.e. the date preceding the tenth (10th) anniversary of the date of issuance. Upon the expiry of the subscription period, any unexercised rights will lapse and cease to be valid for any purposes.
d) The new ordinary shares of RM1.00 each to be issued pursuant to the exercise of the warrants will rank pari passu in all respects with the existing ordinary shares of the Company except that the new ordinary shares so allotted shall not be entitled to any dividends, rights, allotment and/or other distributions declared, made or paid to shareholders, the entitlement date for which is before the date of allotment of the new ordinary shares pursuant to the exercise of the warrants.
EMPLOYEES' SHARE OPTION SCHEME Java Incorporated Bhd.'s Employees' Share Option Scheme ("ESOS") is governed by the Bye-Laws approved by the shareholders at the Extraordinary General Meeting held on 30th July 2004. The salient features of the ESOS are as follows:a) The maximum number of new ordinary shares in the Company which may be made available under the share options ("Options") granted pursuant to the ESOS shall not exceed ten percent (10%) (or such other higher percentage as may be permitted by the relevant regulatory authorities from time to time) of the issued and paid-up share capital of the Company at any point in time during the duration of the ESOS. The Company will, during the Option period, keep available sufficient authorised and unissued ordinary shares to satisfy all outstanding Options which may be exercisable from time to time throughout the duration of the ESOS; b) An Eligible Employee is any executive director or employee of the Company or its subsidiary companies ("the Group") who at the date of allocation:i) ii)
has attained the age of eighteen (18) years; is a confirmed employee of the Group;
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
29
Directors’ Report (cont’d) for the year ended 30 June 2005
EMPLOYEES' SHARE OPTION SCHEME (CONTINUED) Provided that the ESOS committee may, at its discretion, nominate any employee (including executive directors) of the Group to be an Eligible Person despite the eligibility criteria under the Bye-Laws 3.1 here in if not met, at any time and from time to time. No Options will be offered to an Eligible Director of the Company unless the specific allotment of Options to that Eligible Director to participate in the ESOS shall have previously been approved by the shareholders of the Company in a general meeting; c)
The ESOS shall be in force for a period of five (5) years from the date of full compliance with the statutory requirements ("Commencement Date") and is subject to an extension for a maximum period of up to five (5) years commencing from the day the date of expiration of the original five (5) year period;
d) The number of ESOS shares that may be offered and allotted to any one of the Eligible Person shall be at the discretion of the ESOS Committee and the Board of Directors after taking into consideration the performance, length of service and seniority of the Eligible Person and such other factors that the ESOS Committee and the Board of Directors may deem relevant, subject to the following:i)
the number of ESOS shares allocated, in aggregate, to Eligible Directors and senior management of the Group shall not exceed fifty percent (50%) of the total ESOS shares available under the ESOS; and
ii)
the number of ESOS shares allocated to any individual Eligible Person who, either singly or collectively through person/(s) connected with them as defined in the Listing Requirements of Bursa Malaysia Securities Berhad ("Listing Requirements"), hold twenty percent (20%) or more in the total issued and paid-up share capital of the Company shall not exceed ten percent (10%) of the total ESOS shares available under the ESOS.
At the discretion of the ESOS Committee, an Eligible Person may be eligible for more than one (1) offer provided that the total aggregate number of shares to be offered to such Eligible Person shall not exceed the maximum allowable allotment as set out in the Bye-Laws; e) The subscription price shall be determined by the Board of Directors upon the recommendation of the ESOS Committee in accordance with the Listing Requirements based on the 5-day weighted average market price of the Company's ordinary shares immediately prior to the date of offer with a discount of not more than 10% (or such higher discount as may be allowed under the Listing Requirements from time to time) if deemed appropriate, subject to the par value of the Company's ordinary shares and subject to adjustments in accordance with the Bye-Laws; f)
The Option granted to an Eligible Person is exercisable only by the Eligible Person during his/her tenure of services whilst he/she is employed/appointed/retained for services by the Group and subject to any extension pursuant to the Bye-Laws. No option shall be exercised after the expiry of the option period; and
g) The new ordinary shares to be allotted upon the exercise of an option shall, upon issue and allotment, rank pari passu in all respects with the existing issued and paid up shares of the Company for any dividends, rights, allotments and/or other distributions (including those arising on a liquidation of the Company or its subsidiary company, as the case may be), if the date of allotment is on or before the entitlement date and subject to all the provisions of the Articles of Association of the Company. The ESOS Committee of the Company was formed on 29th August 2005 and the entitlement is yet to be determined by the ESOS Committee.
30
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Directors’ Report (cont’d) for the year ended 30 June 2005
DIRECTORS The directors in office since the date of the last report are:Tunku Mahmood Bin Tunku Mohammed Dato' Choo Keng Weng Dr. Tee Choon Hwa Sy Choon Yen Mohd. Zulkhairis Bin Mohd. Zain Tan Sri Dato' Samshuri Bin Haji Arshad Peter Lee Pui Tet Andrew Genard Purcell Dato' Hj. Mohd. Salleh Bin Zakaria
- appointed on 6.1.2005 - appointed on 1.3.2005 - appointed on 1.3.2005 -
retired on 31.12.2004 resigned on 15.4.2005 resigned on 31.12.2004 resigned on 16.9.2004
In accordance with Article 112 of the Company's Articles of Association, Dr. Tee Choon Hwa retires from the Board at the forthcoming Annual General Meeting and being eligible, offer himself for re-election. In accordance with Article 83 of the Company's Articles of Association, Tunku Mahmood Bin Tunku Mohammed, Dato' Choo Keng Weng and Sy Choon Yen retire from the Board at the forthcoming Annual General Meeting and being eligible, offer themselves for re-election.
DIRECTORS' INTERESTS According to the Register of Directors' Shareholdings, the interests of those directors who held office at the end of the financial year in shares and warrants in the Company during the financial year are as follows:Number of ordinary shares of RM1/- each At 1.7.2004 or date of appointment
Capital reduction*
Bought
Sold
At 30.6.2005
380,000 -
70,000 6,975
-
90,000 6,975
The Company Java Incorporated Bhd. (formerly known as Aokam Perdana Berhad) Dr. Tee Choon Hwa Dato' Choo Keng Weng *
400,000 -
Under the Rescue Scheme which was completed during the financial year as disclosed in Note 29 to the financial statements, the par value of the Company's issued and paid-up ordinary shares was reduced from RM1.00 each to RM0.05 each and followed by a consolidation of twenty (20) ordinary shares of RM0.05 each into one ordinary share of RM1.00 each.
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
31
Directors’ Report (cont’d) for the year ended 30 June 2005
DIRECTORS' INTERESTS (CONTINUED) Number of warrants At 1.7.2004 or date of appointment
Warrant Granted
Warrant Exercised
Warrant Expired
At 30.6.2005
The Company Java Incorporated Bhd. (formerly known as Aokam Perdana Berhad) Dr. Tee Choon Hwa Dato' Choo Keng Weng
-
70,000 5,425
-
-
70,000 5,425
By virtue of their interests in shares of the Company, Dr. Tee Choon Hwa and Dato' Choo Keng Weng are deemed interested in the shares in the subsidiary companies to the extent the Company has an interest. By virtue of his interest in a corporate shareholder of the Company, Sy Choon Yen is deemed interested in 25,779,899 ordinary shares and 10,132,550 ICCPS respectively in the Company in which the corporate shareholder has an interest. By virtue of his interest in the said corporate shareholder of the Company, Sy Choon Yen is also deemed interested in the shares in the subsidiary companies to the extent the Company has an interest. None of the directors in office at the end of the financial year had any other interests in shares in the Company and its related corporations during the financial year.
SIGNIFICANT EVENTS DURING AND AFTER THE FINANCIAL YEAR Significant events during and after the financial year are disclosed in Notes 29 and 31 to the financial statements respectively.
DIRECTORS' BENEFITS Since the end of the previous financial year, no director of the Company has received or become entitled to receive a benefit (other than as disclosed in the financial statements) by reason of a contract made by the Company or a related corporation with the director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest. Neither during nor at the end of the financial year was the Company or any of its related corporations a party to any arrangement whose object was to enable the directors to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate apart from the directors' entitlements to subscribe for new ordinary shares in the Company under the ESOS of the Company of which the entitlement is to be determined by the ESOS Committee.
32
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Directors’ Report (cont’d) for the year ended 30 June 2005
AUDITORS The auditors, Messrs Monteiro & Heng, have expressed their willingness to continue in office.
On behalf of the Board,
DR. TEE CHOON HWA Director
SY CHOON YEN Director
Kuala Lumpur Date: 28th September 2005
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
33
Consolidated Balance Sheet as at 30 June 2005
Note
Group 2005 2004 RM'000 RM'000
PROPERTY, PLANT AND EQUIPMENT
3
21,314
14,860
OTHER INVESTMENTS
5
-
-
CURRENT ASSETS Inventories Trade and other receivables and advanced payments Deposits placed with licensed banks Cash and bank balances
7 8 10
23,958 54,584 27,575 5,207
4,295 2,146 507
111,324
6,948
27,613 250 9,796 14,603
30,966 41,511 82,022 5,000 373
52,262
159,872
59,062
(152,924)
80,376
(138,064)
165,261 (91,053)
83,415 15 (221,494)
74,208
(138,064)
CURRENT LIABILITIES Trade and other payables and advanced payments Acknowledgement of obligations Hire purchase liabilities Short term borrowings Provision for closure costs Provision for taxation
11 13 14 15
NET CURRENT ASSETS/(LIABILITIES)
Financed by: SHARE CAPITAL SHARE PREMIUM ACCUMULATED LOSS
16
SHAREHOLDERS' FUNDS/(CAPITAL DEFICIENCY) HIRE PURCHASE LIABILITIES LONG TERM LOANS - SECURED DEFERRED TAXATION
14 17 18
667 4,936 565 80,376
The accompanying notes form an integral part of these financial statements.
34
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
(138,064)
Balance Sheet as at 30 June 2005
Note
Company 2005 2004 RM'000 RM'000
PROPERTY, PLANT AND EQUIPMENT
3
14
17
INVESTMENTS IN SUBSIDIARY COMPANIES
4
94,536
-
OTHER INVESTMENTS
5
-
-
ACKNOWLEDGEMENT OF OBLIGATIONS TRANSFERRED FROM SUBSIDIARY COMPANIES
6
-
-
2,468 35,542 16,597 269
1,560 146
54,876
1,706
1,898 2,572 306
14,872 2,572 41,511 48,507 5,000 306
4,776
112,768
CURRENT ASSETS Trade and other receivables and advanced payments Amount due from subsidiary companies Deposits placed with licensed banks Cash and bank balances
CURRENT LIABILITIES Trade and other payables and advanced payments Amount due to a subsidiary company Acknowledgement of obligations Short term borrowings Provision for closure costs Provision for taxation
8 9 10
11 12 13 15
NET CURRENT ASSETS/(LIABILITIES)
Financed by: SHARE CAPITAL SHARE PREMIUM ACCUMULATED LOSS SHAREHOLDERS' FUNDS/(CAPITAL DEFICIENCY)
16
50,100
(111,062)
144,650
(111,045)
165,261 (20,611)
83,415 15 (194,475)
144,650
(111,045)
The accompanying notes form an integral part of these financial statements.
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
35
Consolidated Income Statement for the year ended 30 June 2005
Note
Group 2005 2004 RM'000 RM'000
REVENUE
19
268,493
Cost of sales
20
(229,890)
(10,959)
GROSS PROFIT/(LOSS)
38,603
(1,285)
Other operating income Distribution costs Administrative expenses
2,006 (2,464) (13,558)
775 (1,405) (2,188)
OPERATING PROFIT/(LOSS)
21
24,587
(4,103)
Finance costs (net)
22
(2,509)
(5,052)
Exceptional items - waiver of debts by Scheme Creditors - goodwill written off - provision for closure costs no longer required
PROFIT/(LOSS) BEFORE TAXATION Pre-acquisition profit
Taxation
23
NET PROFIT/(LOSS) FOR THE YEAR
Fully diluted
-
38,573
-
(5,400)
55,251 24
Earnings/(loss) per share (sen) Basic
106,084 (72,511) 5,000
60,651
PROFIT/(LOSS) BEFORE TAXATION BUT AFTER PRE-ACQUISITION PROFIT
(4,069)
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
(9,155) -
(9,155) -
51,182
(9,155)
49.2
(10.9)
39.3
(10.9)
25
The accompanying notes form an integral part of these financial statements.
36
9,674
Income Statement for the year ended 30 June 2005
Note
Company 2005 2004 RM'000 RM'000
REVENUE
19
2,737
150
Cost of sales
20
-
-
2,737
150
GROSS PROFIT Other operating income Other operating expenses Distribution costs Administrative expenses
324 (1,913)
114 (3,756)
OPERATING PROFIT/(LOSS)
21
1,148
(3,492)
Finance costs (net)
22
6,298
(132)
Exceptional items - waiver of debts by Scheme Creditors - provision for closure costs no longer requried
PROFIT/(LOSS) BEFORE TAXATION Taxation
82,159 5,000
-
87,159
-
94,605 24
NET PROFIT/(LOSS) FOR THE YEAR
94,605
(3,624) (3,624)
The accompanying notes form an integral part of these financial statements.
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
37
Consolidated Statement Of Changes In Equity for the year ended 30 June 2005 NonDistributable
Share Capital
Group
Ordinary Shares
Preference Shares
Share Premium
Accumulated Loss
Total
RM'000
RM'000
RM'000
RM'000
RM'000
83,415
-
15
(212,339)
(128,909)
-
-
-
(9,155)
(9,155)
83,415
-
15
(221,494)
(138,064)
16
(79,244)
-
-
16 16
137,590 2,700 -
23,500 (2,700) -
144,461
20,800
Note
Balance at 1st July 2003 Net loss for the year Balance at 30th June 2004 Capital Reduction Share premium account reduction Issued during the year Conversion during the year Net profit for the year Balance at 30th June 2005
(15) -
79,244
-
15 51,182
161,090 51,182
(91,053)
74,208
The accompanying notes form an integral part of these financial statements.
38
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Statement Of Changes In Equity for the year ended 30 June 2005
NonDistributable
Share Capital
Company
Ordinary Shares
Preference Shares
Share Premium
Accumulated Loss
Total
RM'000
RM'000
RM'000
RM'000
RM'000
83,415
-
15
(190,851)
(107,421)
-
-
-
(3,624)
(3,624)
83,415
-
15
(194,475)
(111,045)
16
(79,244)
-
-
16 16
137,590 2,700 -
23,500 (2,700) -
144,461
20,800
Note
Balance at 1st July 2003 Net loss for the year Balance at 30th June 2004 Capital reduction Share premium account reduction Issued during the year Conversion during the year Net profit for the year Balance at 30th June 2005
(15) -
79,244
-
15 94,605
161,090 94,605
(20,611)
144,650
The accompanying notes form an integral part of these financial statements.
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
39
Consolidated Cash Flow Statement for the year ended 30 June 2005
Group 2005 2004 RM'000 RM'000 CASH FLOWS FROM OPERATING ACTIVITIES: Profit/(loss) before taxation Less : Pre-acquisition profit
Adjustments for: Allowance for doubtful debts for other receivables, deposits and prepayments Allowance for doubtful debts no longer required for trade receivables Bad debts written off Depreciation and amortisation Gain on disposal of property, plant and equipment Gain on disposal of unquoted investment Goodwill on consolidation written off Interest expenses Interest income Inventories written down Property, plant and equipment written off Provision for closure costs no longer required Waiver of debts by Scheme Creditors Operating Profit/(loss) before Working Capital Changes (Increase)/decrease in inventories (Increase)/decrease in receivables Decrease in payables Cash Generated From/(Used In) Operations Interest received Tax paid Net Cash From/(Used In) Operating Activities
60,651 (5,400)
(9,155) -
55,251
(9,155)
404 4,672 (67) 72,511 2,161 (420) 1 (5,000) (106,084)
4 (12) 3,669 (3) 5,052 (3) 38 -
23,429
(410)
(6,614) (5,781) (1,408)
482 171 (528)
9,626
(285)
420 (980) 9,066
3 (282)
CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposal of property, plant and equipment Proceeds from disposal of unquoted investments Purchase of property, plant and equipment* Net Cash (Used In)/From Investing Activities
67 (1,390)
4 -
(1,323)
4
(11,544) (359) (1,145) 24,598 (206) (1,731)
-
9,613
-
CASH FLOWS FROM FINANCING ACTIVITIES: Acquisition of subsidiary companies net of cash acquired** Deposits held as security values Interest paid Proceeds from issues of shares Payment for hire puchase liabilities Repayment of term loans Net Cash From Financing Activities
40
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Consolidated Cash Flow Statement (cont’d) for the year ended 30 June 2005
Group 2005 2004 RM'000 RM'000 NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR
17,356 507
(278) 785
CASH AND CASH EQUIVALENTS AT END OF THE YEAR
17,863
507
Cash and bank balances Deposits placed with licensed banks Less : Bankers' acceptance
5,207 27,575 (8,011)
507 -
Less : Deposits held as securities values
24,771 (6,908)
507 -
17,863
507
ANALYSIS OF CASH AND CASH EQUIVALENTS:
*
During the financial year, the Group acquired property, plant and equipment amounting to RM1,994,932/- (2004 : RM Nil) of which RM802,608/- (2004 : RM Nil) were purchased under the hire purchase arrangements. Cash payments of RM197,808/- (2004 : RM Nil) were made towards the hire purchase.
**
SUMMARY EFFECTS ON ACQUISITION OF SUBSIDIARY COMPANIES Group 2005 2004 RM'000 RM'000
Assets Property, plant and equipment Inventories Trade and other receivables Deposits placed with licensed banks Cash and bank balances
9,132 13,050 47,110 6,549 1,679
-
77,520
-
21,598 22,192 576 11,129
-
55,495
-
22,025 72,511
-
Purchase consideration Consideration settled by issuance of shares in the Company Cash of subsidiary companies acquired
94,536 (94,536) (11,544)
-
Net cash outflow from acquisition of subsidiary companies
(11,544)
-
Liabilities Trade and other payables Borrowings Deferred taxation Provision for taxation
Net assets acquired Goodwill on consolidation
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
41
Consolidated Cash Flow Statement (cont’d) for the year ended 30 June 2005
On 17th December 2002, Java Incorporated Bhd. (formerly known as Aokam Perdana Berhad) entered into a Definitive Agreement with the shareholders of Key Heights Sdn. Bhd. to acquire the 100% equity interest in Key Heights Sdn. Bhd and its subsidiary companies for a total purchase consideration of RM150 million. The Definitive Agreement was subsequently varied and supplemented by supplemental agreements entered with the same parties on 19th September 2003 and 15th December 2003, and vide a letter dated 14th October 2003 respectively. The total purchase consideration was subsequently revised to RM94.536 million. The effects of the acquisition of Key Heights Sdn. Bhd. and its subsidiary companies on the financial results of the Group from the effective date of acquisition on 1st October 2004 to 30th June 2005 were as follows:RM'000 Revenue Cost of sales
RM'000
232,598 (200,813)
-
31,785 404 (10,616)
-
Operating Profit Finance costs
21,573 (1,399)
-
Profit before taxation Pre-acquisition profit
20,174 (5,400)
-
Profit before taxation but after pre-acquisition profit Taxation
14,774 (4,069)
-
Profit after taxation
10,705
-
Gross profit Other operating income Administrative expenses
The effects of the acquisition of Key Heights Sdn. Bhd. and its subsidiary companies on the financial position of the Group are as follows:Group 2005 2004 RM'000 RM'000 Assets Property, plant and equipment Inventories Trade and other receivables Deposits placed with licensed bank Cash and bank balances Liabilities Trade and other payables Borrowings Deferred taxation Provision for taxation Net assets
9,351 9,389 32,314 6,908 3,741
-
(20,015) (15,648) (565) (14,229)
-
11,246
-
The accompanying notes form an integral part of these financial statements.
42
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Cash Flow Statement for the year ended 30 June 2005
Company 2005 2004 RM'000 RM'000 CASH FLOWS FROM OPERATING ACTIVITIES: Profit/(loss) before taxation Adjustments for: Allowance for doubtful debts for amount due from subsidiary companies - current - no longer required Depreciation and amortisation Gain on disposal of unquoted investment Gain on disposal of property, plant and equipment Interest expenses Interest income Provision for closure costs no longer required Waiver of debts by Scheme Creditors Operating Profit/(loss) before Working Capital Changes (Increase)/decrease in receivables (Decrease)/increase in payables Cash (Used In)/Generated From Operations Interest paid Interest received Net Cash (Used In)/Genarated From Operating Activities
94,605
(3,624)
3 (67) 158 (6,712) (5,000) (82,159)
3,189 (108) 11 (3) 2,458 (2,329) -
828
(406)
(908) (473)
2,662 321
(553)
2,577
(2) 256
3
(299)
2,580
CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposal of property, plant and equipment Proceeds from disposal of unquoted investment Net Cash From Investing Activities
67
4 -
67
4
CASH FLOWS FROM FINANCING ACTIVITIES: Net change in amounts owing by/(to) subsidiary companies Proceeds from issues of shares
(7,646) 24,598
(3,081) -
Net Cash From/(Used In) Financing Activities
16,952
(3,081)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR
16,720 146
(497) 643
CASH AND CASH EQUIVALENTS AT END OF THE YEAR
16,866
146
269 16,597
146 -
16,866
146
ANALYSIS OF CASH AND CASH EQUIVALENTS: Cash and bank balances Deposits placed with licensed banks
The accompanying notes form an integral part of these financial statements. ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
43
Notes To The Financial Statements 1.
GENERAL INFORMATION The principal activities of the Company are investment holding and the provision of management services. The principal activities of the subsidiary companies are disclosed in Note 4 to the financial statements. There have been no significant changes in the nature of these principal activities during the financial year other than the acquisition of Key Heights Sdn. Bhd. and its subsidiary companies which are engaged in the business as timber contractors and trading of timber logs. The Company is a public limited liability company, incorporated and domiciled in Malaysia and listed on the Main Board of Bursa Malaysia Securities Berhad. The registered office and business office of the Company is located at M.02, Mezzanine Floor, Wisma E & C, No. 2 Lorong Dungun Kiri, Damansara Heights, 50490 Kuala Lumpur. The number of employees of the Group and of the Company (including directors) at the end of the financial year was 1,185 (2004 : 279 ) and 7 (2004 : 9 ) respectively. The financial statements are expressed in Ringgit Malaysia. The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 28th September 2005.
2.
SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Accounting The financial statements of the Group and of the Company have been prepared on a going concern basis following the successful implementation of the Rescue Scheme during the financial year as disclosed in Note 29 to the financial statements. The financial statements of the Group and of the Company have been prepared under the historical cost convention, unless otherwise indicated in the accounting policies set out below, and comply with the provisions of the Companies Act, 1965 and the applicable approved accounting standards in Malaysia. The comparative figures have been prepared on a break-up basis. However, no reinstatement was made to the comparative figures as their carrying values as at 30th June 2004 approximate their fair values. (b) Basis of Consolidation The consolidated financial statements include the financial statements of the Company and its subsidiary companies made up to the end of the financial year. Subsidiary companies are those enterprises controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiary companies are consolidated using the acquisition method of accounting. Under the acquisition method of accounting, the results of subsidiary companies acquired or disposed of during the financial year are included in the consolidated income statement from their respective effective dates of acquisitions or up to their respective dates of disposal. At the date of acquisition, the fair values of the subsidiary companies' net assets are determined and these values are reflected in the consolidated financial statements.
44
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Notes To The Financial Statements (cont’d)
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Basis of Consolidation (continued) The financial statements of the parent and its subsidiary companies are all drawn up to the same reporting date. Intra group transactions, balances and resulting unrealised gains are eliminated on consolidation and the consolidated financial statements reflect external transactions only. Unrealised losses are eliminated on consolidation unless costs cannot be recovered. The gain or loss on disposal of a subsidiary company is the difference between net disposal proceeds and the Group's share of its assets together with any unamortised balance of goodwill or reserve on consolidation which was not previously recognised in the consolidated income statement. Minority interests in the consolidated balance sheet consist of the minorities' share of the fair value of the identifiable assets and liabilities of the acquiree as at acquisition date and the minorities' share of movements in the acquiree's equity since then. (c) Goodwill on Consolidation Goodwill is stated at cost less accumulated amortisation and impairment losses, if any. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(d). Goodwill arising on consolidation represents the excess of the purchase price over the fair value of the net assets of the subsidiary companies at the date of acquisition. Goodwill arising from the acquisition of subsidiary companies during the financial year was written off to the consolidated income statements. (d) Impairment of Assets At each balance sheet date, the carrying values of assets, other than inventories, deferred tax assets and financial assets, are reviewed for impairment when there is an indication that the assets might be impaired. Impairment is measured by comparing the carrying values of the assets with their recoverable amounts. The recoverable amount is the higher of an asset's net selling price and its value in use, which is measured by reference to discounted future cash flows. Recoverable amounts are estimated for individual assets, or if it is not possible, for the cash-generating unit to which the asset belongs. An impairment loss is recognised as an expense in the income statements immediately, unless the asset is carried at revalued amount. Any impairment loss of a revalued asset is treated as a revaluation decrease to the extent of any unutilised previously recognised revaluation surplus for the same asset. Subsequent increase in the recoverable amount of an asset is treated as reversal of the previous impairment loss and is recognised to the extent of the carrying amount of the asset that would have determined (net of amortisation and depreciation) had no impairment loss been recognised. The reversal is recognised in the income statements immediately, unless the asset is carried at revalued amount. A reversal of an impairment loss on a revalued asset is credited directly to revaluation surplus. However, to the extent that an impairment loss on the same revalued asset was previously recognised as an expense in the income statements, a reversal of that impairment loss is recognised as income in the income statements. ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
45
Notes To The Financial Statements (cont’d)
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Property, Plant and Equipment and Depreciation Property, plant and equipment are stated at cost or at estimated net realisable value made by the Board of Directors less accumulated depreciation and impairment losses, if any. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(d). Depreciation is calculated on a straight line method so as to write off their costs of the property, plant and equipment over their expected useful lives or their estimated net realisable value over their remaining estimated useful lives. The annual rates used for this purpose are as follows:Long term leasehold land Short term leasehold land Buildings Plant and machinery Motor vehicles Furniture, fittings and equipment Construction of camp road Renovation
50 - 93 years 36 years 2.3% - 14.3% 10% - 25% 20% - 50% 10% - 50% Over 9 years 10%
Fully depreciated assets are retained in the accounts until the assets are no longer in use. (f) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis. In the case of work-in-progress and manufactured goods costs include cost of raw materials, direct labour and an appropriate proportion of fixed and variable production overheads. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs to completion and the estimated costs necessary to make the sale. (g) Provisions Provisions for liabilities are recognised when the Group has a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Provision for closure costs made in 2004 no longer required in 2005 was made in view of the breakup basis of preparation of the financial statements. It was based on estimated liabilities to be incurred in the event of cessation of the operations of the Group and of the Company. (h) Financial Instruments Financial instruments are recognised in the balance sheet when the Group has become a party to the contractual provisions of the instruments. The particular recognition methods adopted are disclosed in the individual accounting policy statements associated with each item. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument classified as liability are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity. Financial instruments are offset when the Group has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
46
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Notes To The Financial Statements (cont’d)
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (i) Investments Long term investment in subsidiary companies and other investments are stated at cost less impairment losses, if any. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(d). Short term quoted investments is stated at the lower of cost or market value and unquoted investments are stated at the lower of cost and net realisable value. On disposal of an investment, the difference between the disposal proceeds and its carrying amount is charged or credited to the income statements. (j) Trade And Other Receivables Trade and other receivables are carried at anticipated realisable values. Bad debts are written off when identified. An estimate is made for doubtful debts based on a review of all outstanding amounts as at the balance sheet date. (k) Liabilities Borrowings, trade and other payables and acknowledgement of obligations are stated at cost which is the fair value of the consideration to be paid in the future, whether or not billed to the Group. (l) Equity Instruments
(i) Ordinary shares Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the financial year in which they are declared. The transaction costs of an equity transaction are accounted for as deduction from equity, net of tax. Equity transaction costs comprise only those incremental external costs directly attributable to the equity transaction which would otherwise have been avoided.
(ii) Preference shares Preference shares are classified as equity if they are non-redeemable and dividends are discretionary at the option of the issues. Preference shares are classified as liability if they are redeemable on a specific date or at the option of the shareholders and dividends thereon are recognised in the income statement as interest expense. Preference shares that are compound instruments are split into liability and equity components. Each component is accounted for separately. (m) Hire Purchase Transactions Assets financed by hire purchase arrangements which transfer substantially all the risks and rewards of ownership to the Group are capitalised as property, plant and equipment and the corresponding obligations are treated as liabilities. The assets so capitalised are depreciated in accordance with the accounting policy on property, plant and equipment. The cost of assets acquired under hire purchase agreements is capitalised at their cost or valuation modified by their revaluation on an estimated realisable value basis in 2002 in view of the breakup basis preparation of the financial statements as disclosed in Note 2(a). Finance charges are charged to the income statements over the period of the respective agreements. ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
47
Notes To The Financial Statements (cont’d)
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (m) Hire Purchase Transactions (continued) Pursuant to the Scheme of Arrangement as disclosed in Note 30 to the financial statements, the interest taken up in the income statement is calculated as follows: (i) Interest for the unsecured amount, which represents amount in excess of the break-up values of the corresponding assets, is charged on the unpaid principal from 9th March 1999 (the effective date of the Scheme) at 3-month KLIBOR rate; and (ii) Interest for the secured amount is charged at 3% above 3-month KLIBOR rate on 1st March 1999 (the 5th business day preceding the effective date of the Scheme). (n) Revenue Recognition
(i) Manufacturing And Trading Of Downstream Timber Products Revenue from manufacturing and trading of downstream timber products is measured at the fair value of the consideration receivable and is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyers.
(ii) Harvesting And Trading Of Raw Timber Products Revenue derived from harvesting and trading of raw timber products is recognised upon goods delivered and customer's acceptance.
(iii) Management Fee Management fee is recognised upon services rendered. (o) Income Tax Income tax on the income statements represents the aggregate amount of current tax and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the year and is measured using the tax rates that have been enacted at the balance sheet date. Deferred tax is provided for, using the liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts in the financial statements. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is recognised in the income statements, except when it arises from a transaction which is recognised directly in equity, in which case the deferred tax is also charged or credited directly in equity. (p) Employee Benefits
(i) Short Term Employee Benefits Wages, salaries and bonuses are recognised as expenses in the year in which the associated services are rendered by employees of the Group. Short term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and short term non-accumulating compensated absences such as sick leave are recognised when absences occur.
48
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Notes To The Financial Statements (cont’d)
2.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (p) Employee Benefits (continued)
(ii) Defined Contribution Plan The Group contributes to the Employees' Provident Fund ("EPF"), the national defined contribution plan. The contributions are charged to the income statements in the period to which they are related. Once the contributions have been paid, the Group has no further payment obligations.
(iii) Equity and Equity Related Compensation Benefits The Company's Employees' Shares Option Scheme allows the Group's employees to acquire shares of the Company. When the options are exercised, equity is increased by the amount of the proceeds received and no compensation cost or obligation is recognised. (q) Foreign Currency Translation Transactions in foreign currencies are converted into Ringgit Malaysia at the exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are converted into Ringgit Malaysia at the rate of exchange ruling on that date. Exchange differences arising from the settlement of foreign currency transactions and from the translation of foreign currency monetary assets and liabilities are included in the income statements. The principal closing rate used in translation of foreign currency amounts is stated below:-
Foreign currency
2005 RM
2004 RM
1 United States Dollar
3.798
3.800
(r) Borrowing Costs Borrowing costs are charged to the income statements as an expense in the financial year in which they are incurred. (s) Segmental Information Segment revenue and expenses are those directly attributable to the segments and include any joint revenue and expenses where a reasonable basis of allocation exists. Segment assets include all assets used by a segment and consist principally of cash, receivables, inventories and property, plant and equipment, net of allowances and accumulated depreciation and amortisation. Most segment assets can be directly attributed to the segments on a reasonable basis. Segment assets and liabilities do not include income tax assets and liabilities respectively. (t) Cash and Cash Equivalents For the purpose of cash flow statement, cash and cash equivalents include cash in hand, bank balances, demand deposit and highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value, net of deposits pledged to financial institutions and bankers' acceptance. ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
49
Notes To The Financial Statements (cont’d)
3.
PROPERTY, PLANT AND EQUIPMENT
Group 2005
Long Short FurniConsTerm Term ture, truction Lease- LeasePlant Fittings of hold hold and Motor and Camp RenoLand Land Buildings Machinery Vehicles Equipment Road vation Total RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000
Cost/Estimated Realisable Value At 1st July 2004 Additions New subsidiary companies acquired Disposals/write-off
1,560 -
809 -
6,155 220
13,381 455
237 1,053
47 182
-
85
22,189 1,995
-
-
907 -
3,120 -
1,678 (16)
774 (1)
5,800 -
39 -
12,318 (17)
At 30th June 2005
1,560
809
7,282
16,956
2,952
1,002
5,800
124
36,485
-
-
1,127
3,576
2,730
956
5,800
124
14,313
1,560
809
6,155
13,380
222
46
-
-
22,172
1,560
809
7,282
16,956
2,952
1,002
5,800
124
36,485
At 1st July 2004 Charged for the year New subsidiary companies acquired Disposals/write-off
38
38
309
6,710
222
12
-
-
7,329
20
19
162
3,566
311
106
483
5
4,672
-
-
12 -
547 -
694 (16)
201 -
1,717 -
15 -
3,186 (16)
At 30th June 2005
58
57
483
10,823
1,211
319
2,200
20
15,171
Net Book Value at 30th June 2005
1,502
752
6,799
6,133
1,741
683
3,600
104
21,314
-
-
1,106
2,780
1,729
653
3,600
104
9,972
1,502
752
5,693
3,353
12
30
-
-
11,342
1,502
752
6,799
6,133
1,741
683
3,600
104
21,314
Representing: Cost Estimated Realisable Value
Accumulated Depreciation
Representing: Cost Estimated Realisable Value
50
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Notes To The Financial Statements (cont’d)
3.
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Group 2004
Long Term Leasehold Land RM'000
Short Term Leasehold Land RM'000
Buildings RM'000
Plant and machinery RM'000
Motor Vehicles RM'000
Furniture, Fittings And Equipment RM'000
Total RM'000
Estimated Realisable Value At 1st July 2003 Additions Disposals/write-off Transfer
1,535 25
471 338
6,518 (363)
13,381 -
237 -
62 (15) -
22,204 (15) -
At 30th June 2004
1,560
809
6,155
13,381
237
47
22,189
At 1st July 2003 Charged for the year Disposals Reclassifications
20
13
162
3,355
111
13
3,674
18 -
20 5
152 (5)
3,355 -
111 -
13 (14) -
3,669 (14) -
At 30th June 2004
38
38
309
6,710
222
12
7,329
1,522
771
5,846
6,671
15
35
14,860
Accumulated Depreciation
Net Book Value at 30th June 2004
Company 2005
Motor Vehicles RM'000
Furniture, Fittings And Equipment RM'000
Total RM'000
Estimated Realisable Value At 1st July 2004 Additions Disposals
25 -
-
25 -
At 30th June 2005
25
-
25
8 3 -
-
8 3 -
At 30th June 2005
11
-
11
Net Book Value at 30th June 2005
14
-
14
Accumulated Depreciation At 1st July 2004 Charged for the year Disposals
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
51
Notes To The Financial Statements (cont’d)
3.
PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Motor Vehicles RM'000
Company 2004
Furniture, Fittings And Equipment RM'000
Total RM'000
Estimated Realisable Value At 1st July 2003 Additions Disposals
25 -
At 30th June 2004
25
15 (15) -
40 (15) 25
Accumulated Depreciation At 1st July 2003 Charged for the year Disposals
4 4 -
At 30th June 2004
8
-
8
17
-
17
Net Book Value at 30th June 2004
7 7 (14)
11 11 (14)
Group and Company Property, plant and equipment stated at their estimated realisable value were based on professional valuation made by Mr. Chew Kwong Cheong, a chartered surveyor in Jordan Lee, Jaafar & Chew Sdn. Bhd., on forced sale value basis conducted in August 2002. As at the balance sheet date, the valuation of these assets has not been updated and they continue to be stated at their previous estimated realisable value less accumulated depreciation. The directors are of the opinion that the net recoverable amount of these assets would not be lower than their estimated realisable values. Had these assets been carried at historical cost less accumulated depreciation, the net book values of these assets that would have been included in the financial statements of the Group and of the Company are as follows:Group Company 2005 2004 2005 2004 RM’000 RM’000 RM’000 RM’000 Leasehold land Buildings Plant and machinery Motor vehicles Furniture, fittings and equipment
52
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
2,990 126,159 3,606 161
3,028 129,454 13,235 31 307
-
-
132,916
146,055
-
-
Notes To The Financial Statements (cont’d)
3.
PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Included in property, plant and equipment of the Group and of the Company are assets pledged to the licensed banks to secure credit facilities granted to the Company and its subsidiary companies with net book values as follows:Group 2005 2004 RM’000 RM’000 Long term leasehold land Short term leasehold land Buildings Construction of camp road Plant and machinery Renovation Motor vehicles Furniture, fittings and equipment
Company 2005 2004 RM’000 RM’000
938 3,600 2,328 104 1,729 653
1,522 771 5,846 6,671 15 35
-
17 -
9,352
14,860
-
17
Included in property, plant and equipment of the Group and of the Company are assets acquired under hire purchase instalment plans with net book values as follows:Group 2005 2004 RM’000 RM’000 Plant and machineries Motor vehicles
1,290
Company 2005 2004 RM’000 RM’000
1,718 787
-
-
Certain long term leasehold land are held under native titles and sub-leased to a subsidiary company. The comparative figures for property, plant and equipment were reclassified from current assets to noncurrent assets during the financial year following the successful implementation of the Rescue Scheme as mentioned in Note 29 to the financial statements.
4.
INVESTMENTS IN SUBSIDIARY COMPANIES Company 2005 2004 RM’000 RM’000 Unquoted shares - at cost Less : Impairment losses
120,964 (26,428) 94,536
ANNUAL REPORT 2005 •
26,428 (26,428) -
Java Incorporated Bhd (2511-M)
53
Notes To The Financial Statements (cont’d)
4.
INVESTMENTS IN SUBSIDIARY COMPANIES (CONTINUED) The following information relates to the subsidiary companies which are all incorporated in Malaysia:-
Name of the Company
Effective Equity Interest 2005 2004 % %
Principal Activities
Direct subsidiary companies Pembangunan Papan Lapis (Sabah) Sdn. Bhd.
100
100
Manufacturing and marketing of sawntimber, moulded timber and other timber related products and providing wood treatment and kiln drying services
Java-Inc Industries Sdn. Bhd. (formerly known as Aokam Industries Sdn. Bhd.)
100
100
Manufacturing and marketing of veneer, plywood and related products
Pacific Wood Products Sdn. Bhd.
100
100
Manufacturing and marketing of veneer related products
Java-Inc Resources Sdn. Bhd. (formerly known as Aokam Resources Sdn. Bhd.)
100
100
Dormant
NuovaEra Sdn. Bhd.
100
100
Dormant
Samquity Sdn. Bhd.*
100
100
Dormant
Fastwork Holdings Sdn. Bhd.*
100
100
Dormant
Java-Inc Tech Sdn. Bhd.* (formerly known as AokamTech Sdn. Bhd.)
100
100
Dormant
Inti-Juara Sdn. Bhd.*
100
100
Dormant
Key Heights Sdn. Bhd.
100
-
100
100
Pinawantai Sdn. Bhd.
100
-
Trading of timber logs
Kumpulan Kinabatangan Timber Sdn. Bhd.
100
-
Timber contractor
Bizkaya Sdn. Bhd.
100
-
Trading of timber logs
Wincohasil Sdn. Bhd.
100
-
Timber contractor
Investment holding
Indirect subsidiary company held through Pacific Wood Products Sdn. Bhd. PWP Industries Sdn. Bhd.*
Dormant
Indirect subsidiary companies held through Key Heights Sdn. Bhd.
*
54
Subsequent to the balance sheet date and on 18th August 2005, these subsidiary companies were disposed of to a third party for a total cash consideration of RM5/.
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Notes To The Financial Statements (cont’d)
5.
OTHER INVESTMENTS Group 2005 2004 RM’000 RM’000 Quoted shares in Malaysia Unquoted shares at cost Unquoted shares outside Malaysia
Less: Impairment losses
Market values of the quoted shares in Malaysia
6.
Company 2005 2004 RM’000 RM’000
4 1,325 -
4 1,325 1,192
4 1,325 -
4 1,325 1,192
1,329 (1,329)
2,521 (2,521)
1,329 (1,329)
2,521 (2,521)
-
-
-
-
1
2
1
2
ACKNOWLEDGEMENT OF OBLIGATIONS TRANSFERRED FROM SUBSIDIARY COMPANIES Company 2005 2004 RM’000 RM’000 Long term payment obligations transferred from subsidiary companies Less : Allowance for long term payment obligations transferred from subsidiary companies
-
41,405
-
(41,405)
-
-
Long term payment obligations transferred from subsidiary companies in year 2004 represented restructured creditors of subsidiary companies under the Scheme of Arrangement completed in 1999 as stated in Note 30 to the financial statements. Interest at 3 months KLIBOR was accrued on the amount owing and was payable quarterly from 9th March 1999.
7.
INVENTORIES Group 2005 2004 RM’000 RM’000 At cost: Raw material and consumables Work-in-progress Manufactured goods
7,774 7,272 8,602
143 184 347
23,648
674
310
2,557 343 721
310
3,621
23,958
4,295
At net realisable value: Raw material and consumables Work-in-progress Manufactured goods
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
55
Notes To The Financial Statements (cont’d)
8.
TRADE AND OTHER RECEIVABLES AND ADVANCED PAYMENTS Group 2005 2004 RM’000 RM’000 Trade receivables Less : Allowance for doubtful debts
27,860 (1,506) 26,354
Other receivables Less : Allowance for doubtful debts
11,001 11,001
Sundry deposits Less : Allowance for doubtful debts
99,734 (99,473) 261 40,955 (39,355) 1,600
Company 2005 2004 RM’000 RM’000 -
-
-
-
* -
15,403 (13,873)
*
1,530
4,050 -
11 (1)
4 -
11 (1)
4,050
10
4
10
Prepayments Less : Allowance for doubtful debts
4,241 -
343 (68)
2,464 -
88 (68)
Advanced payments
4,241 8,938
275 -
2,464 -
20 -
54,584
2,146
2,468
1,560
*
RM89/-
The currency exposure profile of trade and other receivables and advanced payments are as follows:Group 2005 2004 RM’000 RM’000 Ringgit Malaysia US Dollar
Company 2005 2004 RM’000 RM’000
49,943 4,641
2,018 128
2,468 -
1,560 -
54,584
2,146
2,468
1,560
The Group's normal trade credit terms range from 1 to 90 days. Other credit terms are assessed and approved on a case-by-case basis. Included in other receivable is an amount of RM9,585,230/- (2004 : RM Nil) which represents deposit paid for the purchase of logs and timber. Included in sundry deposits of the Group is an amount of RM3,900,000/- (2004 : RM Nil) which represent the deposit paid for the securing of timber logging contracting works. Included in prepayments are amounts totalling RM2,441,690/- (2004 : RM1,215,932/-) represent the restructuring expenses incurred pursuant to the implementation of the Rescue Scheme of the Company. The said expenses is amortised over five years commencing from the current financial year. The advanced payments represent payment made in advance to the suppliers and contractors of subsidiary companies for goods and services to be received.
56
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Notes To The Financial Statements (cont’d)
9.
AMOUNT DUE FROM SUBSIDIARY COMPANIES Company 2005 2004 RM’000 RM’000 Amount due from subsidiary companies - Advances Less : Allowance for doubtful debts
102,755 (67,213) 35,542
67,213 (67,213) -
Amounts due from subsidiary companies are unsecured, no fixed terms of repayment and interest free except for amounts totalling approximately RM31,619,000/- in 2004 which bore interest at the rate of 2% above KLIBOR per annum. The said interest bearing advances in year 2004 was funded from the Company's secured term loan due to a financial institution related to a substantial shareholder.
10. DEPOSITS PLACED WITH LICENSED BANKS Group 2005 2004 RM’000 RM’000 Repo Fixed deposits
Company 2005 2004 RM’000 RM’000
6,370 21,205
-
2,300 14,297
-
27,575
-
16,597
-
Group Included in fixed deposits placed with licensed banks are amounts totalling RM6,908,097/(2004 : RM Nil) pledged to a licensed bank to secure credit facilities granted to certain subsidiary companies.
11. TRADE AND OTHER PAYABLES AND ADVANCED PAYMENTS Group 2005 2004 RM’000 RM’000 Trade payables Other payables Sundry deposits Accruals Advanced payments received from customers Restructured liabilities
Company 2005 2004 RM’000 RM’000
8,973 10,935 5 5,615
1,152 11,627 7,247
1,131 767
8,421 1,791
2,085 -
10,940
-
4,660
27,613
30,966
1,898
14,872
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
57
Notes To The Financial Statements (cont’d)
11. TRADE AND OTHER PAYABLES AND ADVANCED PAYMENTS (CONTINUED) Group and Company The normal trade credit terms granted to the Group range from 30 to 90 days. Included in other payables in year 2004 was an amount of RM6,479,074/- due to a substantial shareholder in connection with restructuring expenses paid on behalf of the Group and of the Company. The said amount was fully settled during the financial year pursuant to the successful implementation of the Rescue Scheme as mentioned in Note 29 to the financial statements. Interest on the restructured liabilities for year 2004 was accrued at 3 month KLIBOR.
12. AMOUNT DUE TO A SUBSIDIARY COMPANY Company The amount due to a subsidiary company comprises advances and is unsecured, interest free and has no fixed term of repayment.
13. ACKNOWLEDGEMENT OF OBLIGATIONS Group and Company 2005 2004 RM’000 RM’000 Unsecured : Bank borrowings Restructured creditors Hire purchase liabilities
-
22,265 13,393 5,853
-
41,511
Group and Company Acknowledgement of obligations in year 2004 included the unsecured creditors of subsidiary companies amounting to approximately RM41,405,000/- which have been transferred to the Company (Note 6 to the financial statements refers) in line with the terms of the Scheme of Arrangement. Acknowledgement of obligations in year 2004 were payable in three equal instalments on the 4th, 5th, and 6th annual anniversaries of the effective date of the Scheme of Arrangement. Interest was payable quarterly in arrears from 9th March 1999 at 3 month KLIBOR accruing on the outstanding restructured amount. Acknowledgment of obligations was fully settled during the financial year pursuant to the successful implementation of the Rescue Scheme as mentioned in Note 29 to the financial statements. Included in bank borrowings in year 2004 was an amount of RM1,046,000/- due to a substantial shareholder.
58
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Notes To The Financial Statements (cont’d)
14. HIRE PURCHASE LIABILITIES Group 2005 2004 RM’000 RM’000 Minimum hire purchase payments - not later than one year - later than one year and not later than five years - later than five years
326 696 1
-
1,023 (106)
-
917
-
Current - not later than one year
250
-
Long term - later than one year and not later than five years - later than five years
666 1
-
667
-
917
-
Future finance charges
Represented by:
15. SHORT TERM BORROWINGS Group 2005 2004 RM’000 RM’000 Bankers' acceptance - secured Term loans due within one year (Note 17) Restructured term loans - secured Secured term loan due to a financial institution Advances due to a substantial shareholder
Company 2005 2004 RM’000 RM’000
8,011 1,785 -
33,515
-
-
-
38,266
-
38,266
-
10,241
-
10,241
9,796
82,022
-
48,507
Group The bankers' acceptance of the Group is secured over the following:(a) fixed deposits of the subsidiary companies of RM3.0 million; (b) second debenture by way of fixed and floating charge over the entire assets of certain subsidiary companies;
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
59
Notes To The Financial Statements (cont’d)
15. SHORT TERM BORROWINGS (CONTINUED) Group (continued) (c) creation of sinking funds of RM7.0 million in the form of fixed deposits which is to be built up with a minimum monthly deposit of RM200,000/- up to a total maximum of RM7.0 million of the subsidiary companies; (d) jointly and severally guaranteed by a director of the Company and directors of a subsidiary company; and (e) a corporate guarantee from the Company up to RM14 million. The bankers' acceptance bear interest at rates ranging from 3.0% to 3.1% (2004 : Nil) per annum. Restructured secured term loans in year 2004 were payable in four instalments on the 4th, 5th, 6th and 7th annual anniversaries from 9th March 1999. Interest was payable quarterly in arrears from 9th March 1999 and is charged at 3% above 3 month KLIBOR on the principal amount. Restructured secured term loans were secured by the following:(a) a first priority fixed charge on all land, plant and machinery, equipment and motor vehicles of the respective subsidiary companies, as the case may be, wheresoever located both present and future; (b) a second priority floating charge on all the undertaking and the rest of the properties and assets not specified in (a), as the case may be; and (c) a corporate guarantee from the Company. Included in the restructured secured term loans of the Group in year 2004 was an amount approximately RM10,327,000/- due to a substantial shareholder. The secured term loan due to a financial institution in year 2004 was due to a financial institution related to a substantial shareholder. The secured term loan carried interest at 2% per annum and was repayable on demand. The said term loan was secured on the following: (a) a first priority fixed and floating charge on all of the assets of the Company and a subsidiary company; (b) a second priority fixed charge on all land, plant and machinery, equipment and motor vehicles of certain subsidiary companies, wheresoever located both present and future; and (c) a first priority floating charge on all of the undertakings and the rest of the properties and assets not specified in (b) above, wheresoever located both present and future. The advance from a substantial shareholder in year 2004 was interest free, unsecured and was repayable on demand. The restructured secured term loans, secured term loan due to a financial institution and advances due to a substantial shareholder were fully settled during the financial year pursuant to the successful implementation of the Rescue Scheme as mentioned in Note 29 to the financial statements.
60
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Notes To The Financial Statements (cont’d)
16. SHARE CAPITAL Group and Company 2005 2004 RM’000 RM’000 Authorised: Ordinary shares of RM1/- each
500,000
500,000
Preference shares of RM1/- each Balance at 1st July Created during the financial year
100,000
-
100,000
-
600,000
500,000
83,415 (79,244)
83,415 -
Balance at 30th June Issued and fully paid : Ordinary shares of RM1/- each Balance at 1st July Capital reduction and consolidation Issued during the financial year - acquisition of subsidiary companies - settlement of Scheme Creditors - Renounceable Rights Issue - Special Issue - conversion of ICCPS
Irredeemable Cumulative Convertible Preference Shares ("ICCPS") of RM1/- each Balance at 1st July Issued during the financial year pursuant to the acquisition of subsidary companies Conversion into ordinary shares
Balance at 30th June
71,036 41,957 14,597 10,000 2,700
-
144,461
83,415
-
-
23,500 (2,700)
-
20,800
-
165,261
83,415
The movements in the authorised and issued and paid-up share capital of the Company are pursuant to the implementation of the Rescue Scheme as disclosed in Note 29 to the financial statements. (a) ICCPS Pursuant to the Rescue Scheme of the Group as disclosed in Note 29 to the financial statements, the Company issued 23,500,000 1.5% 3-year 2004/2007 ICCPS of RM1/- each at the nominal amount of RM1/- as partial settlement of the purchase consideration for the acquisition of Key Heights Sdn. Bhd. and its subsidiary companies. The ICCPS are listed on Bursa Malaysia Securities Berhad.
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
61
Notes To The Financial Statements (cont’d)
16. SHARE CAPITAL (CONTINUED) (a) ICCPS (continued) The principal terms of the ICCPS are as follows:i)
The registered holder(s) of the ICCPS will have the right at any time during the conversion period to convert the ICCPS at the conversion price into ordinary shares of RM1.00 each in the Company.
ii)
The conversion of ICCPS shall be at one (1) ICCPS for every one (1) new ordinary share of RM1.00 each of the Company. Subject to the Articles of Association of the Company and in consultation with its professional advisors, the Company will make provision for such adjustment/(s), if any, as the Company may deem appropriate to the conversion price in certain circumstances such as capitalisation of reserves or rights issues of shares or convertible securities which would in the opinion of the Company have effect of diluting the interests of the ICCPS holders.
iii) The holder/(s) of ICCPS will have the right to convert the ICCPS at any time commencing from and including the date of issuance of ICCPS to and including the maturity date, i.e. the date preceding the third (3rd) anniversary of the issuance date. All outstanding ICCPS will be mandatorily converted into new ordinary shares of the Company on the maturity date at the conversion price. iv) The ICCPS shall bear dividend at the rate of 1.5% per annum cumulatively throughout the tenure of the ICCPS, subject to the availability of profits. v)
The ICCPS holders shall have the same rights as the holders of ordinary shares as regards receiving notices, reports and accounts and attending general meetings of the Company but shall only have the right to vote at any general meeting convened for the purposes of reducing the capital, or the disposal of the whole of the property, business or undertaking, or where the proposition to be submitted to the meeting directly affects their rights and privileges, or when the dividend or part of the dividend on such shares is in arrears for more than six (6) months or on a proposal to and during the winding-up of the Company.
vi) The new ordinary shares to be issued pursuant to the conversion of ICCPS will, rank pari passu in all respects with the existing ordinary shares of the Company, except that they will not be entitled to any dividends, rights, allotment and/or other distributions declared, made or paid to shareholders, the entitlement date of which is prior to the allotment of the said shares. vii) The ICCPS will rank in priority to the ordinary shares of the Company in respect of return of capital on liquidation or otherwise for the par value of the ICCPS together with premium and accumulated dividends. (b) 2004/2014 Warrants Pursuant to the Rights Issue and Special Issue under the Rescue Scheme of the Company, 14,597,646 and 10,000,000 free detachable warrants respectively were attached with the Rights Issue and Special Issue. The warrants are constituted under a Deed Poll dated 18th August 2004 executed by the Company. The warrants are listed on the Bursa Malaysia Securities Berhad.
62
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Notes To The Financial Statements (cont’d)
16. SHARE CAPITAL (CONTINUED) (b) 2004/2014 Warrants (continued) There is no movement of the warrants since the date of issuance:Number of Warrants
Warrants issued on 29th November 2004
At date of Issuance
Exercise
24,597,646
-
Expired
-
At 30.6.2005
24,597,646
The salient terms of the warrants are as follows:i)
Each warrant entitles the registered holder/(s) at any time during the subscription period to subscribe for one (1) new ordinary share of RM1.00 each at an exercise price of RM1.00 per ordinary share. The warrants entitlement is subject to adjustments under the terms and conditions set out in the Deed Poll.
ii)
The exercise price for the warrants is fixed at RM1.00 per new ordinary share of the Company, subject to adjustments under certain circumstances in accordance with the provision of the Deed Poll.
iii) The subscription period is ten (10) years from the date of issuance until the maturity date, i.e. the date preceding the tenth (10th) anniversary of the date of issuance. Upon the expiry of the subscription period, any unexercised rights will lapse and cease to be valid for any purposes. iv) The new ordinary shares of RM1.00 each to be issued pursuant to the exercise of the warrants will rank pari passu in all respects with the existing ordinary shares of the Company except that the new ordinary shares so allotted shall not be entitled to any dividends, rights, allotment and/ or other distributions declared, made or paid to shareholders, the entitlement date for which is before the date of allotment of the new ordinary shares pursuant to the exercise of the warrants.
17. LONG TERM LOANS - SECURED Group 2005 2004 RM’000 RM’000 Outstanding loans principal Less : Portion due within one year (Note 15) Portion due after one year
6,721 (1,785)
-
4,936
-
The secured long term loans due to a licensed bank are secured over the following:(a) a debenture in the form and substance prescribed by the lender; (b) creation of a first fixed and floating charge over all the assets of the subsidiary companies; (c) an assignment in favour of the lender the contract proceeds from the subsidiary companies; (d) jointly and severally guaranteed by a director of the Company and directors of a subsidiary company; and (e) a corporate guarantee by the Company. ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
63
Notes To The Financial Statements (cont’d)
17. LONG TERM LOANS - SECURED (CONTINUED) The long term loans bear interest at the rates ranging from 2.25% to 8.5% (2004 : Nil) and are repayable by fixed monthly instalments. The terms of repayment of the term loans are as follows:Group 2005 2004 RM’000 RM’000 Within the next twelve months (included under current liabilities)
1,785
-
After the next twelve months (included under long term liabilities) - not later than two years - later than two years but not later than five years - later than five years
1,858 2,973 105
-
4,936
-
6,721
-
18. DEFERRED TAXATION Group 2005 2004 RM’000 RM’000 Balance at 1st July New subsidiary companies acquired Transfer to income statement (Note 24)
575 (10)
-
Balance at 30th June
565
-
Representing the tax effects of:Temporary differences between net book values and the corrresponding tax written down values
565
-
Deferred tax assets have not been recognised in respect of the following items:Group 2005 2004 RM’000 RM’000 Deductible temporary differences Unabsorbed capital allowances Unutilised tax losses
Unrecognised deferred tax assets at 28%
Company 2005 2004 RM’000 RM’000
63,116 202,668 321,656
67,688 228,570 328,897
552
4,877 944 7,484
587,440
625,155
552
13,305
164,483
175,043
155
3,725
The deductible temporary differences, unabsorbed capital allowances and unutilised tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Company and its subsidiary companies can utilise the benefits.
64
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Notes To The Financial Statements (cont’d)
19. REVENUE Group 2005 2004 RM’000 RM’000 Manufacturing and trading of downstream timber products Harvesting and trading of raw timber products Management fee
Company 2005 2004 RM’000 RM’000
49,729
9,674
-
-
218,764 -
-
2,737
150
268,493
9,674
2,737
150
20. COST OF SALES Cost of sales represents the cost of inventories sold, production cost, direct material and labour cost and related overheads.
21. OPERATING PROFIT/(LOSS) Operating profit/(loss) has been arrived at:Group 2005 2004 RM’000 RM’000 After charging:Allowance for doubtful debts - amount due from subsidiary companies - other receivables, deposits and prepayments Amortisation of restructuring expenses Audit fee Bad debts written off Depreciation Directors' remuneration - fee - current directors - former directors - remunerations - current directors - former directors - retirement gratuity - former director Hire of motor vehicles Inventories written down Property, plant and equipment written off Rental of premises - land - office Staff costs - Employees' Provident Fund - SOCSO - salaries, allowances and bonuses - other staffs' related expenses
Company 2005 2004 RM’000 RM’000
271 135 404 4,672
4 75 3,669
271 30 3
3,189 30 11
132 51
135 -
52 6
15 -
686 89
127 -
686 1
123 -
300 56 1
38 -
-
-
68 180
35 46
(4)
467 52 7,643 388
188 17 2,117 18
47 1 403 12
ANNUAL REPORT 2005 •
46 74 1 101 8
Java Incorporated Bhd (2511-M)
65
Notes To The Financial Statements (cont’d)
21. OPERATING PROFIT/(LOSS) (CONTINUED) Group 2005 2004 RM’000 RM’000 And crediting:Allowances for doubtful debts no longer required - amount due from subsidiary companies - trade receivables Gain on disposal of property, plant and equipment Gain on disposal of unquoted shares Interest income Realised gain on foreign exchange Rental income Waiver of debt by a sundry creditor
Company 2005 2004 RM’000 RM’000
-
12
-
108 -
67 420 5 669 -
3 3 69 103
67 256 -
3 103
Directors' remuneration excludes estimated monetary value of benefits in kind of RM13,925/(2004 : RM13,925/-).
22. FINANCE COSTS (NET) Group 2005 2004 RM’000 RM’000 Interest income - Amount due from subsidiary companies - waiver of interest by Scheme Creditors
66
Company 2005 2004 RM’000 RM’000
1,727
-
6,456
2,326 -
1,727
-
6,456
2,326
Interest expenses - acknowledgement of obligations - restructured term loans - secured - term loan - secured - bankers' acceptance - hire purchase - others
(287) (398) (2,640) (435) (52) (268)
(1,693) (2,378) (765) (216)
(2)
(1,689) (3) (765) (1)
Dividend on ICCPS
(4,080) (156)
(5,052) -
(2) (156)
(2,458) -
(2,509)
(5,052)
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
6,298
(132)
Notes To The Financial Statements (cont’d)
23. PRE-ACQUISITION PROFIT The pre-acquisition profit is in respect of the profit of Key Heights Sdn. Bhd. and its subsidiary companies for the period from 1st July 2004 to 30th September 2004, i.e. prior to the acquisition of Key Heights Sdn. Bhd. and its subsidiary companies pursuant to the Rescue Scheme as disclosed in Note 29 to the financial statements. The financial results of Key Heights Sdn. Bhd. and its subsidiary companies prior to the effective date of acquisition are as follows: Group 1.7.2004 1.7.2003 To To 30.9.2004 30.6.2004 RM’000 RM’000 REVENUE Cost of sales
53,952 (47,066)
-
6,886 204 (1,349)
-
OPERATING PROFIT Finance costs (net)
5,741 (341)
-
PROFIT BEFORE TAXATION
5,400
-
GROSS PROFIT Other operating income Administrative expenses
24. TAXATION Group 2005 2004 RM’000 RM’000 Income tax - current year's provision - underprovision in prior year Deferred taxation - current year's provision - overprovision in prior year
Pre-acquisition current year's provision for taxation
Company 2005 2004 RM’000 RM’000
(5,690) (29)
-
-
-
(7) 17
-
-
-
(5,709)
-
-
-
1,640
-
-
-
(4,069)
-
-
-
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
67
Notes To The Financial Statements (cont’d)
24. TAXATION (CONTINUED) The reconciliation of income tax expense applicable to profit/(loss) before taxation at the statutory tax rate to income tax expense at the effective income tax rate are as follows:Group 2005 2004 RM’000 RM’000 Profit/(loss) before taxation Taxation at applicable tax rate of 28% Tax effects arising from - non-taxable income - non-deductible expenses - double deductions - originating/reversal of deferred tax assets not recognised in financial statements - small and medium enterprises tax savings - underprovision in prior year - other items
Company 2005 2004 RM’000 RM’000
55,251
(9,155)
94,605
(3,624)
(15,470)
2,563
(26,489)
1,015
22,662 (20,831) 3
3 (99) -
9,382 197 (12) -
(2,468) 1
(4,069)
-
24,403 (119) -
(947) -
2,205 -
(69) 1
-
-
25. EARNINGS/(LOSS) PER SHARE Basic Earnings/(Loss) Per Share The basic earnings/(loss) per share for the financial year has been calculated based on the Group's profit/(loss) for the year of approximately RM51,182,000/- (2004 : (RM 9,155,000)) and on the weighted average number of 104,031,000 (2004: 83,415,000) ordinary shares in issue during the financial year. Diluted Earnings/(loss) Per Share For the diluted earnings/(loss) per share calculation, the net profit/(loss) for the financial year and the weighted average number of ordinary shares in issue during the financial year have been adjusted for the effects of dilutive potential ordinary shares, i.e. the conversion of ICCPS and the exercised warrants. The ICCPS and the exercised warrants are deemed to have been converted into ordinary shares at the date of issuance.
68
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Notes To The Financial Statements (cont’d)
25. EARNINGS/(LOSS) PER SHARE (CONTINUED) Diluted Earnings/(loss) Per Share (continued) Group 2005 2004 RM’000 RM’000 Net profit/(loss) for the year After-tax effect of dividend on ICCPS
Weighted average number of ordinary shares in issue Effects of dilution on:- conversion of ICCPS - exercise of warrants Adjusted weighted average number of ordinary shares in issue and issuable
51,182 112
(9,155) -
51,294
(9,155)
104,031
83,415
12,195 14,422
-
130,648
83,415
26. CONTINGENT LIABILITIES As at 30th June 2005, the Group and the Company are contingently liable for the following:Group 2005 2004 RM’000 RM’000 Bank guarantee issued for:- execution of contracts - secured restructured term loans extended to subsidiary companies Corporate guarantees issued to licensed banks to secure credit facilities granted to the subsidiary companies to the extent of RM14 million (2004 : RM Nil)
Company 2005 2004 RM’000 RM’000
50
-
-
-
-
33,515
-
33,515
-
-
9,494
-
50
33,515
9,494
33,515
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
69
Notes To The Financial Statements (cont’d)
27. SIGNIFICANT RELATED PARTY TRANSACTIONS Group 2005 2004 RM’000 RM’000 Management fees received/receivable from subsidiary companies - Kumpulan Kinabatangan Timber Sdn. Bhd. - Pinawantai Sdn. Bhd. - Bizkaya Sdn. Bhd. - Wincohasil Sdn. Bhd. - Pembangunan Papan Lapis (Sabah) Sdn. Bhd. - Pacific Wood Products Sdn. Bhd. - Java-Inc Industries Sdn. Bhd. (formerly known as Aokam Industries Sdn. Bhd.) Interest income received/receivable from subsidiary companies - Pembangunan Papan Lapis (Sabah) Sdn. Bhd. - Pacific Wood Products Sdn. Bhd. - Java-Inc Industries Sdn. Bhd. (formerly known as Aokam Industries Sdn. Bhd.) Interest on a secured term loan due to a financial institution related to a substantial shareholder, namely Credit Suisse First Boston, Labuan Rental expenses paid to Desa Samudra Sdn. Bhd., a company in which a director, Dato' Choo Keng Weng has financial interest
Company 2005 2004 RM’000 RM’000
-
-
252 1,017 927 207
-
-
-
105 42
60 45
-
-
187
45
-
-
-
979 72
-
-
-
1,282
-
636
-
636
49
-
-
-
The directors of the Company are of the opinion that the above transactions have been entered into in the normal course of business and the terms are no less favourable than those arranged with third parties.
28. SEGMENTAL INFORMATION The Group's operating business are classified according to the nature of activities as follows:Forestry Management Manufacturing Investment
: : :
Harvesting and trading of raw timber products. Manufacturing and trading of downstream timber products. Comprise mainly investment holding.
Segment revenues, expenses and result include transfers between segments. The prices charged on inter-segment transactions are the same as those charged for similar goods to parties outside of the economic entity at an arm's length transactions. These transfers are eliminated on consolidation.
70
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Notes To The Financial Statements (cont’d)
28. SEGMENTAL INFORMATION (CONTINUED) PRIMARY REPORTING - BUSINESS SEGMENTS
Group 2005
Forestry Management RM'000
Manufacturing RM'000
232,598
51,974
5,238
(21,317)
1,831 4,209
3,640 5,528
(2,467) (11,618)
24,586 (2,509)
-
53,724 -
82,159 (72,511)
(29,798) -
106,085 (72,511)
-
-
5,000
REVENUE RESULTS Segment results Finance costs (net) Exceptional items - waiver of debts by Scheme Creditors - goodwill written off - provision for closure costs no longer required
21,582 (628)
Investment RM'000
Elimination Total RM'000 RM'000
-
268,493
5,000
Profit before taxation Pre-acquisition profit
20,954 (5,400)
59,764 -
23,816 -
(43,883) -
60,651 (5,400)
Profit before taxation but after pre-acquisition profit Taxation
15,554 (4,069)
59,764 -
23,816 (700)
(43,883) 700
55,251 (4,069)
Net profit for the year
11,485
59,764
23,116
(43,183)
51,182
OTHER INFORMATION Segment assets
61,703
54,001
19,349
-
135,053
Total assets
61,703
54,001
19,349
-
135,053
Segment liabilities
29,165
8,157
8,355
-
45,677
Total liabilities
43,959
8,224
8,662
-
60,845
Capital expenditure
1,369
626
-
-
1,995
Depreciation and amortisation
1,148
3,520
4
-
4,672
Segmental information by geographical segment is not presented as the Group's operations are derived solely from Malaysia. The comparative figure for segmental information for the financial year 2004 is not presented as the Group's turnover and losses are derived solely from the manufacturing and trading of downstream timber products in Malaysia.
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
71
Notes To The Financial Statements (cont’d)
29. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR During the financial year, Southern Investment Bank Berhad on behalf of the Board of Directors announced that the Proposed Rescue Scheme as disclosed in the financial statements of the Company in the previous financial year involving the Company and three of its subsidiary companies were approved by all the relevant regulatory authorities and have been completed on 20th December 2004. The Rescue Scheme involved the following:(a) Capital Reduction and Consolidation Pursuant to Section 64 of the Companies Act, 1965 ("the Act"), the issued and paid-up share capital of the Company was reduced from RM83,415,113/- to RM4,170,756/- by the cancellation of RM0.95 of the par value of each existing ordinary share of RM1/- each and subsequently consolidating into ordinary share of RM1/- each in the proportion of twenty (20) ordinary shares of RM0.05 each into one (1) new ordinary share of RM1/- each. (b) Share Premium Reduction Pursuant to Section 60 and 64(1) of the Act, the share premium of RM15,543/- in the share premium account of the holding company as at 30th June 2003 was written off against the Company's accumulated losses. (c) Debt Settlement The settlement of debts involving four (4) separate schemes of arrangement, comprising the secured and unsecured creditors of the Company, secured creditors of Java-Inc Industries Sdn. Bhd. (formerly known as Aokam Industries Sdn. Bhd.) ("JISB"), Pembangunan Papan Lapis (Sabah) Sdn. Bhd. ("PPL") and Pacific Wood Products ("PWP") respectively (collectively referred to as the "Scheme Companies") which have been compromised as follows:-
(i) Secured Creditors Waiver of all charges and interest from 9th March 2002 until the completion of the Rescue Scheme on 20th December 2004, a cash payment of RM53,169/- and the issuance of 22,200,000 of the Company's new ordinary shares of RM1/- each.
(ii) Unsecured Creditors Waiver of 82.67% of the outstanding amounts as at 8th March 2002 and conversion of the remaining amounts into 19,757,137 of the Company's new ordinary shares of RM1/- each. (d) Acquisition of Subsidiary Company The Company acquired the entire issued and paid-up share capital of Key Heights Sdn. Bhd. ("KHSB") for a total purchase consideration of RM94,536,000/-, which was satisfied by the issuance of 71,036,000 of the Company's new ordinary shares of RM1/- each at an issue price of RM1/- per share and the issuance of RM23,500,000/- nominal value of 1.5% 3-year 2004/2007 Irredeemable Cumulative Convertible Preference Shares ("ICCPS") at an issue price of RM1/- each. The ICCPS were quoted on the Main Board of Bursa Malaysia Securities Berhad on 20th December 2004.
72
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Notes To The Financial Statements (cont’d)
29. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR (CONTINUED) (e) Rights Issue The Company issued a renounceable rights issue of 14,597,646 new ordinary shares of RM1/each of the Company ("Rights Shares") on the basis of seven (7) Rights Shares for every two (2) existing shares of the Company held after the capital reduction and consolidation together with 14,597,646 free detachable warrants on the basis of one (1) new warrant for every one (1) new Rights Share subscribed. The said warrants were quoted on the Main Board of Bursa Malaysia Securities Berhad on 20th December 2004. (f) Special Issue A special issue by the Company of 10,000,000 new ordinary shares of RM1/- each together with free detachable warrants on the basis of one (1) warrant for every one (1) new share subscribed. The said warrants were quoted on the Main Board of Bursa Malaysia Securities Berhad on 20th December 2004. (g) Increase in Authorised Share Capital The authorised share capital of the Company was increased from RM500,000,000/- to RM600,000,000/- which comprises 500,000,000 ordinary shares of RM1/- each and 100,000,000 ICCPS of RM1/- each to facilitate the issuance of the new ICCPS pursuant to the Acquisition of Subsidiary Company as stated in (d) above. (h) ESOS The Company established an ESOS involving the issuance of up to 10% of the Company's issued and paid-up share capital at any time during the existence of the ESOS, to be issued pursuant to the options to be granted under the ESOS to eligible executive directors and employees of the Company and its subsidiary companies.
30. THE SCHEME OF ARRANGEMENT The scheme of arrangement ("the Scheme") undertaken by the Company and three (3) of its subsidiary companies, namely JISB, PPL and PWP with their shareholders, creditors, bankers and bondholders which included waiver and capitalisation of debts, restructuring of borrowings and raising of funds. The Scheme was approved by the shareholders and creditors on 23rd November 1998. The effective date of the Scheme was 9th March 1999 and has since been fully implemented and accounted for in the financial statements. However the Scheme Companies defaulted in repayment of advance from a substantial shareholder and payment of interest on the restructured secured term loans, Acknowledgement of Obligations and secured term loan. The Scheme Companies also defaulted the repayment of the principal for the restructured secured term loan and Acknowledgement of Obligations since the previous financial years. The Scheme was subsequently settled during the current financial year following the successful implementation of the Rescue Scheme as disclosed in Note 29 to the financial statements.
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
73
Notes To The Financial Statements (cont’d)
31. SUBSEQUENTS EVENTS There were no significant events subsequent to the balance sheet date for the Group except for the following:a) The disposal of five of the dormant subsidiary companies, i.e. Samquity Sdn. Bhd., Fastwork Holdings Sdn. Bhd., Inti-Juara Sdn. Bhd., PWP Industries Sdn. Bhd. and Java-Inc Tech Sdn. Bhd. (formerly known as AokamTech Sdn. Bhd.) on 18th August 2005 for a total cash consideration of RM5/-. The said disposal was to streamline the Group's corporate structure. b) On 5th September 2005, the Company has entered into a Share Sale Agreement to acquire the entire equity interests in RSJ Trading Sdn. Bhd. ("RSJ") for a total purchase consideration of RM4.5 million for the expansion of the Group's business into oil palm plantation as RJS hold 80% in the issued and paid-up share capital of Ladang Bunga Tanjung Sdn. Bhd. ("LBT"), a joint venture company incorporated to undertake the development and cultivation of a parcel of agricultural land measuring 3120 acres in the Mukim of Lubok Bongor, Daerah Jeli, Kelantan into an oil palm plantation.
32. FINANCIAL INSTRUMENTS (a) Financial Risk Management Objectives and Policies The Group is exposed to credit, foreign currency, liquidity and interest rate risks arise in the normal course of business. The Group's overall financial risk management objectives are to ensure that the Group creates and optimises value for its shareholders and to minimise any potential adverse effects on the financial performance and position based on its prevailing capability and capacity. The general risk management philosophy, policies and the overall business strategies are reviewed annually by the Board of Directors and quarterly reviews are undertaken to ensure that the Group's policy guidelines are adhered to. (b) Credit Risk The management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. The carrying amount of cash, trade and other receivables represent the Group's maximum exposure to credit risk in relation to financial assets. No other financial assets carry a significant exposure to credit risk. (c) Foreign Currency Risk The Group incurs foreign currency risk on sales that are denominated in a currency other than Ringgit Malaysia. The currency give rise to this risk is primarily US dollars. Management monitors the foreign currency exposure on an ongoing basis. Whilst the Group's operating results are subject to the effect of changes in the exchange rate of US dollars relative to Ringgit Malaysia, the effect is constantly monitored and managed through close consultation and negotiation with regular customers by way of price adjustments. The Group and the Company do not transact in any derivative instruments.
74
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Notes To The Financial Statements (cont’d)
32. FINANCIAL INSTRUMENTS (CONTINUED) (d) Liquidity Risk The Group actively manages its debt maturity profile, operating cash flows and the availability of funding so as to ensure that all financing, repayment and funding needs are met. As part of its overall prudent liquidity management, the Group maintains sufficient levels of cash and cash equivalents to meet its working capital requirements. (e) Interest Rate Risk The Group's primary interest rate risk relates to interest-bearing debt as at 30th June 2005. The investments in financial assets are mainly short term in nature and they are not held for speculative purposes. Effective Interest Rates
Group At 30th June 2005
Effective interest rate per annum %
Within 1 Year RM'000
1-5 Years RM'000
More than 5 years RM'000
Total RM'000
Financial Asset Deposits placed with licensed banks
1.20 - 3.70
27,575
-
-
27,575
Financial Liabilities Bankers' acceptance Hire purchase liabilities Long term loans
3.00 - 3.10 2.60 - 5.00 2.25 - 8.50
8,011 250 1,785
666 4,831
1 105
8,011 917 6,721
7.08 2.00
33,515 38,266
-
-
33,515 38,266
4.08
41,511
-
-
41,511
1.20 - 3.00
16,597
-
-
16,597
2.00
38,266
-
-
38,266
4.08
41,511
-
-
41,511
At 30th June 2004 Financial Liabilities Restructured secured term loans Long term loans Acknowledgement of Obligations Company At 30th June 2005 Financial Asset Deposits placed with licensed banks At 30th June 2004 Financial Liabilities Secured term loan Acknowledgement of Obligations
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
75
Notes To The Financial Statements (cont’d)
32. FINANCIAL INSTRUMENTS (CONTINUED) (f) Fair Values
Recognised financial instruments The fair values of financial assets and financial liabilities approximate their respective carrying values on the balance sheets of the Group and of the Company, except for amount owing by/to subsidiary companies. It is not practical to estimate the fair value of the amount owing by/to subsidiary companies due principally to the inability to estimate the settlement date without incurring excessive costs as these amounts either lack a fixed repayment term. However, the Group does not anticipate the carrying amounts recorded at the balance sheet date to be significantly different from the values that would be eventually received or settled. The following methods and assumptions are used to estimate the fair values of the following classes of financial instruments:(i) Cash and Cash Equivalents, Trade and Other Receivables/Payables and Long Term Borrowings Due Within One Year The carrying amounts approximate fair values due to the relatively short term to maturity of these financial instruments. (ii) Other Investments The fair value of quoted shares is determined by reference to stock exchange quoted market bid prices at the close of the business on the balance sheet date. The nominal/notional amount and net fair value of contingent liabilities (as disclosed in Note 26 to the financial statements) are not recognised in the balance sheet as at 30th June 2005 as it is not practicable to make a reliable estimate due to the uncertainties of timing, costs and eventual outcome.
Unrecognised financial instruments There are no financial instruments not recognised in the balance sheet as at 30th June 2005 that are required to be disclosed.
33. CHANGE OF NAME The Company has changed its name from Aokam Perdana Berhad to Java Incorporated Bhd. on 7th February 2005.
34. COMPARATIVE FIGURES The comparative figures have been audited by a firm of Chartered Accountants other than Monteiro & Heng. Certain comparative figures had been reclassified to conform with current year's presentation.
76
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Statement By Directors We, DR. TEE CHOON HWA and SY CHOON YEN, being two of the directors of JAVA INCORPORATED BHD. (formerly known as Aokam Perdana Berhad), do hereby state that in the opinion of the directors, the financial statements set out on pages 34 to 76, are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 30th June 2005 and of the results and cash flows of the Group and of the Company for the year ended on that date in accordance with the provisions of the Companies Act, 1965 and the applicable approved accounting standards in Malaysia.
On behalf of the board,
DR. TEE CHOON HWA Director
SY CHOON YEN Director
Kuala Lumpur Date: 28th September 2005
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
77
Statutory Declaration I, CHEW PECK KIM, being the officer primarily responsible for the financial management of JAVA INCORPORATED BHD. (formerly known as Aokam Perdana Berhad) , do solemnly and sincerely declare that to the best of my knowledge and belief, the financial statements set out on pages 34 to 76 are 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, l960.
CHEW PECK KIM
Subscribed and solemnly declared by the abovenamed at Kuala Lumpur in the Federal Territory on 28th September 2005.
Before me,
Commissioner for Oaths S. MASOHOOD OMAR PKT, PJK, PJM No. W. 354
78
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Report Of The Auditors to the members Java Incorporated Bhd. (formerly known as Aokam Perdana Berhad) (Incorporated in Malaysia)
We have audited the financial statements set out on pages 34 to 76. These financial statements are the responsibility of the Company's directors. It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility towards any other person for the content of this report. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by directors, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion:(a) the financial statements are properly drawn up in accordance with the provisions of the Companies Act, 1965 and applicable approved accounting standards in Malaysia so as to give a true and fair view of: (i) the state of affairs of the Group and of the Company as at 30th June 2005 and of the results and cash flows of the Group and of the Company for the year ended on that date; and (ii) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements of the Group and of the Company; and (b) the accounting and other records and the registers required by the Companies Act, 1965 to be kept by the Company and its subsidiary companies of which we have acted as auditors have been properly kept in accordance with the provisions of the said Act. We are satisfied that the financial statements of the subsidiary companies that have been consolidated with the financial statements of the Company 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 subsidiary companies were not subject to any qualification and did not include any comment made under subsection (3) of Section 174 of the Act.
Monteiro & Heng No. AF 0117 Chartered Accountants
Heng Ji Keng No. 578/05/06 (J/PH) Partner Kuala Lumpur Date: 28th September 2005
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
79
Analysis Of Shareholdings as at 26 October 2005
Ordinary Shares of RM1.00 each Authorised Share Capital Issued and paid-up Share Capital Voting Rights
: : :
RM600,000,000 RM144,461,439 1 Vote per share
Size of Shareholdings
Total Holders
%
Total Shares
%
34,068 2,984 1,083 244 45 6
88.65 7.76 2.82 0.63 0.12 0.02
270,033 951,762 4,237,603 7,613,590 51,652,451 39,336,000
0.19 0.66 2.93 5.27 35.76 55.19
38,430
100.00
144,461,439
100.00
Less than 100 100 – 1,000 1,001 – 10,000 10,001 – 100,000 100,001 – 7,223,071 7,223,072 and above
Substantial Shareholders Name of Substantial Shareholder Amalan Menang Sdn Bhd Ong Sok Hean Samudera Sentosa Sdn Bhd Niaga Serimas Sdn Bhd
Direct Interest
%
30,779,899 23,683,402 19,272,699 14,600,000
21.30 16.39 13.35 10.10
Indirect Interest
%
-
-
Thirty Largest Shareholders Name
80
Shareholdings
%
1.
Ong Sok Hean
23,683,402
16.39
2.
Amalan Menang Sdn Bhd
15,779,899
10.92
3.
TCL Nominees (Tempatan) Sdn Bhd Pledge Securities Account for Niaga Serimas Sdn Bhd
11,000,000
7.61
4.
CIMSEC Nominees (Tempatan) Sdn Bhd Samudera Sentosa Sdn Bhd (Java Incorporated Bhd)
10,900,000
7.55
5.
TCL Nominees (Tempatan) Sdn Bhd Amalan Menang Sdn Bhd
10,000,000
6.92
6.
Samudera Sentosa Sdn Bhd
8,372,699
5.80
7.
Langkaran Asia Sdn Bhd
7,000,000
4.85
8.
CIMSEC Nominees (Tempatan) Sdn Bhd Danaharta Urus Sdn Bhd (Non-Trade)
6,999,999
4.85
9.
RHB Capital Nominees (Tempatan) Sdn Bhd RHB Bank Berhad (Account 2)
6,967,482
4.82
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Analysis Of Shareholdings (cont’d) as at 26 October 2005
Thirty Largest Shareholders Name
Shareholdings
%
10. RHB Capital Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Amalan Menang Sdn Bhd
5,000,000
3.46
11. Niaga Serimas Sdn Bhd
3,600,000
2.49
12. CIMSEC Nominees (Tempatan) Sdn Bhd Pengurusan Danaharta Nasional Berhad (Non-Trade)
2,999,999
2.08
13. HDM Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Rashidi Aly Bin Abdul Rais
2,776,600
1.92
14. Malaysian Trustees Berhad Exempted-Trust Account for Java Incorporated Bhd Scheme
1,787,246
1.24
15. Salim Bin Mohamed
1,640,000
1.14
16. J.V. Avenue Sdn Bhd
1,131,955
0.78
17. Esa Bin Mohamed
1,000,000
0.69
18. Kee Seok Ai
827,800
0.57
19. Tan Cheong Keow
621,000
0.43
20. Citicorp Nominees (Asing) Sdn Bhd GSCO for Indus Asia Pacific Master Fund Ltd
587,000
0.41
21. Kong Sum Mooi
581,800
0.40
22. Ang Chin Tat
570,000
0.39
23. RHB Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Chow Heng Lan
510,600
0.35
24. Looh Keo @ Looh Lim Teng
498,400
0.35
25. Lee Lai Leng
467,500
0.32
26. Ho Shi Yin
439,566
0.30
27. Lim Seng Chee
406,370
0.28
28. ECM Libra Securities Nominees (Tempatan) Sdn Bhd Guan Swee Hiap (PCS)
394,100
0.27
29. Chong Chit Heng
370,800
0.26
30. Dalil Pakan
368,200
0.25
127,282,417
88.11
Total
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
81
Analysis Of ICCPS Holders as at 26 October 2005
Irredeemable Cumulative Convertible Authorised Share Capital Issued and paid-up Share Capital Voting Rights Size of Shareholdings Less than 100 100 – 1,000 1,001 – 10,000 10,001 – 100,000 100,001 – 1,039,999 1,040,000 and above
Preference Shares (ICCPS) of RM1.00 each : RM100,000,000 : RM20,800,000 : 1 Vote per share Total Holders
%
Total ICCPS
%
0 100 0 0 0 3
0.00 97.09 0.00 0.00 0.00 2.91
0 50,000 0 0 0 20,750,000
0.00 0.24 0.00 0.00 0.00 99.76
103
100.00
20,800,000
100.00
Substantial ICCPS Holders Name of Substantial ICCPS Holders Amalan Menang Sdn Bhd Ong Sok Hean Samudera Sentosa Sdn Bhd
Direct Interest
%
10,132,550 7,834,900 2,782,550
48.71 37.67 13.38
Indirect Interest
%
-
-
Thirty Largest ICCPS Holders Name
82
1.
Amalan Menang Sdn Bhd
2.
ICCPS
%
10,132,550
48.71
Ong Sok Hean
7,834,900
37.67
3.
Samudera Sentosa Sdn Bhd
2,782,550
13.38
4.
Yong Nyok Ain
5.
Abdullah Bin Bandu
500
6.
Ang Chin Tat
500
7.
Ang Ho Kee
500
8.
Apat Bin Sindulon
500
9.
Asma Binti Abdul Bahal
500
1,000
10. Badron Bin Duramid
500
11. Bagkerey Bin Bayren
500
12. Bertha Binti Rasang
500
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Analysis Of ICCPS Holders (cont’d) as at 26 October 2005
Thirty Largest ICCPS Holders Name
ICCPS
13. Boey Kheng Gaik
500
14. Chan Ah Gah @ Chan Siew Chin
500
15. Chan Yoong @ Chan Cheun Yoke
500
16. Chen Foong Lan
500
17. Chong Chen Chong @ Chan Chen Chong
500
18. Hadodin Bin Anborau
500
19. Hamid Bin Pata
500
20. Hayati Binti Hamid
500
21. Hue Tai Moi
500
22. Imansah Bin Suleman
500
23. Jangarang Bin Muwarih
500
24. Jenus Bin Opong
500
25. Khor Kok Chuan
500
26. Kong Yean Ling
500
27. Lee Ai Ling
500
28. Lee Kam Thai
500
29. Lee Lai Leng
500
30. Lee Lay Peng
500
Total
20,764,500
ANNUAL REPORT 2005 •
%
99.83
Java Incorporated Bhd (2511-M)
83
Analysis Of Warrant Holders as at 26 October 2005
Warrants of RM1.00 each Authorised Share Capital Issued and paid-up Share Capital Voting Rights Size of Shareholdings
: : :
RM100,000,000 RM24,597,646 1 Vote per share Total Holders
Less than 100 100 – 1,000 1,001 – 10,000 10,001 – 100,000 100,001 – 1,229,881 1,229,882 and above
%
Total Warrant
%
293 338 233 51 2 3
31.85 36.74 25.33 5.54 0.22 0.32
11,695 186,169 842,854 1,497,825 345,600 21,713,503
0.05 0.76 3.43 6.09 1.41 88.26
920
100.00
24,597,646
100.00
Substantial Warrant Holders Name of Substantial Warrant Holder Niaga Serimas Sdn Bhd Langkaran Asia Sdn Bhd
Direct Interest
%
11,713,503 10,000,000
47.62 40.65
Indirect Interest
%
-
-
Thirty Largest Warrant Holders Name
84
1.
Langkaran Asia Sdn Bhd
2.
Warrants
%
10,000,000
40.65
TCL Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Niaga Serimas Sdn Bhd
6,831,005
27.77
3.
Niaga Serimas Sdn Bhd
4,882,498
19.85
4.
Ang Chin Tat
220,000
0.89
5.
ECM Libra Securities Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Leow Teik Heng
125,600
0.51
6.
Mayban Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Neoh Soon Kee
88,025
0.36
7.
Yong Yok Moi @ Leong Yok Moi
85,000
0.35
8.
Ang Chin Guan
70,000
0.28
9.
Tee Choon Hwa
70,000
0.28
10. Hue Tai Moi
51,000
0.21
11. Ong Chin Hui
50,000
0.20
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Analysis Of Warrant Holders (cont’d) as at 26 October 2005
Thirty Largest Warrant Holders Name
Warrants
%
12. Koh Kia Guan
45,000
0.18
13. Ngoi Leong Ee
45,000
0.18
14. Lee Nyek
42,600
0.17
15. Ooi Chieng Sim
42,150
0.17
16. ECM Libra Securities Nominees (Tempatan) Sdn Bhd Guan Swee Hiap (PCS)
41,800
0.17
17. Wong Yoke Lian
38,800
0.16
18. Ng Yew Chin
35,000
0.14
19. Tan Kok Huah
34,000
0.14
20. HSBC Nominees (Asing) Sdn Bhd BCV for Capitol Trading SA
33,250
0.14
21. Eu Mui @ Ee Soo Mei
31,000
0.13
22. Liong Men Long
31,000
0.13
23. Lau Kim Hwee
30,100
0.12
24. Wee Jock Lan
30,000
0.12
25. Chong Wooi Loong
29,400
0.12
26. Peter Lee Pui Tet
27,500
0.11
27. Kong Yan Seng
27,000
0.11
28. Ng Khek Tong
25,000
0.10
29. Lim Sui Yung
24,000
0.10
30. Low Pek See
23,000
0.09
23,108,728
93.95
Total
ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
85
List Of Properties as at 30 June 2005 (All the assets listed below were valued by an independent valuer on 5 August 2002 except the value of assets with mark *)
Tenure (Year Expiring)
Location
Description
Kampung Biah 5th Mile, Jalan Nabawan, Keningau, Sabah.
CL 135345112 Land with office and factory buildings
9.88
Leasehold Between ** 2,090 (2049) 9 - 16 years
-
2,090
Kampung Biah 5th Mile, Jalan Nabawan, Keningau, Sabah.
NT 133062763 Land with store and workers' quarters
10.75
Sub-Lease Between (2090) 11 - 12 years
610
-
610
Kampung Biah 5th Mile, Jalan Nabawan, Keningau, Sabah.
NT 133074281 9.90 Land with workers' quarters
Sub-Lease Between (2090) 10 -12 years
1,249
-
1,249
Kampung Biah 5th Mile, Jalan Nabawan, Keningau, Sabah.
NT 133055142 10.35 Land with factory buildings
Sub-Lease (2091)
12 years
1,499
-
1,499
Kampung Biah 5th Mile, Jalan Nabawan, Keningau, Sabah.
NT 133058367 6.65 Land with factory buildings
Sub-Lease (2092)
12 years
969
-
969
Kampung Biah 5th Mile, Jalan Nabawan, Keningau, Sabah.
FR 134015080 7.55 Land with factory buildings
Sub-Lease Between (2092) 10 - 12 years
461
-
461
Kampung Biah 5th Mile, Jalan Nabawan, Keningau, Sabah.
NT 133058376 Land with office, and factory Buildings
9.58
Sub-Lease Between (2091) 9 - 15 years
572
-
572
Tamparuli Tuaran, Sabah.
CL 045314814 Land with office, factory Buildings and workers' quarters.
6.74
Leasehold (2038)
28 years
624
-
624
Tamparuli, Tuaran, Sabah.
CL 045293052 Vacant Land as access road
0.50
Leasehold (2065)
0
43
-
43
Kampung Murut, Kalabakan, Tawau
CL 105479178 Land with office building
18.83
Leasehold (2089)
1 year
-
*584
584
T2-26, Taman Luyang Perdana, Off Jalan Penampang, Kota Kinabalu, Sabah.
TL 017547170 Land with building
Leasehold (2094)
Between 1 - 2 years
-
*254
254
8,117
838
8,955
Total: **
86
Area (Acres)
Age of Estimated Building Realisable Net Book Total Value and Value as at Value as at as at Date 30.6.2005 30.6.2005 30.6.2005 Valuated (RM'000) (RM'000) (RM'000)
This amount is inclusive of a new building with net book value of RM170,000.00
Java Incorporated Bhd (2511-M) • ANNUAL REPORT 2005
Incorporated Bhd (2511-M) (formerly known as Aokam Perdana Berhad)
FORM OF PROXY I/We, of being a member/members of JAVA INCORPORATED BHD. (FORMERLY KNOWN AS AOKAM PERDANA BERHAD), hereby appoint the Chairman of the Meeting* or failing him/her, of or of as my/our proxy to vote for me/us and on my/our behalf at the Fifty First Annual General Meeting to be held at Anggerik Room, Hotel Equatorial, Jalan Sultan Ismail, 50250 Kuala Lumpur on Friday, 23 December 2005 at 10:00 a.m. and at any adjournment thereof, on the following resolutions referred to in the notice of the Annual General Meeting by indicating an "X" in the spaces provided below: RESOLUTIONS
FOR
1. Receipt of the Audited Consolidated Financial Statements and Reports of the Directors and the Auditors.
Resolution 1
2. Re-election of: (a) Dr. Tee Choon Hwa (Article 112)
Resolution 2
3. Re-election of: (a) Tunku Mahmood Bin Tunku Mohammed (Article 83)
Resolution 3
(b) Dato' Choo Keng Weng (Article 83)
Resolution 4
(c)
Resolution 5
Mr. Sy Choon Yen (Article 83)
4. Approval of Directors' fees.
Resolution 6
5. Appointment of Auditors and authorising the Directors to fix their remuneration.
Resolution 7
6. Ordinary Resolution 1: Approval of Ordinary Resolution pursuant to Section 132D of the Companies Act, 1965.
Resolution 8
AGAINST
7. Ordinary Resolution 2: Proposed issue of ESOS Options to Dato’ Choo Keng Weng. Resolution 9 8. Ordinary Resolution 3: Proposed issue of ESOS Options to Mr. Sy Choon Yen. Dated this
day of
2005
Resolution 10
No. of Shares held
Signature or Common Seal of Shareholder(s) *
Delete the words "the Chairman of the Meeting" if you wish to appoint some other person(s) to be your proxy.
Notes: 1.
A member of the Company entitled to attend and vote at the Meeting is entitled to appoint a proxy to attend and vote in his stead. A proxy may but need not be a member of the Company and a member may appoint any person to be his proxy without limitation and the provisions of Section 149(1)(b) of the Act shall not apply to the Company.
2.
In the case of a corporate member, the instrument appointing a proxy shall be under its Common Seal or under the hand of an officer or attorney, duly authorised in that behalf.
3.
Where a member appoints more than one proxy, the appointment shall be invalid unless he specifies the proportion of his holding to be represented by each proxy.
4.
The instrument appointing a proxy must be deposited at the Registered office of the Company at Suite M.02, Mezzanine Floor, Wisma E&C, No.2 Lorong Dungun Kiri, Damansara Heights, 50490 Kuala Lumpur not less than 48 hours before the time for holding the Meeting. ANNUAL REPORT 2005 •
Java Incorporated Bhd (2511-M)
87
First fold here
Affix Stamp Here
The Company Secretary JAVA INCORPORATED BHD. (FORMERLY KNOWN AS AOKAM PERDANA BERHAD) Suite M.02, Mezzanine Floor Wisma E & C No. 2, Lorong Dungun Kiri Damansara Heights 50490 Kuala Lumpur MALAYSIA
Then fold here
M
80%
40%
BLACK
75 62 60
K
Y
80%
40%
MAGENTA 75 62 60
M
C
80%
40%
75 62 60
ANNUAL REPORT 2005
C
K
Y
TRAPPING
75 62 60
M
C
50%
75 62 60
Y
K
80%
CYAN 40%
75 62 60
C
M
75 62 60
K
YELLOW Y
50%
(2511-M)
75 62 60
JAVA INCORPORATED BERHAD
15
12
10
8
6
