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Financials statement
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Scomi Group Bhd Annual Report 2007
62 67 69 70 72 73
Directors Report Balance Sheets Income Statements Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Cash Flow Statements
Notes to the Financial Statements Statement by Directors Statutory Declaration Report of the Auditors
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directors report
The Directors have pleasure in presenting their report and the audited financial statements of the Group and Company for the financial year ended 31 December 2007.
PRINCIPAL ACTIVITIES
The principal activities of the Company are investment holding and the provision of management services. The principal activities of the Group consist of the provision of integrated drilling fluids, drilling waste management solutions, distribution of oilfield products and services; machine shop services, design and manufacture of monorail, special purpose vehicles, urban transportation solutions and rail solutions; provision of marine vessel transportation service; industrial and production chemicals and gas business. There have been no significant changes in the nature of these activities during the financial year.
FINANCIAL RESULTS
Group RM000 Profit for the financial year 282,155 Company RM000 180,653
257,129 25,026
180,653
DIVIDENDS
The dividends on ordinary shares paid or declared by the Company since the end of the previous financial year were as follows: RM000 In respect of the financial year ended 31 December 2006, a final gross dividend of 15%, less income tax of 27%, paid on 20 September 2007 In respect of the financial year ended 31 December 2007, an interim gross dividend of 7.5%, less income tax of 27% paid on 31 October 2007
The Directors now recommend the payment of a final dividend of 12.5%, less income tax of 26%, amounting to approximately RM9,298,850 in respect of the financial year ended 31 December 2007. This proposed final dividend is subject to the approval of shareholders at the forthcoming Annual General Meeting and will be reflected in the financial statements for the financial year ending 31 December 2008 upon approval by the shareholders.
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SHARE CAPITAL
Details of movements in share capital are disclosed in Note 23(a) to the financial statements.
TREASURY SHARES
Details of the Treasury shares are set out in Note 23(b) to the financial statements.
DIRECTORS
The Directors who have held office during the period since the date of the last report are as follows: Tan Sri Datuk Asmat bin Kamaludin Tan Sri Nik Mohamed bin Nik Yaacob Datuk Hamzah bin Bakar Datuk Haron bin Siraj Dato Mohamed Azman bin Yahya Dato Mohammed Azlan bin Hashim Foong Choong Hong Sreesanthan A/L Eliathamby Shah Hakim @ Shahzanim bin Zain
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directors report
DIRECTORS INTERESTS
(contd.)
According to the Register of Directors Shareholdings, particulars of interests of Directors who held office at the end of the financial year in shares and options over shares in the Company are as follows: Number of ordinary shares of RM0.10 each in the Company At 1.1.2007 000 Direct interest in the Company Tan Sri Datuk Asmat bin Kamaludin Datuk Haron bin Siraj Dato Mohamed Azman bin Yahya Foong Choong Hong Shah Hakim @ Shahzanim bin Zain Indirect interest in the Company + Dato Mohamed Azman bin Yahya # Shah Hakim @ Shahzanim bin Zain * Tan Sri Datuk Asmat bin Kamaludin At 31.12.2007 000
Bought 000
Sold 000
300 250
10,500 345,337
140
(500) (110)
10,000 345,337 30
Number of ordinary shares of RM1.00 each in a subsidiary At 1.1.2007 000 Direct interest in Scomi Engineering Bhd Shah Hakim @ Shahzanim bin Zain Indirect interest in the Scomi Engineering Bhd # Shah Hakim @ Shahzanim bin Zain * Tan Sri Datuk Asmat bin Kamaludin + At 31.12.2007 000
Bought 000
Sold 000
100
(100)
192,568 100
192,568 100
# *
Deemed interested by virtue of Section 6A(4) of the Companies Act, 1965 through Dato Mohamed Azman bin Yahya and his spouses direct shareholdings in Gajahrimau Capital Sdn Bhd, of which 10,000,000 shares are held through CIMSEC Nominees (Tempatan) Sdn Bhd at the end of the financial year. Deemed interested by virtue of Section 6A(4) of the Companies Act, 1965 through Shah Hakim @ Shahzanim bin Zains shareholding in Kaspadu Sdn Bhd, which holds an interest in Scomi Group Bhd, which in turn is a substantial shareholder of Scomi Engineering Bhd. Deemed interested by virtue of Section 134(12)(c) of the Companies Act, 1965 as amended by the Companies (Amendment) Act, 2007 which took effect on 15 August 2007 through Tan Sri Datuk Asmat bin Kamaludins childs direct shareholding in Scomi Group Bhd.
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Granted 000
Exercised 000
1.24 1.34 1.24 1.24 1.24 1.34 1.24 0.17 1.12 1.21
420
(300) (250)
700 600 600 600 600 600 350 1,357 6,000 420
0.94
280
(140)
140
Deemed interested by virtue of Section 134(12)(c) of the Companies Act, 1965 as amended by the Companies (Amendment) Act, 2007 which took effect on 15 August 2007 through Tan Sri Datuk Asmat bin Kamaludins childs direct shareholding in Scomi Group Bhd. Number of options over ordinary shares of RM1.00 each in a subsidiary Exercise price RM/share At 1.1.2007 000 At 31.12.2007 000
Granted 000
Exercised 000
Direct interest in Scomi Engineering Bhd Shah Hakim @ Shahzanim bin Zain
1.00
2,000
2,000
By virtue of his interests in the shares and options in the Company as disclosed above, Shah Hakim @ Shahzanim bin Zain is deemed to have interest in the shares of all its subsidiaries. Other than as disclosed above, according to the Register of Directors Shareholdings, the Directors in office at the end of the financial year did not hold any interest in the shares and options over shares in the Company or shares, options over shares and debentures of its related corporations during the financial year.
DIRECTORS BENEFITS
During and at the end of the financial year, no arrangements subsisted to which the Company is a party, being arrangements with the object or objects of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate, except for options over shares granted by the Company and a subsidiary, Scomi Engineering Bhd, to eligible employees including certain Directors of the Company pursuant to the Companys and Scomi Engineering Bhds respective Employees Share Option Schemes. Since the end of the previous financial year, no Director has received or become entitled to receive a benefit (other than Directors remuneration as disclosed in Note 31 to 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 he is a member, or with a company in which he has a substantial financial interest, except as disclosed in Note 36 to the financial statements.
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directors report
(contd.)
(b)
At the date of this report, the Directors are not aware of any circumstances: (a) which would render the amounts written off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the Group and Company inadequate to any substantial extent; or which would render the values attributed to current assets in the financial statements of the Group and Company misleading; or which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and Company misleading or inappropriate.
(b) (c)
No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may affect the ability of the Group or Company to meet their obligations when they fall due. At the date of this report, there does not exist: (a) any charge on the assets of the Group or Company which has arisen since the end of the financial year which secures the liability of any other person; or any contingent liability of the Group or Company which has arisen since the end of the financial year.
(b)
At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements which would render any amount stated in the financial statements misleading. In the opinion of the Directors: (a) other than as disclosed in Notes 39 and 43 to the financial statements, the results of the operations of the Group and Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature; and other than as disclosed in Note 40 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 to affect substantially the results of the operations of the Group or Company for the financial year in which this report is made.
(b)
AUDITORS
The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office.
Signed on behalf of the Board of Directors in accordance with their resolution dated 30 April 2008.
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5 6 7 8 9 10 11 12 13 26 14
CURRENT ASSETS Inventories Receivables, deposits and prepayments Tax recoverable Short term investment Short term deposits, cash and bank balances
15 16 17 18
34
LESS: CURRENT LIABILITIES Payables Borrowings Provision for redundancy Current tax liabilities
20 21 22
34
459,179 1,918,840
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balance sheets
Group Note 2007 RM000 CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY Share capital Share premium Treasury shares Other reserves Retained earnings Equity and reserves attributable to the Companys equity holders Minority interest TOTAL EQUITY AND RESERVES NON-CURRENT LIABILITIES Payables Borrowings Provision for redundancy Provision for retirement benefits Deferred tax liabilities 2006 Restated RM000
23 24 23
642,370 642,370
479,681 479,681
20 21 22 25 26
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The notes set out on pages 75 to 139 form an integral part of, and should be read in conjunction with, these financial statements.
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29
28 30
Attributable to: Companys equity holders Minority interest Profit for the financial year
180,653 180,653
140,643 140,643
Group Note 2007 sen Earnings per ordinary share of RM0.10 each attributable to the Companys equity holders: Basic 32 25.59 9.29 2006 Restated sen
Fully diluted
24.79
9.08
The notes set out on pages 75 to 139 form an integral part of, and should be read in conjunction with, these financial statements.
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Group
Note
At 1 January 2007 as previously reported prior year adjustment as restated Currency translation differences arising during the year subsidiaries associates Cash flow hedges: Fair value gains Transfer to income statement Net loss recognised directly in equity Profit for the financial year Total recognised (loss)/income for the financial year
43(d)
100,535 100,535
233,823 233,823
(3,364) (3,364)
(57,881) (57,881)
11,917 11,917
44,622 44,622
(1,867) (23,287)
14,564 (27,213)
(3,556)
(25,154)
(12,649)
257,129
(37,803) 257,129
(3,556) 25,026
(41,359) 282,155
(25,154)
(12,649)
257,129
219,326
21,470
240,796
Share options: proceeds from shares issued 23, 24 value of employee services 23(d) transfer upon exercise 23(d) Purchase of Treasury shares 23(b) Share of reserves in subsidiaries and associates Dilution of interest in subsidiaries due to share options exercised Other dilution (net) of interest in subsidiaries 37(a) Dividend 33 At 31 December 2007
1,436
6,950 2,156
(15,330)
3,352
(3,728)
849 (1,397)
101,971
242,929
(18,694)
(83,035)
15,978
(9,297)
(16,542) 552,074
(16,542) 801,926
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Group
Note
<--------------------------- Attributable to equity holders of the Company ---------------------------> Exchange Share Share Share Treasury fluctuation option Retained capital premium shares reserve reserve earnings Total RM000 RM000 RM000 RM000 RM000 RM000 RM000 99,208 231,748 (13,888) 6,028 227,129 550,225
At 1 January 2006 Net loss recognised directly in equity currency translation differences Profit for the financial year Total recognised (loss)/income for the financial year Share options: proceeds from shares issued value of employee services transfer upon exercise Purchase of Treasury shares Share of reserves in subsidiaries and associates Acquisition of subsidiaries Accretion of interest in subsidiaries Dividend At 31 December 2006
(43,993)
92,414
(43,993) 92,414
15,326
(43,993) 107,740
(43,993)
92,414
48,421
15,326
63,747
1,327 100,535
(3,364) (3,364)
(57,881)
(4,328) 315,215
37(c) 37(c) 33
The notes set out on pages 75 to 139 form an integral part of, and should be read in conjunction with, these financial statements.
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Note
Total RM000
Company At 1 January 2007 Profit for the year Total recognised income for the financial year Share options: proceeds from shares issued value of employees services transfer upon exercise Purchase of treasury shares Dividend At 31 December 2007
100,535
233,823
(3,364)
9,498
139,189 180,653
479,681 180,653
180,653
180,653
1,436 101,971
(15,330) (18,694)
(16,542) 303,300
At 1 January 2006 Profit for the year Total recognised income for the financial year Share options: proceeds from share issued value of employees services transfer upon exercise Purchase of treasury shares Dividend At 31 December 2006
99,208
231,748
6,028
2,874 140,643
339,858 140,643
140,643
140,643
1,327 100,535
(3,364) (3,364)
(4,328) 139,189
The notes set out on pages 75 to 139 form an integral part of, and should be read in conjunction with, these financial statements.
cash flow statements for the financial year ended 31 december 2007
Group Note 2007 RM000 CASH FLOWS FROM OPERATING ACTIVITES Profit before taxation Adjustments for: Depreciation property, plant and equipment investment properties Amortisation intangible assets prepaid rent lease payment Impairment Allowance for doubtful debts Allowance for obsolete stocks Inventories written down Unrealised gain on foreign exchange Gain on disposal of property, plant and equipment Write back of investment losses Property, plant and equipment written off Gain on dilution of interest in/disposal of subsidiary companies Provision for profit guarantee Provision for redundancy Provision for retirement benefits Share of profit in associated companies Share of loss in jointly controlled entity Share option expense Financing costs Interest income Dividend income Operating cash flows before working capital changes Changes in working capital: Increase in inventories (Increase)/decrease in receivables, deposits and prepayments Increase/(decrease) in payables CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from/(used in) operations Tax (paid)/refund Redundancy paid Retirement benefits paid Net cash generated from/(used in) operating activities 2006 Restated RM000 Company 2007 RM000 2006 RM000
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286,416
120,722
177,136
148,148
5 7 6 8 6 28 28 28 28 28 28 28 28 28 28 28
65,842 145 218 710 3,271 701 209 (8,576) (1,353) (340) (140,046) 855 353 (23,570) 6,631 87,946 (6,032) 273,380
53,839 145 216 375 3,650 1,992 (16,285) (1,347) 2 1,939 1,950 (30,084) 228 6,808 78,207 (4,009) 218,348
23(d) 29 28 28
10,982 (22,414)
(1,529) (1,649)
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Group Note 2007 RM000 CASH FLOWS FROM INVESTING ACTIVITIES Investment in an associated company Additional investment in subsidiaries Proceeds from dilution on interest in/disposal of subsidiaries companies Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Investment in a jointly controlled entity Proceeds from sale/(purchase) of other investments Additions to intangible assets Decrease in amount due from joint venture Repayment of other payables Dividend received Interest received Prepayment of land lease Net cash generated from/(used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Treasury shares Issue of share capital arising from the exercise of ESOS Subsidiarys issuance of share capital from the exercise of ESOS Proceeds from bank borrowings Repayment of bank borrowings Interest paid on borrowings Dividends paid (Increase)/decrease in short-term deposits pledged as security Dividend paid to minority shareholders of subsidiaries Net cash (used in)/generated from financing activities NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF FINANCIAL YEAR CURRENCY TRANSLATION DIFFERENCES CASH AND CASH EQUIVALENTS AT END OF FINANCIAL YEAR CASH AND CASH EQUIVALENTS COMPRISE: Short term deposits with licensed banks Cash and bank balances Bank overdrafts 2006 Restated RM000
(31,508) 308,990 (203,998) 3,748 7,050 (15,011) (25,427) 11,739 6,032 (4,047) 57,568
(71,692) (102,844) 6,143 (141) (8,113) (1,576) (4,586) 6,184 4,009 (159) (172,775)
28 28 8
23(b) 23(a), 24
(15,330) 8,386 4,416 27,288 (304,675) (78,130) (16,542) (5,960) (2,453) (383,000)
7,558 5,469
(2,302) 7,771
74,686
217,879
13,027
5,469
18 18 21
Add: Cash and cash equivalents of disposal group held for sale Less: Short-term deposits pledged as security
34 18
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The notes set out on pages 75 to 139 form an integral part of, and should be read in conjunction with, these financial statements.
notes to the financial statements for the financial year ended 31 december 2007
1 PRINCIPAL ACTIVITIES
The principal activities of the Company are investment holding and the provision of management services. The principal activities of the Group consist of the provision of integrated drilling fluids, drilling waste management solutions, distribution of oilfield products and services; machine shop services, design and manufacture of monorail, special purpose vehicles, urban transportation solutions and rail solutions; provision of marine vessel transportation service; industrial and production chemicals and gas business. There have been no significant changes in the nature of these activities during the financial year.
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BASIS OF ACCOUNTING
The financial statements of the Group and Company have been prepared under the historical cost convention except as disclosed in the summary of significant accounting policies. The financial statements comply with Financial Reporting Standards, the Malaysian Accounting Standards Board (MASB) Approved Accounting Standards in Malaysia for Entities Other than Private Entities and the provisions of the Companies Act, 1965. The preparation of financial statements in compliance with the MASB Approved Accounting Standards in Malaysia for Entities Other than Private Entities requires the Directors to use certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the financial year. It also requires Directors to exercise their judgement in the process of applying the Groups accounting policies. Although these estimates and judgement are based on the Directors best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 42 to the financial statements. During the financial year, the Directors of the Group adopted the following Financing Reporting Standards (FRS) issued by the MASB: (a) Standards and amendments to published standards that are effective and have been adopted The new accounting standards and amendments to published standards that are effective for the Groups financial year ended 31 December 2007 are as follows: FRS 6 FRS 117 FRS 124 Exploration for and Evaluation of Mineral Resources Leases Related Party Disclosures
FRS 6 is not relevant to the Groups operations as the Group does not carry out exploration activities. The effects of the adoption of FRS 117 and FRS 124 have been disclosed in Note 43. (b) Standards and amendments to published standard that is early adopted The Group has adopted the following standard with effect from 1 January 2007 although this standard only requires application with effect from the financial period commencing on or after 1 July 2007: FRS 112 Income Taxes. This revised standard has removed the requirements that prohibit the recognition of deferred tax on reinvestment allowances or other allowances in excess of capital allowances.
A summary of the impact of this new accounting standard to the financial statements of the Group is set out in Note 43.
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Standards, amendments to published standards and interpretations to existing standards that are not yet effective and have not been early adopted The new standards, amendments to published standards and interpretations that are mandatory for the Groups financial periods beginning on or after 1 January 2008, but which the Group has not early adopted, are as follows: FRS 107 Cash Flow Statements. This revised standard has no significant changes as compared to the original standard. FRS 111 Construction Contracts. This revised standard has no significant changes as compared to the original standard. FRS 118 Revenue. This revised standard has no significant changes as compared to the original standard. FRS 120 Accounting for Government Grants and Disclosure of Government Assistance. This revised standard allows the alternative treatment of recording non-monetary government grant at nominal amount on initial recognition. Amendment to FRS 121 The Effects of Changes in Foreign Exchange Rates Net Investment in a Foreign Operations. This amendment requires exchange differences on monetary items that form part of the net investment in a foreign operation to be recognised in equity instead of in profit or loss regardless of the currency in which these items are denominated in. FRS 134 Interim Financial Reporting. This revised standard has no significant changes as compared to the original standard. FRS 137 Provisions, Contingent Liabilities and Contingent Assets. This revised standard has no significant changes as compared to the original standard. FRS 139 Financial Instruments: Recognition and Measurement. This new standard establishes principles for recognising and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. Other than hedge accounting which has been adopted by the Group during the last financial year, the Group will apply this standard when effective. IC Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities. This interpretation deals with changes in the estimated timing or amount of the outflow of resources required to settle the obligation, or a change in the discount rate. IC Interpretation 2 Members Shares in Co-operative Entities and Similar Instruments. This interpretation deals with liabilities or equity classification of financial instruments which give the holder the right to request redemption, but subject to limits on whether it will be redeemed. IC Interpretation 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds. This interpretation deals with accounting in the financial statements of a contributor for its interests arising from decommissioning funds. IC Interpretation 6 Liabilities arising from Participating in a Specific Market-Waste Electrical and Electronic Equipment. This interpretation provides guidance on the recognition, in the financial statements of producers, of liabilities for waste management under EU Directive in respect of sales of historical household equipment. IC Interpretation 7 Applying the Restatement Approach under the FRS 1292004 Financial Reporting in Hyperinflationary Economies. This interpretation provides guidance on how to apply the requirement of FRS 129 in a reporting period in which an entity identifies the existence of hyperinflation in the economy of its functional currency, when that economy was not hyperinflationary in the prior period. IC Interpretation 8 Scope of FRS 2. This Interpretation clarifies that FRS 2 Share-based payment applies even in the absence of specifically identifiable goods or services.
The above standards, amendments to published standards and interpretations to existing standards that are not yet effective are not expected to have a significant impact on the financial statements of the Group and the Company. The effective date for FRS 139 Financial Instruments: Recognition and Measurement has yet to be determined by the MASB. Entities are exempted from disclosing the impact of FRS 139 prior to its effective date.
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GENERAL INFORMATION
The Company is a public limited liability company, incorporated and domiciled in Malaysia. The Company is listed on the Main Board of Bursa Malaysia Securities Berhad. The address of the registered office of the Company is Suite 5.03, 5th Floor, Wisma Chase Perdana, Off Jalan Semantan, Damansara Heights, 50490 Kuala Lumpur. The principal place of business of the Company is located at Suite 10.2 10.3, 10th Floor, Wisma Chase Perdana, Off Jalan Semantan, Damansara Heights, 50490 Kuala Lumpur.
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Other development expenditure that do not meet these criteria are recognised as an expense when incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life, not exceeding five years. Development assets are tested for impairment annually, in accordance with FRS 136 Impairment of Assets. See accounting policy Note 4.6 on impairment of non-financial assets. (iii) Goodwill Goodwill represents the excess of the purchase consideration over the fair value of the Groups share of the identifiable net assets of subsidiaries, jointly controlled entities and associates at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Negative goodwill is recognised immediately in the income statement. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cashgenerating units or groups of cash-generating units that are expected to benefit from synergies of the business combination in which the goodwill arose. Each of those cash-generating units represents the Groups investment in each primary reporting segment (Note 38). In respect of acquisitions of joint ventures and associates, the carrying amount of goodwill is included in the carrying amount of the investment in joint ventures and associates respectively. Such goodwill is also tested for impairment as part of the overall balance.
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Residual values and useful lives of assets are reviewed, and adjusted if appropriate, at each balance sheet date. At each balance sheet date, the Group assesses whether there is any indication of impairment. Where an indication of impairment exists, the carrying amount of the asset is assessed and written down immediately to its recoverable amount. See accounting policy Note 4.6 on impairment of non-financial assets. When property, plant and equipment are disposed of, the resultant gain or loss on disposal is determined by comparing the disposal proceeds with the carrying amount and is included in the income statement. 4.9 Investment properties Investment properties, principally comprising freehold office buildings, are held for long term rental yields or for capital appreciation or both, and are not occupied by the Group. Investment properties are carried at cost less any accumulated depreciation and impairment losses. Investment properties are depreciated on a straight line basis to write off the costs of the assets to their residual values over their estimated useful life of 20 years. On disposal of an investment property, or when it is permanently withdrawn from use and no future economic benefits are expected from its disposal, it is derecognised (eliminated from the balance sheet). The difference between the net disposal proceeds and the carrying amounts is recognised in profit or loss in the period of the retirement or disposal. 4.10 Receivables Trade and other receivables are carried at invoiced amount less allowance for doubtful debts. Bad debts are written off in the period in which they are identified. Allowance for doubtful debts is determined based on estimates of probable losses which may arise from non-collection of receivables upon review of all material outstanding amounts at the balance sheet date. 4.11 Assets acquired under lease arrangements Leases of property, plant and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a period constant rate of interest on the balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance charge is charged to income statement over the lease period so as to achieve a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance lease arrangements are depreciated over the shorter of the estimated useful life of the asset and the lease term.
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On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to shareholders equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. 4.16 Income tax Income tax on the profit or loss for the financial year comprises current and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the financial year and is measured using the tax rates that have been enacted at the balance sheet date. Deferred tax is recognised in full, using the liability method, on temporary differences at the balance sheet date between the tax base of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. 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 profits 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 substantially enacted at the balance sheet date. Deferred tax is recognised on temporary differences arising on investments in subsidiaries, associates and joint ventures except where the timing of the reversal of temporary difference can be controlled and if is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is recognised in the income statement, 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, or when it arises from a business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwill.
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(ii)
(iii) Interest income Interest is recognised on a time proportion basis that reflects the effective yield on the asset, taking into account the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. (iv) Rental income Rental income from operating leases is recognised on a straight-line basis over the term of the lease. (v) Charter income Revenue from charter hire is recognised on accrual basis but is deferred when the terms of billings have not been agreed by third parties or when certain conditions necessary for realisation have yet to be fulfilled.
(vi) Dividend income Dividend income is recognised when the right to receive payment is established. (vii) Management fee income Management fee income is recognised on an accrual basis, based on services rendered. (viii) Commission income Commission income is recognised in the accounting period in which goods of principals are sold. 4.18 Cash and cash equivalents For purposes of the cash flow statements, cash and cash equivalents comprise cash in hand, bank balances, deposits held at call with banks excluding deposits which are pledged for banking facilities, and other short-term, highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the balance sheet. 4.19 Employee benefits (i) Short term benefits Wages, salaries and bonuses are recognised as an expense in the financial 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 nonaccumulating compensated absences such as sick leave are recognised when the absences occur.
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(iii) Fair value estimation for disclosure purposes The fair value of publicly traded derivatives and securities is based on quoted market prices at the balance sheet date. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date. In assessing the fair value of other derivatives and financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for the specific or similar instruments are used for long term debt. Other techniques, such as option pricing models and estimated discounted value of future cash flows, are used to determine fair value for the remaining financial instruments. In particular, the fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments. 4.21 Derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (a) (b) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge).
The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of derivative instruments used for hedging purposes are disclosed in Note 14. Movements on the hedging reserve are shown in the statement of changes in equity. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as current asset or liability.
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(iii) Dividends to shareholders of the Company Dividends on redeemable preference shares are recognised as a liability on an accrual basis. Other dividends are recognised as a liability in the period in which they are declared. (iv) Purchase of own shares Where the Company or its subsidiaries purchases the Companys equity share capital, the consideration paid, including any directly attributable incremental external costs, net of tax, is deducted from total shareholders equity as Treasury shares until they are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental external costs and the related tax effects, is included in shareholders equity. 4.27 Construction contracts A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and functions or their ultimate purpose or use. Construction contracts are recognised when incurred. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised by using the stage of completion method. The stage of completion is measured by reference to the proportion that contract costs incurred for work performed to date bear to the estimated total costs for the contract. When the outcome of the construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that is probable will be recoverable. Irrespective of whether the outcome of a construction contract can be estimated reliably, when it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. The aggregate of the costs incurred and the profit/loss recognised on each contract is compared against the progress billings up to the financial year end. Where costs incurred and recognised profits (less recognised losses) exceed progress billings, the balance is shown as amounts due from customers on construction contracts under receivables, deposits and prepayments (within current assets). Where progress billings exceed costs incurred plus recognised profits (less recognised losses), the balance is shown as amounts due to customers on construction contracts under payables (within current liabilities).
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Group
Vessels RM000
Total RM000
Cost At 1 January 2007 Additions Disposals Reclassification Reclassified as held for sale (Note 34) Currency translation differences At 31 December 2007 Accumulated depreciation At 1 January 2007 Charge for the financial year (Note 28) Disposals Reclassification Reclassified as held for sale (Note 34) Currency translation differences At 31 December 2007 Net book value At 31 December 2007
14,800 14,800
21,045
27,579
27,853
399,402
10,770
5,236
19,031
13,967
524,883
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Scomi Group Bhd Annual Report 2007
Group
Long term Short term leasehold leasehold land land RM000 RM000
Vessels RM000
Total RM000
Cost At 1 January 2006 as previously reported reclassified as prepaid lease payments (Note 8) reclassified to leasehold buildings as restated Acquisition of subsidiaries (Note 37(c)) Additions Disposals Write-offs (Note 28) Currency translation differences At 31 December 2006 Accumulated depreciation At 1 January 2006 Charge for the financial year (Note 28) Disposals Write-offs (Note 28) Reclassification Currency translation differences At 31 December 2006 Net book value At 31 December 2006
1,520 (1,520)
14,800 14,800
(314) 314
274 (274)
246 246
8,673
16,376
11,788
306,935
10,219
19,210
21,564
14,554
409,319
www.scomigroup.com.my
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Scomi Group Bhd Annual Report 2007 www.scomigroup.com.my
Renovation RM000
Total RM000
Cost At 1 January 2006 Additions At 31 December 2006 Accumulated depreciation At 1 January 2006 Charge for the financial year (Note 28) At 31 December 2006 Net book value at 31 December 2006
360 360
68 71 139 221
(i)
The net book values of property, plant and equipment of the Group acquired under hire purchase are as follows: Group 2007 RM000 Hire purchase Motor vehicles Tools, plant and machinery Office equipment, fittings and computers 2006 RM000
12,190 3,864 9
Included in the net book values of motor vehicles acquired under hire purchase above is an amount of RM10,487,000 (2006: RM13,667,000) in respect of motor vehicles acquired under hire purchase arrangements of disposal group classified as held for sale.
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Scomi Group Bhd Annual Report 2007 www.scomigroup.com.my
(iii)
(iv)
INTANGIBLE ASSETS
Goodwill RM000 Group Cost At 1 January 2007 Additions (Note 37(a)) Disposal of business (Note 37(a)) Reclassification of asset held for sale (Note 34) Currency translation differences At 31 December 2007 Accumulated impairment and amortisation At 1 January 2007 Amortisation for the financial year (Note 28) Currency translation differences At 31 December 2007 Net book value At 31 December 2007 Patents RM000 Development costs RM000 Total RM000
360 360
485,742
1,141
19,359
506,242
Cost At 1 January 2006 Additions Adjustment to cost of business combination Acquisition of subsidiaries (Note 37(c)) Currency translation differences At 31 December 2006 Accumulated impairment and amortisation At 1 January 2006 Amortisation for the financial year (Note 28) Impairment for the financial year (Note 28) Currency translation differences At 31 December 2006 Net book value At 31 December 2006
547,136
1,390
4,362
552,888
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Scomi Group Bhd Annual Report 2007 www.scomigroup.com.my
In the previous financial year, development costs comprised an amount of RM2,786,000 in respect of monorail technical know-how and RM1,576,000 in respect of internally generated expenditure on development costs on major projects where it is reasonably anticipated that the costs will be recovered through future commercial activity. The additions in the current year amounting to RM15,011,000 consist mainly of material, labour and consultancy costs incurred to develop the Gen 2 monorail. The amortisation of the internally generated development costs will commence when the asset is available for use over a period of 5 years. The remaining amortisation period for the acquired patents at the balance sheet date is 8 years (2006: 9 years). The carrying amounts of goodwill allocated to the Groups cash-generating units (CGUs) are as follows: 2007 RM000 Oilfield services Energy and engineering logistics Production enhancement 241,788 234,985 4,589 481,362 2006 RM000 318,813 224,349 3,974 547,136
The recoverable amount of a CGU is determined based on value in use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by the Directors covering a five-year period using the estimated growth rates which are based on past performance and their expectations of market developments. The terminal value is calculated based on the projected net tangible assets of the CGUs at the end of the five years. The growth rate does not exceed the long term average growth rate for the relevant CGUs. The key assumptions used in the value in use calculations for the significant CGUs are as follows: Energy and engineering logistics % 62.00 6.50
The weighted average growth rates were based on expectations from past performances with consideration given to the industries in which the CGUs operate. The discount rates used are pretax and reflect specific risks relating to the relevant segments.
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Scomi Group Bhd Annual Report 2007 www.scomigroup.com.my
INVESTMENT PROPERTIES
Group 2007 RM000 Net book value At start of financial year Depreciation for the financial year (Note 28) Currency translation differences At end of financial year 2006 RM000
The fair value of the properties was estimated at RM2.18 million (2006: RM2.10 million) based on a valuation by an independent professionally qualified valuer. Valuations were based on current price in an active market. The following amounts have been recognised in the income statement: Group 2007 RM000 Rental income Direct operating expenses of investment properties that did not generate rental income 97 10 2006 RM000 151 30
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Company 2007 RM000 Investments in subsidiaries, at cost quoted shares in Malaysia unquoted shares 2006 RM000
456,404
254,189
Details of the significant subsidiaries are as follows: Country of incorporation Groups effective equity interest 2007 % Significant subsidiaries of Scomi Group Bhd Scomi Oilfield Limited # Bermuda Scomi Engineering Bhd * Scomi OilServe Sdn Bhd Malaysia Malaysia 2006 %
Name of company
Principal activities
80.1 70.1 60
100 71.2 60
Investment holding Investment holding Provision of marine vessel transportation services Investment holding and provision of projects management services Distribution of chemical products
Malaysia
100
100
Malaysia
100
100
Significant subsidiaries of Scomi Oilfield Limited Scomi Oiltools Bermuda Limited # Bermuda (formerly known as KMC Oiltools Bermuda Limited) Scomi Oiltools Sdn Bhd * Malaysia
80.1
100
80.1
100
Provision of oilfield equipment, supplies and services Provision of oilfield equipment, supplies and services
Scomi Oiltools Overseas (M) Limited # (formerly known as KMC Oiltools Overseas (M) Limited)
Mauritius
80.1
100
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Scomi Group Bhd Annual Report 2007 www.scomigroup.com.my
80.1
100
80.1
100
Provision of oilfield equipment, supplies and services Provision of oilfield equipment, supplies and services
United Kingdom
80.1
100
United Kingdom
80.1
100
Provision of oilfield equipment, supplies and services Provision of oilfield equipment, supplies and services Investment holding, oilfield equipment, supplies and services Provision of oilfield equipment, supplies and services
USA
80.1
100
Scomi Oiltools (Africa) Ltd # (formerly known as Oiltools (Africa) Ltd) Scomi Oiltools de Venezuela S.A. # (formerly known as KMC Oiltools de Venezuela S.A.) Scomi Oiltools (S) Pte Ltd #
Jersey
80.1
100
Venezuela
80.1
100
Singapore
80.1
100
Provision of oilfield equipment, supplies and services Provision of oilfield equipment, supplies and services
KMC Oiltools Canada Inc # (formerly known as KMC Oiltools Canada Inc)
Canada
80.1
100
Significant subsidiaries of Scomi Engineering Bhd Scomi OMS Oilfield Holdings Sdn Bhd * Malaysia (formerly known as OMS Oilfield Holdings (Malaysia) Sdn Bhd) Scomi OMS Oilfield Services Pte Ltd # (formerly known as OMS Oilfield Services Pte Ltd) Scomi Transportation Systems Sdn Bhd * (formerly known as MTrans Transportation Systems Sdn Bhd) Singapore
71.0
71.2
Investment holding
71.0
71.2
Malaysia
71.0
36.3
Investment holding
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Scomi Group Bhd Annual Report 2007 www.scomigroup.com.my
Country of incorporation
Principal activities
Significant subsidiary of Scomi OMS Oilfield Holdings Sdn Bhd Scomi OMS Oilfield Services Sdn Bhd * Malaysia (formerly known as OMS Oilfield Services (Malaysia) Sdn Bhd) Subsidiaries of Scomi Transportation Systems Sdn Bhd (formerly known as MTrans Transportation Systems Sdn Bhd) Scomi Rail Bhd * Malaysia (formerly known as MTrans Technology Berhad) Scomi Coach Sdn Bhd * (formerly known as MTrans Bus Sdn Bhd) Malaysia
71.0
71.2
71.0
36.3
71.0
36.3
Manufacturing, fabrication and assembly of commercial coaches and truck vehicle bodies
Significant subsidiary of Scomi OilServe Sdn Bhd OilServe (L) Berhad Labuan, Malaysia Significant subsidiary of Scomi Energy Sdn Bhd Scomi NTC Sdn Bhd * Malaysia
60
60
70
70
Significant subsidiaries of Scomi Chemicals Sdn Bhd Scomi Sosma Sdn Bhd Malaysia Anticor Chimie S.A. # France
100 86.7
100 80
Distribution of chemical products Design and field deployment of various oil and gas production chemicals
* #
Audited by PricewaterhouseCoopers, Malaysia Audited by affiliates of PricewaterhouseCoopers, Malaysia Audited by firms other than PricewaterhouseCoopers, Malaysia and its affiliates
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10 INVESTMENTS IN ASSOCIATES
Group 2007 RM000 Shares quoted in Malaysia, at cost Unquoted shares, at cost Share of post-acquisition: profits reserves Currency translation differences 360,124 728 41,932 (45,447) (291) 357,046 2006 RM000 360,124 728 30,101 (22,994) (141) 367,818 Company 2007 RM000 360,124 360,124 2006 RM000 360,124 360,124
4,698
10,129
300,475
237,913
300,475
237,913
The Groups share of the results, gross assets and liabilities of the associates are as follows: Groups effective equity interest %
Name of company
Country of incorporation
Assets RM000
Liabilities RM000
Revenue RM000
Malaysia Oman
42.7 49.0
681,097 8,735
(284,052) (3,893)
197,282 11,757
23,200 370
Malaysia Oman
42.7 49.0
753,705 5,133
(345,449) (748)
160,103 8,199
29,492 592
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Name of company
Country of incorporation
Assets RM000
Liabilities RM000
Revenue RM000
Brunei
50.0
43
95
Brunei Nigeria
37.5 50.1
161 5,140
(142) (5,217)
(141)
The Groups share of the joint ventures operating lease commitment is nil (2006: RM1,592,000). There are no contingent liabilities relating to the Groups interest in the joint venture nor contingent liabilities of the venture itself. During the financial year, Sosma (B) Sdn Bhd was inactive, hence there was no share of results from the jointly controlled entity. In addition, Titan Tubular Nigeria Limited has been treated as a subsidiary for the current financial year as the Group has demonstrated control over the company.
The amount due from a jointly controlled entity in prior year was unsecured, interest-free and has no fixed terms of repayment.
13 OTHER INVESTMENTS
Group 2007 RM000 Shares quoted in Malaysia, at cost Unquoted shares, at cost 2,958 542 3,500 (2,170) 1,330 2006 RM000 2,958 542 3,500 (2,510) 990
773
357
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The Group has entered into Cross Currency Interest Rate Swaps (CCIRS) that are designated as cash flow hedges for the Groups exposure to foreign exchange on its Murabahah Medium Term Notes. These contracts entitle the Group to receive principal and interest amounts in Ringgit Malaysia and oblige the Group to pay principal and interest amounts in United States Dollars. These contracts have maturities of 4 to 6 years (2006: 4 to 5 years) from December 2006. Exchange of cash flows on interest is semi-annually and exchange of cash flows on principal is upon maturities. The interest rates in United States Dollars on the CCIRS designated as cash flow hedges ranged from 6.90% to 7.23% (2006: 6.90% to 7.0%) per annum and the interest rates in Ringgit Malaysia ranged from 5.70% to 6.00% (2006: 5.70% to 5.85%) per annum. Cross Currency Interest Rate Swaps (CCIRS) that are designated as fair value hedges are to hedge the Groups exposure to fair value interest rate risk on its Murabahah Medium Term Notes. These contracts entitle the Group to receive principal and fixed interest amounts in Ringgit Malaysia and oblige the Group to pay principal and floating interest amounts in United States Dollars. These contracts have maturities of 6 to 7 years (2006: nil) from December 2006. Exchange of cash flows on interest is semi-annually and exchange of cash flows on principal is upon maturities. The applicable interest rates in United States Dollars on the CCIRS designated as fair value hedges range from LIBOR plus 2.11% to US LIBOR plus 2.24% (2006: nil) and the interest rates in Ringgit Malaysia ranged from 6.00% to 6.15% per annum (2006: nil).
15 INVENTORIES
Group 2007 RM000 Consumables Raw materials Work-in-progress Finished goods 14,628 47,147 68,155 197,377 327,307 2006 RM000 13,228 39,541 73,119 168,566 294,454
The cost of inventories recognised as expense and included in cost of sales of the Group amounted to RM800,051,000 (2006: RM668,333,000).
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Amounts due from subsidiaries, associates and jointly controlled entities including trade balances, are unsecured, with no fixed terms of repayment and non-interest bearing except for certain advances which carry interest at 7% per annum (2006: Nil). Amounts due from staff are unsecured, interest free and repayable within 30 days. The currency exposure profile of receivables, deposits and prepayment is analysed as follows: Group 2007 RM000 Ringgit Malaysia US Dollar Pound Sterling Singapore Dollar Norwegian Kroner Nigerian Naira Canadian Dollar Others 158,032 470,113 48,850 2,167 6,938 6,753 4,552 36,075 733,480 2006 RM000 139,859 402,932 45,483 4,323 8,073 2,030 8,300 13,273 624,273 Company 2007 RM000 64,920 64,920 2006 RM000 660,041 660,041
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Market value
700
7,750
The currency exposure profile of short term deposits, cash and bank balances is analysed as follows: Group 2007 RM000 Ringgit Malaysia US Dollar Norwegian Kroner Singapore Dollar Pound Sterling Canadian Dollar Nigerian Naira Others 63,909 72,809 933 3,347 351 798 268 14,294 156,709 2006 RM000 159,846 122,579 1,818 473 491 692 480 14,408 300,787 Company 2007 RM000 11,927 6,557 18,484 2006 RM000 10,717 683 11,400
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Short term deposits of the Group and Company have maturity periods ranging from 1 to 90 days (2006: 1 to 30 days). Bank balances are deposits held at call with banks. Short term deposits of certain subsidiaries amounting to RM31,831,000 (2006: RM25,871,000) have been pledged to licensed banks for banking facilities as disclosed in Note 21 to the financial statements. Short term deposits of the Company amounting to RM5,457,000 (2006: RM5,931,000) have been pledged to licensed banks for banking facilities.
Amount due from customers on contracts (included in trade and other receivables Note 16) Amount due to customers on contracts (included in trade and other payables Note 20)
3,546
The cost incurred on construction contracts include the following charges incurred during the year: Group 2007 RM000 Staff costs Subcontract costs 371 16,657 2006 RM000
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Scomi Group Bhd Annual Report 2007 www.scomigroup.com.my
20 PAYABLES
Group 2007 RM000 Current liabilities Trade payables Amounts due to customers on contract (Note 19) Accruals Other payables Amount payable to subsidiaries Amount payable to related parties 2006 RM000 Company 2007 RM000 2006 RM000
67,358 646,106
The currency exposure profile of payables is analysed as follows: Group 2007 RM000 Ringgit Malaysia US Dollar Pound Sterling Singapore Dollar Norwegian Kroner Nigerian Naira Canadian Dollar Others 176,386 373,617 48,504 11,045 5,339 3,968 2,093 25,154 646,106 2006 RM000 228,098 256,463 33,045 13,078 5,125 6,071 3,301 15,143 560,324 Company 2007 RM000 67,560 71,487 139,047 2006 RM000 633,623 67,236 700,859
Included in other payables of the Group is an amount of RM71,486,919 (2006: RM101,663,991) owing to a Director of a subsidiary, Scomi Oilfield Limited, of which RM67,358,000 (2006: RM76,045,000) is repayable after 1 year, for the purchase of shares in the said subsidiary. The amount is estimated based on the future profitability of Scomi Oilfield Limited Group and is unsecured, interest-free, and repayable in two annual instalments. The non-trade payables due to subsidiaries are unsecured, interest-free with no fixed terms of repayments.
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Group 2007 RM000 Current (Secured) Bank overdrafts Bank borrowings Syndicated term loan (secured) Other term loans (secured) Hire purchase payables 2006 RM000
160 160
Non-current (Secured) Bonds (secured) Syndicated term loan (secured) Other term loans (secured) Hire purchase payables
Total borrowings Bank overdrafts Bank borrowings Bonds Syndicated term loan Other term loans Hire purchase payables
The currency exposure profile of borrowings were analysed as follows: Ringgit Malaysia US Dollar Pound Sterling Singapore Dollar Canadian Dollar Nigerian Naira Others 927,875 44,867 53,907 384 14,872 4,978 1,046,883 940,850 336,214 39,014 850 13,467 352 1,330,747 249,050 249,050 250,167 259,533 509,700
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21 BORROWINGS (CONTD.)
Group 2007 RM000 The maturity profile of borrowings is analysed as follows: Due within the next 12 months Due Due Due Due Due between 1 to between 2 to between 3 to between 4 to after 5 years 2 3 4 5 years years years years 156,348 14,230 204,220 250,369 255,772 165,944 890,535 1,046,883 245,865 96,302 11,394 151,886 396,321 428,979 1,084,882 1,330,747 160 160 50,116 100,107 98,337 170 248,890 249,050 84,773 77,660 97,267 50,000 100,000 100,000 424,927 509,700 2006 RM000 Company 2007 RM000 2006 RM000
(a)
The effective interest rates per annum on the Groups borrowings at the balance sheet date are as follows: 2007 % Bank overdrafts Bonds Syndicated term loan Other term loans Bank borrowings Hire purchase payables 6.00 8.50 4.25 7.50 7.76 5.20 8.25 4.05 8.00 2.00 10.20 2006 % 6.00 9.00 6.10 6.80 7.00 5.87 8.75 4.57 7.50 2.00 13.00
(b)
Bonds The Bonds comprise the following: RM250 million nominal value serial bonds of the Company through the establishment of a medium term notes programme (MTN Notes). The maturity dates of the MTN Notes range from 5 years to 7 years from 28 March 2007, being the date of issuance. The coupon rates of the MTN Notes for the first three years are at 4.5% per annum and 7.5% per annum thereafter. The effective interest rate is 6.8% per annum. The MTN Notes are secured by: (i) (ii) (iii) First charge over shares in Scomi Oilfield Limited (SOL) comprising 8,239,774 ordinary shares of USD1.00 each; First charge over shares in Scomi Marine Bhd comprising 313,043,478 ordinary shares of RM1.00 each; and Assignment of Debt Service Requirement Account.
RM630 million of Medium Term Notes issued by KMCOB Capital Berhad (KMCOB Capital), a subsidiary of SOL, on 14 December 2007, under the Murabahah Islamic principle (Murabahah Bonds). The Murabahah Bonds were issued in 4 series with tenures from 4 to 7 years from the date of issuance. The profit rate ranges from 5.75% to 6.15% per annum, payable semi-annually in arrears.
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Corporate guarantees from KMC Oiltools Bermuda Limited (KMCOB) and SOL, if SOL is listed; Corporate guarantees from certain existing and future principal subsidiaries of SOL whose revenue or profit/loss after tax are at least 5% of the combined revenue of combined profit/loss after tax of SOL Group; Charge over the issue and paid-up share capital and rights and entitlements attached thereto, of certain existing and future principal subsidiaries of SOL; Debenture over the present and future asset of KMCOB Capital and; Assignment over Financial Services Reserve Account (FSRA) of KMCOB Capital to meet its most immediate six months profits and principal payment obligations; and Any other security as may be required by the rating agency to achieve the requisite rating. As at 31 December 2007, no security is given to the rating agency to achieve the requisite rating.
(c)
Syndicated term loan The Syndicated term loan has been fully repaid during the financial year. Other term loans, bank overdrafts and trade facilities A term loan of a subsidiary denominated in USD of RM9,930,000 (USD3,000,000) (2006: RM28,240,000: USD8,000,000) is secured by way of a negative pledge over the present and future fixed floating assets of a subsidiary company and also a Standby Letter of Credit issued by a financial institution. The loan is repayable in quarterly instalments falling due between 15 March 2006 and 15 June 2009, with minimum prepayment of USD3,000,000 made in 2007. The other term loans, bank overdrafts and trade facilities of the Group are secured by way of: (i) (ii) (iii) (iv) legal charge over certain landed properties of certain subsidiaries; mortgage over certain vessels of a subsidiary including legal deed of assignment of the insurance, earnings and requisition compensation of the vessels of a subsidiary; negative pledge over the present and future, fixed and floating assets of certain subsidiaries; assignment of contract proceeds, insurance policies and performance bond.
(d)
(e)
Hire purchase and finance lease payables Group 2007 RM000 Instalments payable: Not later than 1 year Between 1 to 2 years Between 2 to 3 years Between 3 to 4 years Between 4 to 5 years Later than 5 years 1,566 997 193 143 143 198 3,240 (253) 2,987 5,738 9,041 92 2,925 37 17,833 (1,831) 16,002 185 185 135 125 125 198 953 (133) 820 60 129 189 (22) 167 2006 RM000 Company 2007 RM000 2006 RM000
Less: Future finance charges Present value of hire purchase and finance lease payables
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21 BORROWINGS (CONTD.)
(e) Hire purchase and finance lease payables (contd.) Group 2007 RM000 Analysed as: Due Due Due Due Due Due within 12 months to 1 to 2 years to 2 to 3 years to 3 to 4 years to 4 to 5 years more than 5 years 1,448 957 167 123 122 170 2,987 4,869 8,182 88 2,832 31 16,002 160 160 116 107 107 170 820 53 114 167 2006 RM000 Company 2007 RM000 2006 RM000
(f )
Fair value disclosure The fair value of non-current borrowings approximates the book values.
Included in: Current liabilities Non-current liabilities 2,502 2,502 3,304 2,192 5,496
In March 2005, an indirect subsidiary of the Group, KMCOB, agreed terms with its two labour unions and signed an agreement on a phased redundancy plan over a four-year period, concluding in the financial year ending 31 December 2008, the total liability of which amounted to approximately USD3,000,000 (RM10,590,000). The Group expects the payments to be phased over a four-year period from financial years 31 December 2005 to 31 December 2008. The discount rate used in the computation of provision for redundancy is 5.6% (2006: 5.6%).
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Group and Company 2007 000 Authorised Ordinary shares of RM0.10 each: At beginning and end of financial year RM000 2006 000 RM000
3,000,000
300,000
3,000,000
300,000
Issued and fully paid Ordinary shares of RM0.10 each: At beginning of financial year Issued during the financial year: exercise of share options At end of financial year
1,005,352
100,535
992,076
99,208
14,353 1,019,705
1,436 101,971
13,276 1,005,352
1,327 100,535
(a)
Increase in share capital During the financial year, the issued and paid-up share capital of the Company was increased from RM100,535,230 comprising 1,005,352,300 ordinary shares of RM0.10 each, to RM101,970,530 comprising 1,019,705,300 ordinary shares of RM0.10 each, by way of the issuance of: (i) (ii) (iii) (iv) (v) (vi) 6,760,000 new ordinary shares of RM0.10 each pursuant to the exercise of options granted under the Employees Share Option Scheme (ESOS) at the option price of RM0.17 per share for cash; 300,000 new ordinary shares of RM0.10 each pursuant to the exercise of options granted under the ESOS at the option price of RM1.11 per share for cash; 1,029,000 new ordinary shares of RM0.10 each pursuant to the exercise of options granted under the ESOS at the option price of RM1.12 per share for cash; 230,000 new ordinary shares of RM0.10 each pursuant to the exercise of options granted under the ESOS at the option price of RM0.94 per share for cash; and 2,617,500 new ordinary shares of RM0.10 each pursuant to the exercise of options granted under the ESOS at the option price of RM0.90 per share for cash. 1,932,500 new ordinary shares of RM0.10 each pursuant to the exercise of options granted under the ESOS at the option price of RM0.84 per share for cash.
(vii) 84,000 new ordinary shares of RM0.10 each pursuant to the exercise of options granted under the ESOS at the option price of RM0.74 per share for cash. (viii) 748,000 new ordinary shares of RM0.10 each pursuant to the exercise of options granted under the ESOS at the option price of RM0.91 per share for cash. (ix) (x) (xi) 550,000 new ordinary shares of RM0.10 each pursuant to the exercise of options granted under the ESOS at the option price of RM1.24 per share for cash. 28,000 new ordinary shares of RM0.10 each pursuant to the exercise of options granted under the ESOS at the option price of RM1.31 per share for cash. 24,000 new ordinary shares of RM0.10 each pursuant to the exercise of options granted under the ESOS at the option price of RM1.49 per share for cash.
(xii) 40,000 new ordinary shares of RM0.10 each pursuant to the exercise of options granted under the ESOS at the option price of RM1.21 per share for cash. (xiii) 10,000 new ordinary shares of RM0.10 each pursuant to the exercise of options granted under the ESOS at the option price of RM1.12 per share for cash.
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(ii)
(iii)
(iv)
(v)
The new ordinary shares issued during the financial year and in the prior financial year ranked pari passu in all respects with the existing shares of the Company. (b) Treasury shares The shareholders of the Company, by an ordinary resolution passed in an Annual General Meeting held on 28 June 2007, renewed their approval for the Company to repurchase its own shares. The Directors of the Company are committed to enhancing the value of the Company to its shareholders and believe that the repurchase plan can be applied in the best interests of the Company and its shareholders. During the financial year, the Company repurchased 10,998,300 (2006: 3,425,900) of its issued and paid-up share capital from the open market on Bursa Malaysia for RM15,329,640 (2006: RM3,364,022). The average price paid for the shares repurchased was approximately RM1.39 per share. The repurchase transactions were financed by internally generated funds. The shares repurchased are being held as Treasury shares as allowed under Section 67A of the Companies Act, 1965. The Company has the right to reissue these shares at a later date. As Treasury shares, the rights attached as to voting, dividends and participation in other distribution are suspended. None of the Treasury shares repurchased has been sold as at 31 December 2007. At the balance sheet date, 14,424,200 (2006: 3,425,900) ordinary shares are held as Treasury shares, and the number of outstanding shares in issue after setting off against Treasury shares is 1,005,281,100 (2006: 1,001,926,400) at a carrying value of RM18,693,662 (2006: RM3,364,022). (c) Employees Share Option Scheme The Company implemented an Employees Share Option Scheme (ESOS) on 28 April 2003 for a period of 10 years. The ESOS is governed by the By-Laws which were approved by the shareholders on 28 March 2003. On 15 June 2004, the Company amended the By-Laws and its Articles of Association (Articles) to align them with the amendments to the Listing Requirements issued by Bursa Malaysia Securities Berhad which became effective on 10 February 2004, and the amendments to Schedule I of the Securities Commission (SC) Act, 1993. With the amendments, the total number of shares under the ESOS was increased from ten percent (10%) to fifteen percent (15%) of the total issued and paid-up share capital of the Company and participation in the ESOS was extended to include Non-Executive Directors.
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Employees Share Option Scheme (contd.) The amendments to the By-Laws and Articles were approved by the shareholders of the Company on 16 June 2004 at the 2nd Annual General Meeting. The salient features of the ESOS are as follows: (i) The total number of shares comprising options exercised, options remaining exercisable and unexercised offers pending acceptance under the ESOS shall not exceed fifteen percent (15%) of the total issued and paid-up share capital of the Company, such that not more than fifty percent (50%) of the shares available under the ESOS are allocated, in aggregate, to the Directors and senior management of the Group; Not more than ten percent (10%) of the shares available under the ESOS is allocated to any individual Director or employee who, either singly or collectively through his/her associates, holds twenty percent (20%) or more in the issued and paid-up share capital of the Company; Options shall lapse if the Director ceases his/her directorship with the Company or employee ceases his/her employment with the Company or its subsidiaries prior to the full exercise of his/her options, except when such cessation occurs by reason as provided by the Companys ESOS By-Laws such as retirement, ill health, injury, physical or mental disability, and subjected always to the discretion and written approval of the Options Committee of the Company; The option price under the ESOS is the volume weighted average market price quoted on Bursa Malaysia for the past five (5) consecutive market days prior to the date of grant, save that a discount of not more than ten percent (10%) may be given at the absolute discretion of the Options Committee for options granted after the listing of the Company. The option price shall not be lower than the par value of the shares of the Company of RM0.10; Options granted under the ESOS carry no dividend or voting rights. Upon exercise of the options, shares issued rank pari passu in all respects with existing ordinary shares of the Company; and The options granted are exercisable upon receipt of notice of entitlement to exercise from the ESOS Secretariat by or before 1 April of each year based on annual entitlement. Acceleration of the annual entitlement is dependent on the Employee Performance Rating achieved in the preceding year.
(ii)
(iii)
(iv)
(v)
(vi)
(d)
Share option reserve The movements in share option reserve are as follows: Group 2007 RM000 At beginning of the financial year Recognised in income statement (Note 28) Company Subsidiary 11,917 5,522 1,109 6,631 (3,005) 435 15,978 2006 RM000 6,028 3,808 3,000 6,808 (637) (282) 11,917 Company 2007 RM000 9,498 2,156 2,156 3,366 (2,156) 12,864 2006 RM000 6,028 3,410 3,410 398 (338) 9,498
Transferred to subsidiaries Transferred to share premium arising from exercise of ESOS Share of reserve in subsidiaries and associates At end of the financial year
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Out of the outstanding options, 33,458,100 units (2006: 26,503,100 units) of options were exercisable. Share options were exercised on a regular basis throughout the financial year, and the weighted average share price for the financial year is RM1.42 (2006: RM1.07). The options outstanding at the financial year end had exercise prices ranging RM0.17 to RM1.51 (2006: RM0.17 to RM1.51) and remaining contractual life of 5 years (2006: 6 years). All options granted under the scheme will expire on 27 April 2013. The weighted average fair value of option granted during the financial year determined using the Trinomial valuation model was RM0.53 per option (31.12.2006: RM0.83). The significant inputs into the model were as follows: 2007 Valuation assumptions: Expected volatility of share prices Expected dividend yield Expected option life Weighted average share price at the date of grant Risk-free interest rate (per annum) 2006
The volatility measured at the standard deviation of continuously compounded share returns is based on statistical analysis of daily share prices over the last 3 years.
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Group and Company 2007 RM000 At 1 January Premium on issuance of ordinary shares: pursuant to exercise of share options Transfer from Share Option Reserve (Note 23(d)) At 31 December 233,823 6,950 2,156 242,929 2006 RM000 231,748 1,737 338 233,823
3,982
4,162
353
1,950
The amounts recognised in the balance sheet are determined as follows: Group 2007 RM000 Present value of unfunded obligations Unrecognised actuarial losses Liability in balance sheet 3,826 156 3,982 2006 RM000 4,162 4,162
The amounts recognised in the income statement are as follows: Group 2007 RM000 Current service cost Interest cost Gain on curtailment Total included in staff costs 1,512 235 (1,394) 353 2006 RM000 1,844 106 1,950
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The principal actuarial assumptions used were as follows: Group 2007 Discount rate Future salary increases Normal retirement age 5% 10% 5% 8% 55 60 2006 5% 10.5% 5% 9% 55 60
Assumptions regarding future mortality experience are based on advice from published statistics and experience in each territory.
26 DEFERRED TAX
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts, determined after appropriate offsetting, are shown in the balance sheet: Group 2007 RM000 Deferred tax assets Deferred tax liabilities: subject to income tax (41,521) 8,690 (32,831) 2006 Restated RM000 (16,729) 8,149 (8,580) Company 2007 RM000 161 161 2006 RM000 161 161
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Group 2007 RM000 At beginning of financial year (Credited)/charged to income statement (Note 30) property, plant and equipment tax losses, capital allowances and tax incentives provisions for other liabilities and charges others (8,580) 2,382 (24,026) (391) (6,251) (28,286) 651 2,201 1,183 (32,831) 2006 Restated RM000 4,816 85 (11,096) (968) (1,148) (13,127) 689 (933) (25) (8,580)
Reclassified as held for sale (Note 34) Acquisition of subsidiaries (Note 37(c)) Others Currency translation differences At end of financial year
Deferred tax assets Tax losses, capital allowances and tax incentives Provision for other liabilities and charges Payables Others Offsetting
161 161
161 161
The amount of deductible temporary differences, unabsorbed tax losses and tax incentives (which is subject to agreement by the tax authorities) for which no deferred tax asset is recognised in the balance sheet are as follows: Group 2007 RM000 Deductible temporary differences Unabsorbed tax losses and tax incentives 20,684 181,521 2006 RM000 34,261 241,177 Company 2007 RM000 2006 RM000
Deferred tax assets have not been recognised on the deductible temporary differences, unabsorbed tax losses and tax incentives as it is uncertain that there will be future taxable profits to utilise the deferred tax assets.
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27 REVENUE
Group 2007 RM000 Management fee Dividend income Sales of goods Rendering of services Rental/chartering income Commission income Contract income 3,200 1,134,600 345,610 405,199 23,299 43,622 1,955,530 2006 RM000 2,000 922,462 296,313 334,099 22,621 1,577,495 Company 2007 RM000 15,602 17,516 33,118 2006 RM000 18,728 34,188 52,916
582 100
260 34 374 7
130 80
60 32 32
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Group 2007 RM000 Depreciation of property, plant and equipment (Note 5) Depreciation of investment properties (Note 7) Gain on disposal of property, plant and equipment (Gain)/loss on foreign exchange realised unrealised Gain on dilution of interest in/disposal of subsidiary companies Gross dividend income from subsidiaries Gross dividend income from associates Interest income Lease rental plant and machinery property Property, plant and equipment written off (Note 5) Rental of land and premises Rental of silo/equipment Rental income Research and development expenses Provision for profit guarantee current year over provision in prior years 65,842 145 (1,353) (3,980) (8,576) (140,046) (6,032) 87,573 20,872 3,478 1,189 (580) 2006 RM000 53,839 145 (1,347) (3,849) (16,285) (4,009) 42,250 5,506 2 4,689 3,062 (2,497) 276
Company 2007 RM000 1,101 (5,569) (4,348) (218,039) (5,777) (11,739) (1,637) 831 213 22,976 (205) 2006 RM000 981 193 (5,293) (159,198) (28,004) (6,184) (963) 8,500
Employee benefit cost (including Executive Directors): Wages, salaries and bonus Contributions to defined contribution plan Increased in liability for defined benefit plans (Note 25) Termination benefits Provision for redundancy (Note 22) Share option expenses (Note 23(d)) current year (over)/under provision in prior year Employment costs Other employee benefits 320,520 7,118 353 1,332 855 6,631 27,642 54,296 418,747 244,252 3,220 1,950 8,022 1,939 9,929 (3,121) 7,697 46,347 320,235 9,508 1,240 2,156 337 1,842 15,083 5,347 858 3,134 276 1,190 10,805
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29 FINANCE COST
Group 2007 RM000 Finance cost Interest expense on borrowings and leases Amortisation/write-off of ancillary costs incurred in connection with the arrangement of bank borrowings Effect of interest on CCIRS Effect of hedging fair value hedge 2006 Restated RM000 Company 2007 RM000 2006 RM000
Currency exchange loss** Fair value gain on CCIRS designated as fair value hedges Fair value adjustment of bank borrowings attributable to interest rate risk and foreign currency risk
** Included in currency exchange loss is an amount of RM23,451,880 (USD6,778,000) (2006: Nil) of exchange gains transferred from hedging reserve which is offset by a corresponding exchange loss of RM23,451,880 (USD6,778,000) (2006: Nil) arising from revaluation of hedged borrowings.
30 TAXATION
Group 2007 RM000 Current tax Malaysian income tax Foreign tax 2006 Restated RM000 Company 2007 RM000 2006 RM000
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Group 2007 RM000 Deferred tax Reversal and origination of temporary differences Change in income tax rate Benefit from previously unrecognised tax losses and incentives Reversal of previously recognised deferred tax assets Over accrual in prior financial years 2006 Restated RM000
(3,517)
7,505
The reconciliation between taxation and profit before taxation is as follows: Group 2007 % Numerical reconciliation between the average effective tax rate and the Malaysian tax rate: Applicable tax rate Tax effects of: expenses not deductible for tax purposes utilisation of previously unrecognised tax losses, capital allowance and tax incentives income not subject to tax different tax rates in other countries current financial years tax losses not recognised withholding tax based on turnover deferred tax assets not recognised in respect of current years tax losses and unabsorbed capital allowances under/(over) accrual in respect of previous financial years others share of results of associates Average effective tax rate 27 8 (15) (16) (4) 3 1 1 (2) (2) 1 28 12 (16) (3) (6) 3 4 (4) (7) 11 27 8 (34) (3) (2) 28 9 (1) (31) 5 2006 % Company 2007 % 2006 %
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30 TAXATION (CONTD.)
Under the single-tier tax system which will come into effect from the year of assessment 2008, companies are not required to have tax credits under Section 108 of the Income Tax Act 1967 for dividend payment purposes. Dividends paid under this system are tax exempt in the hands of shareholders. Companies with Section 108 credits as at 31 December 2007 may continue to pay franked dividends until the Section 108 credits are exhausted or 31 December 2013, whichever is earlier, unless they opt to disregard the Section 108 credits to pay single-tier dividends under the special transitional provisions of the Finance Act 2007. As at 31 December 2007, subject to agreement with the tax authorities, the Company has sufficient Section 108 tax credits and tax exempt income to pay in full all the retained earnings of the Company as franked and exempt dividends.
31 DIRECTORS REMUNERATION
The Directors of the Company in office during the financial year are as follows: Non-executive Directors Tan Sri Datuk Asmat bin Kamaludin Tan Sri Nik Mohamed bin Nik Yaacob Datuk Hamzah bin Bakar Datuk Haron bin Siraj Dato Mohamed Azman bin Yahya Dato Mohammed Azlan bin Hashim Foong Choong Hong Sreesanthan A/L Eliathamby Executive Director Shah Hakim @ Shahzanim bin Zain The aggregate amount of emoluments receivable by Directors of the Company during the financial year is as follows: Group 2007 RM000 Non-executive Directors: fees other emoluments 2006 RM000 Company 2007 RM000 2006 RM000
Executive Directors: salaries and bonus defined contribution plan share options granted under ESOS estimated monetary value of benefits-in-kind
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Basic earnings per share Basic earnings per share of the Group is calculated by dividing the profit attributable to ordinary equity holders of the Company for the financial year by the weighted average number of ordinary shares in issue during the financial year, excluding ordinary shares purchased by the Company and held as Treasury shares (Note 23(b)). Group 2007 2006 Restated 92,414
(RM000)
257,129
(000)
1,004,806
995,025
(Sen)
25.59
9.29
(b)
Diluted earnings per shares For the diluted earnings per share calculation, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares from share options granted to employees. For share options granted to employees, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average share price of the Companys shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. The difference is added to the denominator as an issue of ordinary shares for no consideration. This calculation serves to determine the bonus element in the ordinary shares outstanding for the purpose of computing the dilution. No adjustment is made to the profit for the period for the share options calculation. Group 2007 2006 Restated 92,414
(RM000)
257,129
Weighted average number of ordinary shares in issue Adjustments for: share options Weighted average number of ordinary shares for diluted earnings per share
(000)
1,004,806
995,025
(000) (000)
32,285 1,037,091
22,482 1,017,507
(Sen)
24.79
9.08
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33 DIVIDENDS
Group and Company 2007 RM000 Interim dividend of 7.5% less 27% tax paid (2006: Nil) per ordinary share of 10 sen each Proposed final dividend of 12.5% less 26% tax (2006: 15% less 27% tax) per ordinary share of 10 sen each Additional final dividends paid in respect of previous financial year due to issue of shares pursuant to the Companys Employees Share Option Scheme 5,506 2006 RM000
9,299 9,299
14,805
Dividend per share recognised as distribution to ordinary equity holders of the Company
16,542
4,328
The Directors recommend a final gross dividend of 1.25 sen per share less income tax of 26% amounting to RM9,298,850 in respect of the financial year ended 31 December 2007 subject to the approval of the Companys shareholders at the forthcoming Annual General Meeting. The financial statements did not reflect this final dividend which will be accrued as a liability upon approval by shareholders.
34 NON-CURRENT ASSETS HELD FOR SALE AND LIABILITIES ASSOCIATED WITH THE NON-CURRENT ASSETS HELD FOR SALE
On 20 March 2007, a subsidiary of the Company, Scomi Engineering Bhd, entered into a share sale agreement to dispose of its subsidiary company, Scomi Transportation Solutions Sdn Bhd (SCOTS), which in turn holds a wholly-owned subsidiary, Asian Rent A-Car Sdn Bhd (collectively known as the SCOTS Group). SCOTS Group is engaged in the business of the provision of motor vehicles for Hire and Drive and fleet management which are non-core businesses to the Energy & Logistics Engineering Division. As at 31 December 2007, the major classes of assets and liabilities of SCOTS Group are classified as held for sale as follows:RM000 Property, plant and equipment (Note 5) Intangible assets (Note 6) Deferred tax assets (Note 26) Receivables, deposits and prepayments Short-term deposits, cash and bank balances Tax recoverable Assets of disposal group classified as held for sale Trade and other payables Taxation Bank overdraft Hire purchase payables Liabilities directly associated with the assets classified as held for sale* Net assets attributable to disposal group classified as held for sale 10,706 2,007 651 1,039 800 620 15,823 665 312 564 8,982 10,523 5,300
The liabilities under the disposal group do not include inter-company balances within Scomi group of RM6,028,000 as the amount has been eliminated at group level upon consolidation.
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Analysed as follows: property plant and equipment acquisition of additional shares in subsidiaries others research and development 116,077 518 46,000 162,595 115,959 25,780 12,537 154,276 840 840 1,571 1,571
(b)
Lease commitments: Instalments payable not later than 1 year later than 1 year but not later than 5 years later 5 years
(c)
Contingent liabilities: Corporate guarantees given to banks for banking facilities granted to subsidiaries Guarantees given to third party in respect of credit arrangements to a subsidiary company Guarantees given relating to borrowings of associate Share of contingent liabilities of an associate
56 4,698 4,754
246,097 246,097
456,016 456,016
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3,200
2,000
3,200 11,739
2,000 6,184
66 375
169 398
(i)
Symphony Share Registers Sdn Bhd (Symphony) and Lintas Travel & Tours Sdn Bhd (Lintas) are companies connected to certain Directors; CH Offshore Pte Ltd (CHO) is a company with common Directors with the Company; and TL Offshore Sdn Bhd (TLO) and Sarku Engineering Sdn Bhd (Sarku) are subsidiaries of a corporate shareholder of a subsidiary, Scomi OilServe Sdn Bhd.
(ii) (iii)
The details on interest income charged on advances provided to subsidiaries are disclosed in Note 16. Information regarding outstanding balances arising from related party transactions as at 31 December 2007 are disclosed in Note 16 and Note 20.
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Included in the total key management personnel are: Group 2007 RM000 Directors remuneration (Note 31) 4,128 2006 RM000 1,703 Company 2007 RM000 2,229 2006 RM000 1,507
Executive Directors of the Group and the Company and other members of key management have been granted the following number of options under the Employee Share Options Scheme (ESOS): Group and Company 2007 000 At beginning of financial year Granted Forfeited Exercised At end of financial year 20,637 3,560 (940) 23,257 2006 000 22,977 (1,880) (460) 20,637
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The vendor has provided a profit guarantee in relation to the consolidated profit after tax of the subsidiary company acquired for the 12 months period ended 30 April 2007. SEB is in the process of finalising this profit guarantee arrangement with the vendor. However, the financial effects of the profit guarantee are not expected to be material to the financial statements of the Group. (ii) During the financial year, Scomi Chemicals Sdn Bhd, an indirect subsidiary of the Company, acquired an additional 6.67% equity interest in Anticor Chimie S.A., pursuant to a share sale and variation agreements, for a total consideration of 100,000. With the additional acquisition, Scomi Chemicals Sdn Bhd now holds 86.67% equity interest in Anticor Chimie S.A. The effects of the acquisitions as stated in (i) and (ii) above are summarised below: RM000 Purchase consideration * Net assets acquired from minority interest Goodwill arising on additional interest acquired 31,508 13,841 17,667
* (iii)
On 27 June 2007, the Company completed the partial divestment of 19.9% in the respective classes of the share capital of Scomi Oilfield Limited (SOL), a direct subsidiary of the Company, to Standard Chartered Private Equity Limited for a cash consideration of USD99.50 million. The details of the divestment are set out in Note 39(a). The effects of the divestment is summarised below: RM000 Net disposal proceeds * Net assets acquired by minority interest Goodwill in respect of the dilution in interest 308,990 92,683 76,261 168,944 Gain on divestment 140,046
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(iii)
(iv)
Financial year ended 31 December 2006 (c) Significant acquisition of subsidiaries (i) On 10 July 2006, SEB completed the acquisition of 13,260,000 ordinary shares of RM1.00 each in Scomi Transportation Systems Sdn Bhd (STS) (formerly known as MTrans Transportation Systems Sdn Bhd), representing 51% of the issued and paid-up share capital of STS for a purchase consideration of RM30 million. STS has two wholly-owned subsidiaries, Scomi Rail Berhad (formerly known as MTrans Technology Berhad) and Scomi Coach Sdn Bhd (formerly known as MTrans Bus Sdn Bhd). (ii) On 31 August 2006, the Company, via its wholly-owned subsidiary, Scomi Sosma Sdn Bhd, acquired 4,800 ordinary shares of Euro 15 per ordinary shares in Anticor Chimie S.A. (Anticor), for a total consideration of Euro 600,000 or RM3,250,134, representing an 80% equity interest in Anticor. Anticor is a company incorporated in France. On 28 April 2006, a wholly-owned subsidiary of the Company, Scomi Oiltools Sdn Bhd, acquired an additional 25% equity interest in Scomi Sosma Sdn Bhd for a purchase consideration of RM2,000,000, thus making Scomi Sosma Sdn Bhd a whollyowned subsidiary of the Company. On 30 November 2006, the Company acquired the remaining 7.55% shareholding in KMCOB from Derrick Corporation pursuant to a put and call agreement for a purchase consideration of USD10,034,125 (RM36,504,000), thus making KMCOB a wholly-owned subsidiary of the Company.
(iii)
(iv)
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Details of cash flows arising from the acquisition of subsidiaries are as follows: Purchase consideration settled in cash Less: Cash and cash equivalents of subsidiaries acquired Cash outflow of the Group on acquisition 72,476 (784) 71,692
The acquired business contributed revenue of RM53,266,000 and profit of RM1,944,000 to the Group for the period from date of acquisition to 31 December 2006. Had the acquisition taken effect on 1 January 2006, the revenue and profit of the Group would have been RM1,626,220,000 and RM85,639,000 respectively. These amounts have been calculated using the Groups accounting policies and by adjusting the results of the subsidiaries to reflect the additional amortisation that would have been charged assuming the fair value adjustment to intangible assets were applied from 1 January 2006, together with the consequential tax effects.
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The Group is organised on a worldwide basis into four main business segments: (i) (ii) Investment holding Oilfield services (iii) Energy and logistics engineering provision of management services. provision of drilling fluids and mud engineering services to the upstream oil and gas industry; provision of drilling waste management services and equipment to the upstream oil and gas industry; supply of industrial chemicals to the downstream oil and gas and other general industries; supply of production chemicals to the upstream oil and gas industry; provision of machine shop services; and provision of oilfield equipment, supplies and services. design and manufacture of monorails and urban transportation solutions including buses and coaches; manufacture and fabrication of a wide range of quality road transport hardware, catering to specialised requirements and exigencies that can be broadly categorised to road trailers and tankers, truck-mounted equipment and airport ground support equipment; provision of machine shop services; and hire of vehicles through transient rental business as well as long term leasing of corporate fleet. provision of marine vessel transportation services and leasing of marine vessels. provision of production chemicals to the upstream oil and gas industry for enhancing performance and improving efficiency; industrial chemicals to the oil and gas and general industry; and the gas business which is the carbon dioxide separation technology for the oil and gas industry.
(iv) (v)
Inter-segment revenue comprises management services, rental of motor vehicles and manufacture of road transport hardware. (a) Primary reporting format business segments Energy and Oilfield engineering services logistics RM000 RM000 2007 Revenue External revenue Inter-segment revenue Total segment revenue
Elimination RM000
Group RM000
1,444,522 1,444,522
368,802 368,802
59,130 59,130
79,876 79,876
(29,504) (29,504)
1,955,530 1,955,530
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Elimination RM000
Group RM000
157,503 370
50,723
3,700 23,200
2,493
143,066
Assets Segment assets Investments in associates Investments in jointly controlled entities Unallocated corporate assets Consolidated total assets
1,524,543 2,373
725,903
48,620
72,695 19
93,809 354,673
(217,269)
1,095,975
354,006
35,812
69,067
148,107
(259,134)
31,590 10,481 1
227 1,297
160 180 66
1,604 1,101
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Primary reporting format business segments (contd.) Energy and Oilfield engineering services logistics RM000 2006 Revenue External revenue Inter-segment revenue Total revenue RM000
Elimination RM000
323,940 323,940
48,612 48,612
44,282 44,282
(56,131) (56,131)
1,577,495 1,577,495
Results Segment results Finance costs (net) Unallocated costs Share of results of associates Share of results of jointly controlled entities Profit before taxation Taxation Profit for the financial year
52,549
4,480 29,492
825
Assets Segment assets Investments in associates Investments in jointly controlled entities Unallocated corporate assets Consolidated total assets
1,430,606 2,153
713,785
46,803
15,580 19
126,870 365,665
(292,989)
1,027,353
356,659
36,238
14,646
65,709
(304,627)
52,069 8,315
80 1,364
80 145 21
1,227 1,001
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(ii)
(iii)
Asia
Europe RM000 2007 Total revenue from external customers Segment assets Capital expenditure
Asia RM000
Americas RM000
Others RM000
Group RM000
2006 Total revenue from external customers Segment assets Capital expenditure
384 1,677
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(d)
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The Group is in compliance with all externally imposed capital requirements for the financial year ended 31 December 2007.
137
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Based on the above uncertainties, the Group and Company have not recognised the full gain representing the 4% interest in SOL. If the above conditions are met, there will be a further gain of RM28.4 million and RM15.3 million to be recognised at the Group and Company respectively. However, if the above conditions are not met, there will be a potential 4% dilution of interest, resulting in the recognition of additional minority interests of approximately RM14.5 million for the financial year ending 31 December 2008. Critical judgement in applying accounting policies In determining and applying accounting policies, judgement is often required in respect of items where the choice of specific policy could materially affect the reported results and financial position of the Group. However, the Directors are of the opinion that there are no accounting policies that require subjective judgement in the current financial year.
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The effects of the above standards on the Group and Companys financial statements for the current and prior financial years are set out in Note 43(d). (c) FRS 112 Income Taxes The Group has early adopted FRS 112 Income Taxes which is only effective for accounting periods beginning on or after 1 July 2007 as allowed by the new standard. FRS 112 now allows for the recognition of deferred tax assets on reinvestment allowances and investment tax allowances. In line with the requirements of FRS 112, the Group has assessed available investment tax incentives and recognised deferred tax assets where the criterions of recognition are met. Where the impact has retrospective effect on prior years, the comparatives have accordingly been restated. The impact of the adjustments that have been made in accordance with the new provisions of FRS 112 to the Groups financial statements is set out below: Group 2007 RM000 Increase in deferred tax assets Increase in retained earnings Decrease in taxation Increase in profit for the year 14,838 14,838 6,969 6,969
The effects of the above standards on the Group and Companys financial statements for the prior financial years are set out in Note 43(d).
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As restated RM000
7,869 7,869
(4,332) 4,332
330,950
(2,619) 2,619
328,331 2,619
(e)
Restatement of other comparatives The following comparatives have been restated to conform with the current years presentation: As previously stated Reclassification RM000 RM000 Group Other operating income Finance cost Company Other operating income Finance cost
As restated RM000
24,564 (74,198)
4,009 (4,009)
28,573 (78,207)
165,262 (32,140)
963 (963)
166,225 (33,103)
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Subscribed and solemnly declared by the abovenamed Loong Chun Nee at Kuala Lumpur in Malaysia on 30 April 2008, before me.
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and (b) the accounting and other records and the registers required by the Act to be kept by the Company and by the subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act.
The names of the subsidiaries of which we have not acted as auditors are indicated in Note 9 to the financial statements. We have considered the financial statements of these subsidiaries and the auditors reports thereon. We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Companys financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes. The auditors reports on the financial statements of the subsidiaries were not subject to any qualification and did not include any comment made under subsection 3 of section 174 of the Act.