annual f report 2010 borsig membrane … batu besar, kecamatan nongsa, batam 29467 indonesia t +62...

World Class Process Equipment Manufacturer and Turnkey Solutions Provider

KNM Group Berhad (521348-H)

ANNUAL REPORT 2010

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KNM Process Systems Sdn Bhd15, Jalan Dagang SB 4/1, Taman Sungai Besi Indah43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8943 4781 | E [email protected]

KPN Gas Technology Sdn Bhd27, Jalan Dagang SB 4/1, Taman Sungai Besi Indah43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8942 5418 | E [email protected]

BORSIG Industrial Services Sdn Bhd

KNM Renewable Energy Sdn Bhd

Unit A-26-9, Level 26, Tower A, Menara UOA BangsarNo. 5 Jalan Bangsar Utama 1, 59000 Kuala Lumpur, MalaysiaT +603 2287 3066 | F +603 2287 5066 | E [email protected]

BORSIG Boiler Systems Sdn Bhd15, Jalan Dagang SB 4/1, Taman Sungai Besi Indah43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8943 4781 | E [email protected]

BORSIG Process Heat Exchanger GmbHEgellsstrasse 21, D-13507 Berlin, GermanyT +49 0 30 4301 01 | F +49 0 30 4301 2447 | E [email protected]

BORSIG ZM Compression GmbHSeiferitzer Allee 26, D-08393 Meerane, GermanyT +49 0 3764 5390 0 | F +49 0 3764 5390 5090 | E [email protected]

BORSIG Boiler Systems GmbHSchellerdamm 16, D-21079 Hamburg, GermanyT +49 0 40 303726 0 | F +49 0 40 303726 4050 | E [email protected]

BORSIG Membrane Technology GmbHBottroper Strasse 279, D-45964 Gladbeck, GermanyT +49 0 2043 4006 01 | F +49 0 2043 4006 6299 | E [email protected]

BORSIG Service GmbHEgellsstrasse 21, D-13507 Berlin, GermanyT +49 0 30 4301 01 | F +49 0 30 4301 2771 | E [email protected]

FBM Hudson Italiana SpAVia Valtrighe 5 - 24030 Terno d’Isola (BG), Italy T +39 035 494 1111 | F +39 035 494 1341 | E [email protected]

FBM Icoss SrlVia Valtrighe 5 - 24030 Terno d’Isola (BG), Italy T +39 035 494 1111 | F +39 035 494 1341 | E [email protected]

FBM-KNM FZCOPO Box 17101, Jebel Ali Free Zone, Dubai, United Arab Emirates(Plot 47-R-1, Jebel Ali Free Zone)T +97 1 4 883 5681 | F +97 1 4 883 5860 | E [email protected]

15, Jalan Dagang SB 4/1, Taman Sungai Besi Indah, 43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8943 4781 | E [email protected] | www.knm-group.com

KNM GROUP BERHAD (521348-H)

KNM Global Contacts:

Verwater KNM Sdn Bhd 15, Jalan Dagang SB 4/1, Taman Sungai Besi Indah43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8943 4781 | E [email protected]

15, Jalan Dagang SB 4/1, Taman Sungai Besi Indah43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8943 4781 | E [email protected]

KNM Special Process Equipment (Changshu) Co LtdNo.46 Xinggang Road, Changshu Economic Development Zone Jiangsu Province, 215513 People’s Republic of China T +86 512 5229 1888 | F +86 512 5229 1878 | E [email protected]

KNM Engineering Services Pvt LtdNo. 6, 3rd Floor, Alexandria Road, Cantonment, Tiruchirappalli - 620 001

Box 420, 6204-46 Ave, Tofield, AB TOB 4J0, Canada

Tamil Nadu, IndiaT +91 431 241 7054 | F +91 431 402 3653 | E [email protected]

KNM Process Equipment Inc

T +1 780 662 3181 | F +1 780 662 3184 | E [email protected]

KNM Saudi Ltd PO Box 76089, Al-Khobar 31952, Kingdom of Saudi ArabiaT +966 5 4882 7130 | F +966 3 887 5321 | E [email protected]

KPS Technology & Engineering LLC8500 W 110th Street, Suite 400, Overland Park, Kansas 66210 USAT +1 913 433 2240 | F +1 913 433 2242 | E [email protected]

W.E. Smith Engineering Pty LtdHamilton Drive, Boambee via Coffs Harbour, NSW 2450, AustraliaT +61 2 6650 8888 | F +61 2 6658 3499 | E [email protected]

HEA Australia Pty Ltd17, Casella Place, Kewdale 6105, WA AustraliaT +61 8 9352 2333 | F +61 8 9353 2477 | E [email protected]

PT Heat Exchangers IndonesiaKawasan Industri Terpadu Kabil (KITK), Jl. Hang Kesturi l Kav. A21Kelurahan Batu Besar, Kecamatan Nongsa, Batam 29467 IndonesiaT +62 778 711 610 | F +62 778 711 620 | E [email protected]

KNM Brasil GroupAv. Presidente Castelo Branco, 1577, Carapina Grande CEP 29160-060 Serra, Espirito Santo, BrazilT +55 27 2104 8444 | F +55 27 3228 3832 | E [email protected]

PT KPE IndustriesKawasan Industri Terpadu Kabil (KITK), Jl. Hang Kesturi l Kav. A21 Kelurahan Batu Besar, Kecamatan Nongsa, Batam 29467 IndonesiaT +62 778 711 610 | F +62 778 711 620 | E [email protected]

KNM Projects (Thailand) Co., Ltd825, Phairojkijja Building, 6th Floor Unit B Bangna-Trad Road, Khwaeng Bangna, Khetr Bangna, Bangkok 10260, ThailandT +662 361 4758 / 4759 | F +662 361 4757 | E [email protected]

KNM Project Services LimitedSecond Floor, West Wing, Peterscourt, City RoadPeterborough PE1 2SP, United KingdomT +603 8946 3000 | F +603 8943 4781 | E [email protected]

KNM Petrosab Engineering Sdn BhdNo. KKTS/P1/E/30/5, Block E, Lot 30, 5th Floor KK Times Square, 88100 Kota Kinabalu, Sabah, MalaysiaT +6088 485 358 / 359 | F +6088 485 360 | E [email protected]

KNM Grinaker-LTA (Proprietary) LimitedSuite 1919, 19th Floor, ABSA Centre, 2 Riebeek StreetCape Town, 8001, South AfricaT +021 425 4711 | F +021 425 4718 | E [email protected]


KNM Group Berhad (Co. No. : 521348-H)

15 Jalan Dagang SB 4/1, Taman Sungai Besi Indah43300 Seri Kembangan, Selangor Darul Ehsan, Malaysia.

IITel No. : +603 8946 3000 Fax No. : +603 8943 4781

Email : [email protected] Website : www.knm-group.com

2 Corporate Information

3 Corporate Structure

4 KNM at a Glance

5 5-Year Group Financial Highlights

6 Chairman’s Message

9 Profile of Directors

12 Corporate Governance Statement

25 Audit Committee Report

30 Statement on Internal Control

31 Analysis of Shareholdings

34 List of Top 10 Major Properties

36 Financial Statements

119 Notice of Annual General Meeting

Form of Proxy

VisionTo be a top 5 process equipment manufacturer and turnkey systems provider for the oil, gas, petrochemicals, minerals, power, environmental, renewable energy and biotechnology industries

Mission• Tobeaonestopcentreforworldclassprocessequipmentmanufacturerand

systems provider with state-of-the-art technology• Toachievecustomersatisfactionthroughcontinuousimprovementonquality,

safety, environment and timely delivery• Toenhancestakeholders’valuewithcorporatesocialresponsibility• Toenhanceorganisationalinfrastructureandhumancapitaldevelopment

Contents

Corporate Information

Board Of Directors

Ir Lee Swee EngExecutiveChairman/ChiefExecutiveOfficer

Lim Yu TeySenior Independent Non-Executive Director

Dato’ Ab Halim bin Mohyiddin, DPMSIndependent Non-Executive Director

Datuk Karownakaran @ Karunakaran a/l RamasamyIndependent Non-Executive Director

Gan Siew LiatExecutive Director

Chew Fook SinExecutive Director

Ng Boon SuExecutive Director

Board Committees

AuditCommittee

NominationCommittee

RemunerationCommittee

Chairman Dato’ Ab Halimbin Mohyiddin

Lim Yu Tey Dato’ Ab Halimbin Mohyiddin

Member Datuk Karownakaran @Karunakaran a/l Ramasamy

Dato’ Ab Halimbin Mohyiddin

Lim Yu Tey

Member Lim Yu Tey Ir Lee Swee Eng Ir Lee Swee Eng

Member Datuk Karownakaran @Karunakaran a/l Ramasamy

Company Secretaries

Lau Bee GeeMAICSA 0817743

Chia Kwok WhyMAICSA 7005833

Share Registrar

Symphony Share Registrars Sdn BhdLevel 6, Symphony HousePusat Dagangan Dana 1Jalan PJU 1A/4647301 Petaling JayaSelangor Darul Ehsan, MalaysiaTel No. : 603-7841 8000Fax No. : 603-7841 8008

Registered Office

15 Jalan Dagang SB 4/1Taman Sungai Besi Indah43300 Seri KembanganSelangor Darul Ehsan, MalaysiaTel No. : 603-8946 3000Fax No. : 603-8943 4781Email address : [email protected] : www.knm-group.com

Auditors

KPMGChartered AccountantsLevel 10, KPMG Tower8 First Avenue, Bandar Utama47800 Petaling JayaSelangor Darul Ehsan, MalaysiaTel No. : 603-7721 3388Fax No. : 603-7721 3399

Date of Incorporation

Incorporated on 22 July 2000 as a private company limited by shares. Converted to a public company limited by shares on 12 September 2000.

Stock Exchange Listing

Main Market of Bursa MalaysiaSecurities Berhad (Listed since 11 August 2003)Stock name : KNMStock code : 7164

KNM GROUP BERHAD I Annual Report 20102

Corporate Structureas at 18 May 2011

KNM GROUP BERHAD I Annual Report 2010 3

KNM at a Glance


5-Year GroupFinancial Highlights

2010 2009 2008 2007 2006

Revenue (RM’000) 1,559,103 1,839,575 2,528,750 1,230,116 908,987

Profit Before Tax (RM’000) 46,510 138,114 453,721 215,358 147,545

Profit After Tax (RM’000) 122,473 257,847 336,232 186,476 138,189

Shareholders’ Equity (RM’000) 1,718,441 2,008,686 1,813,893 555,470 390,330

Basic Earnings Per Share (sen) 12.02 26.29# 8.80# 5.12*# 3.62*#

Net Assets Per Share (RM) 1.72 0.50 0.46 0.53 1.51

Return on Equity (%) 7 13 19 34 34

REVENUE (RM’000)

908,

987

2006

1,23

0,11

6

2007

2,52

8,75

0

2008

1,83

9,57

5

2009

1,55

9,10

3

2010

EARNINGS PER SHARE*# (sen)

3.62

2006

5.12

2007

8.80

2008

26.2

9

2009

12.0

2

2010

PROFIT AFTER TAX (RM’000)

138,

189

2006

186,

476

2007

336,

232

2008

257,

847

2009

122,

473

2010

SHAREHOLDERS’ EQUITY (RM’000)

390,

330

2006

555,

470

2007

1,81

3,89

3

2008

2,00

8,68

6

2009

1,71

8,44

1

2010

Notes:* ThecomparativefiguresforBasicEarningsPerShare(“EPS”)forfinancialyears2006and2007havebeenrestatedtotake

intoaccounttheissuanceofbonussharesinfinancialyear2008onthebasisof2for1.# Thecomparativefigure forEPSfor thefinancialyear2009hasbeenrestatedafter taking intoconsideration theshare

consolidationexerciseinfinancialyear2010involvingtheconsolidationofevery4ordinarysharesofRM0.25eachinKNMGroupBerhadinto1ordinaryshareofRM1.00each(“ShareConsolidation).NoadjustmentsweremadetothecomparativefiguresforEPSforfinancialyears2006,2007and2008asaresultoftheShareConsolidation.


Chairman’s Message

OnbehalfoftheBoardofDirectors,itgivesmegreatpleasureandprivilegetoreportontheactivitiesundertakenbytheCompanyandtheGroupin2010.

OVERVIEW

Amidst the global financial crisis, Year 2010 has been a demanding and challenging year for KNM Group Berhad (“KNM” or “the Company”) and its group of companies (“the Group” or “KNM Group”) whereby KNM Group had been actively consolidating and strengthening its resources, and pursuing cost control measures in the wake of the global economic crisis.

FINANCIAL HIGHLIGHTS

The Group’s Profit After Tax for the financial year ended 31 December 2010 (“FY2010”) was RM122.47 million, as compared to RM257.85 million achieved in the financial year ended 2009 (“FY2009”). The Group’s revenue for FY2010 recorded a decline by about 15% to RM1.56 billion against RM1.84 billion registered in FY2009.

Compared to the previous year, the lower performance registered for FY2010 was mainly due to lower job orders and lower contributions from increased competition.

Revenue from KNM’s foreign subsidiaries remained the biggest contributor accounting for more than 84% of the Group’s revenue for FY2010 whilst 95% are revenue garnered from KNM’s export market.

The Company’s basic earnings per share settled at 12.02 sen from 26.29 sen in FY2009; whereas the return on shareholders’ equity for FY2010 was 7.1% compared to 12.8% in FY2009. Net assets per share was RM1.72 as compared to RM2.01 for FY2009.

The Company strives and in keeping with its commitment to deliver a reliable income stream to reward its shareholders for their investments in the Company, the Directors had declared an interim tax exempt dividend of 3 sen per ordinary share of RM1.00 each for FY2010 which was paid on 19 April 2011.

BUSINESS DIRECTION

The Group continues to enhance its presence and corporate visibility by expanding to newer markets particularly Asia, Eastern Europe, Oceania and the Middle East.

Besides consolidating and rationalising its resources for year 2010, KNM had also undertaken growth initiatives by building strategic alliances and teaming up with its joint venture partners to help widen and strengthen the Group’s sales and marketing network, regional presence and global reach for process equipment and its related services. The Group is mindful of strengthening its geographical reach and market share, capitalising on its brand name, harnessing and tapping on its pool of experienced human capital as well as creating value added technical improvements at all times.

Whilst KNM continually focuses on its core competencies to package and provide engineering solutions, technological and product quality improvements, other important areas such as health and safety issues, timely deliveries, cost efficiencies and efficient resource allocation are never ignored.

Faced with the changing dynamics of world energy supply and spiralling prices caused by rising energy demands, it is undoubted that this change in conventional energy landscape will drive more investments and capital expenditure to be made in alternative green, clean and sustainable energy solutions like hydro, solar, wind and biofuel energy. In this regard, the Group has chosen to immerse and widen its business operations, product development and sales and marketing focus by providing total solutions for the biofuel, renewable energy and waste to energy projects like the Impress Ethanol Co. Ltd’s cassava based bioethanol project plant in Chachaengsao, Thailand and Peterborough Renewable Energy Limited’s biomass and waste recycling centre project known as “EnergyPark Peterborough” in Peterborough, United Kingdom as announced on 7 January 2010 and 21 December 2010 respectively.


Chairman’s Message(Cont’d)

BUSINESS STRATEGIES

The growth of the Group has been constantly fuelled by undertaking aggressive business approaches, policies and strategies which are aligned to meet the dynamic operating environment. The Group adopts a 3-pronged strategy aimed at new industry sectors, global reach and market share enhancement whereby the Group progressively expands its portfolio to seize growth opportunities and move up the value chain.

In line with the above pursuit, KNM Group had completed the following new ventures in 2010 via joint ventures (“JV”) and strategic alliances with its JV partners such as:

(1) Litwin SA, a company incorporated in France and a renowned turnkey contractor for power, oil, gas, petrochemical and chemical projects worldwide;

(2) Aveng (Africa) Limited (“AVENG”), a company incorporated in Republic of South Africa (“RSA”) whose group of companies are a multi-disciplined construction and engineering group anchored in RSA that focuses on infrastructure, energy and mining opportunities in RSA. AVENG is a 75% owned subsidiary of Aveng Limited, a South African registered public company listed on the Johannesburg Stock Exchange, whilst the other 25% equity interest is owned by the TisoGroup, a black led economic empowerment consortium; and

(3) Petrosab Logistik Sdn Bhd, a Sabah incorporated company and a joint venture subsidiary company between Yayasan Sabah Group and Asian Supply Base Sdn Bhd whereby it is principally involved in providing oil and gas services to oil majors and contractors in East Malaysia.

The Group will continue to seek and explore viable growth areas for strategic tie-ups and investment opportunities to ensure positive shareholder returns and building up shareholders value at all times.

NEW TECHNOLOGIES & BUSINESSES

On the technological front, the Group constantly explores new avenues such as strategic tie-ups, joint ventures, licensing and mergers and acquisition activities, that enable the Group to leverage on its technical and technological prowess via licensing and inter-group technology transfers particularly for the Group’s high end products.

The Group’s target market has expanded beyond the oil and gas industry and today covers the energy, power, chemicals, petrochemicals, minerals, processing, desalination & environmental and renewable energy sectors. KNM Group remains alert to these emerging sectors that are less oil-intensive based but nevertheless, have lots of opportunities in tandem with the global change in environmental landscape.

Today, tighter regulatory requirements, rising operational costs, depleting resources and higher exploration risks faced by upstream producers have also contributed to the global call of going green and reduce carbon footprints. KNM adheres to this call and actively ventures into the biofuel, renewable energy and green technology fields. The Group also remains committed to “Quality, Health and Safety” issues in line with the Group’s philosophy of keeping the environment green.

CORPORATE GOVERNANCE

The Directors and the Management of the Group advocate and remain committed to having strong corporate governance framework and ensuring that the Group adheres to and complies with the Malaysian Code on Corporate Governance. The Board believes that sustainable growth and long-term shareholder value are attainable through high standards of transparency, accountability and integrity in managing the Group’s activities, business practices, operational effectiveness, efficiency and competitiveness. Further details of KNM’s corporate social responsibility are as set out in the Corporate Governance Statement of this Annual Report.


Chairman’s Message(Cont’d)

FUTURE PROSPECTS / OUTLOOK

Just as economic expansion is stabilising, the industry is driven by a clear uptick in business transactions over the past few months. The higher levels of oil price are likely to be sustainable on the back of a recovery in the global economy. Moreover, if the economy continues to improve, it will inevitably spur oil demand.

Year 2011 holds a promising outlook with the 10th Malaysian Plan and the Economic Transformation Plan (“ETP”) setting in to move in tandem. More jobs are expected to be awarded for the oil and gas sector, being a key sector under the ETP and potential beneficiary of Petronas’ ongoing expansion. With Petronas’ commitment to redirect capex back to Malaysia, this will augur well for the local oil and gas players.

The demand is expected to remain strong for process equipments as new projects are coming on stream in Malaysia and overseas as more oil and gas companies have budgeted new capital expenditure for future expansion. This trend certainly will continue to replenish KNM’s order book in a healthy manner.

Nonetheless, we acknowledge that the threats of continuing turmoil in the Middle East and North Africa (MENA) countries and the post effects of the unfolding disaster in Japan could raise economic uncertainties in many nations including their impact on commodity prices especially oil prices.

Barring any unforeseen circumstances, the Group is positive that the long term outlook for the oil and gas sectors remains strong and industry gathers momentum with new flows of orders, and the Group’s current fiscal year is expected to be better than FY2010.

APPRECIATION

On behalf of the Board, I welcome Datuk Karownakaran @ Karunakaran a/l Ramasamy, our new Independent Non-Executive Director to the Board. With his multi-faceted industry experience and knowledge, I am confident that Datuk Karunakaran will contribute to the Company’s growth objectives.

On another note, I would also like to take this opportunity to express our thanks and appreciation to Dato’ Mohamad Idris bin Mansor who had resigned from our Board as an Independent Non-Executive Chairman on 28 April 2010, for his firm support, dedication and effective chairmanship during his 4-year tenure on the Board and/or Board Committees of the Company. We wish Dato’ Mohamad Idris every success in all his present and future undertakings.

Mr Lim Yu Tey, the Director who is retiring pursuant to Section 129(2) of the Companies Act 1965, had on 26 April 2010, indicated he is not seeking to be re-appointed as a Director at the forthcoming 9th Annual General Meeting. On behalf of the Board, I wish to extend our gratitude to Mr Lim for his dedicated service during his tenure of almost 8 years on the Board and its Board Committees. We wish him the best in his future endeavours.

On behalf of the Board, I would like to convey our sincere thanks to our shareholders, clients, affiliates, financiers, business partners and other stakeholders, for your continuing and unwavering support, trust and confidence in the Group; and to the various Ministries and regulatory authorities, for their assistance and guidance. The Board of Directors and I also wish to extend our heartfelt thanks to the management and employees of KNM Group for their contribution, commitment and professionalism that have been significant to the Group’s success and long-term growth.

Last but not least, I wish to put on record my profound appreciation to my fellow Board members for their invaluable advice, guidance and counsel that underpin the Group’s ability to deliver results and strive towards greater heights.

Ir Lee Swee Eng Executive Chairman/Chief Executive Officer


Profile of Directors

IR LEE SWEE ENGExecutiveChairman/ChiefExecutiveOfficer,aged55,Malaysian

Ir Lee Swee Eng founded the KNM Group in 1990 as a private company specializing in fabrication and manufacturing of process equipment for the oil and gas industry and developed it into a global leading manufacturer of process equipment not only for the oil, gas and petrochemical industry but also in the mineral processing, power, desalination and environmental sectors. He is responsible for overseeing the strategic direction and management of the Group’s operations and was appointed as the Group Managing Director of KNM Group Berhad on 14 June 2003. He has been re-designated as Executive Chairman/Chief Executive Officer on 3 September 2010.

Ir Lee Swee Eng graduated in 1979 with a Bachelor of Science (First Class Hons) in Mechanical Engineering from the University of Strathclyde in Glasgow, Scotland. He had served with Exxon in 1976 as a Production Specialist and with Petronas, the Malaysian National Oil Corporation from 1979 to 1985 in various capacities ranging from Production Engineer, Project Development Engineer and Resident Engineer to Project Leader for major oil and gas development projects. He worked with John Brown E & C Inc of USA as a Project Engineer on international assignments for its San Miguel Project, Bakersfield California in 1986 and subsequently joined the Technip Group’s Malaysian subsidiary, Technip Geoproduction (Malaysia) Sdn Bhd as its Director and eventually, Managing Director from 1986 to 1990.

He is a Registered Professional Engineer since 1984 and a Fellow of the Institution of Engineers, Malaysia and Institute of Materials Malaysia. He has been a Council Member of the Federation of Malaysian Manufacturers (FMM) since 1996, and had served as a member of the Executive Committee of the Malaysian Iron and Steel Industry Federation (MISIF) from 2000 to 2004. He was the founding Chairman of the MISIF Boilers and Pressure Vessels Group and the Institution of Engineers, Malaysia Oil and Gas Technical Division. He was elected a Member of the International Council of Pressure Vessels Technology as representative from Malaysia from 2000 to 2004.

Ir Lee Swee Eng also serves as a member of the Remuneration Committee and Nomination Committee. He is not a Director of any other public company.

Ir Lee Swee Eng is the spouse of Gan Siew Liat and the brother-in-law to Chew Fook Sin.

LIM YU TEY Senior Independent Non-Executive Director, aged 70, Malaysian

Mr Lim Yu Tey was appointed to the Board of KNM Group Berhad on 14 June 2003 as Independent Non-Executive Director and subsequently as Senior Independent Non-Executive Director on 19 November 2003.

Since graduating with a Bachelor of Commerce from Nanyang University, Mr Lim has held senior management and Board executive positions until his retirement in 2003 as Managing Director of Lam Soon (M) Berhad.

His experience at the helm of Lam Soon Malaysia and his relentless passion for the marketplace renders his service currently as the SEAP expert of the Small and Medium Enterprises Corporation Malaysia. Mr Lim held the positions of Council Member of the Federation of Malaysian Manufacturers from 1995 to 2004 and the Deputy Chairman of the Commerce Committee of the Associated Chinese Chamber of Commerce and Industry of Malaysia until July 2009.

Mr Lim is a Chartered Member of the Royal Institute of Marketing, United Kingdom and alumni of the Asian Institute of Management.

Mr Lim Yu Tey is the Chairman of the Nomination Committee and is a member of the Audit Committee and Remuneration Committee. He is not a Director of any other public company.


DATO’ AB HALIM BIN MOHYIDDIN, DPMSIndependentNon-ExecutiveDirector,aged65,Malaysian

Dato’ Ab Halim bin Mohyiddin was appointed to the Board of KNM Group Berhad on 14 June 2003 as Independent Non-Executive Director.

He graduated with a Bachelor of Economics (Accounting) from University of Malaya in 1971 and thereafter joined Universiti Kebangsaan Malaysia as a Faculty Member of the Faculty of Economics. He obtained his Masters of Business Administration degree from University of Alberta, Edmonton, Alberta, Canada in 1973. He retired from KPMG/KPMG Desa Megat & Co. on 1 October 2001, a firm he joined in 1977 and had his early accounting training in both Malaysia and United States of America. He was made partner of the firm in 1985. At the time of his retirement, he was Partner-in-Charge of the Assurance and Financial Advisory Services Divisions and was also looking after the Secured e-Commerce Practice of the Firm. He has extensive experience in tax, audit, corporate turnaround and financial restructuring of various companies and has also acted as receiver and manager and liquidator for several companies during his tenure with KPMG.

Dato’ Ab Halim is a member of the Malaysian Institute of Certified Public Accountants (MICPA) and Malaysian Institute of Accountants (MIA). He is currently the Chairman of the Education and Training Committee of MICPA. He served as a member of the Education Committee of the International Federation of Accountants (IFAC) from 2001 to 2005. He was the President of the MICPA from June 2004 to June 2007 and a council member of MIA from 2001 to 2007.

Presently, he is a Board member of AMDB Berhad, Amway (Malaysia) Holdings Berhad, Digi.Com Berhad, ECM Libra Financial Group Bhd, HeiTech Padu Berhad, Idaman Unggul Berhad, Kumpulan Perangsang Selangor Berhad, Utusan Melayu (Malaysia) Berhad and RCE Capital Berhad.

Dato’ Ab Halim is the Chairman of the Audit Committee and Remuneration Committee and is a member of the Nomination Committee.

DATUK KAROWNAKARAN @ KARUNAKARAN A/L RAMASAMYIndependentNon-ExecutiveDirector,aged60,Malaysian

Datuk Karownakaran @ Karunakaran a/l Ramasamy was appointed to the Board of KNM Group Berhad on 27 July 2010 as Independent Non-Executive Director.

Datuk R. Karunakaran graduated with a Bachelor of Economics (Accounting) (Hons) from University of Malaya in 1972. He joined the Malaysia Industrial Development Authority (“MIDA”) in August 1972 and served in various positions including Deputy Director, Director, Deputy Director-General and Director-General. He also served as the Director of MIDA Singapore, Cologne (Germany) and London (England). Having served MIDA for about 36 years, Datuk R. Karunakaran retired as the Director-General of MIDA in June 2008. During his service with MIDA, he was responsible for promoting and co-ordinating the development of the manufacturing and services sectors including promoting domestic and foreign investments in Malaysia.

Presently, he is a Board member of Chemical Company of Malaysia Berhad, Etiqa Insurance Berhad, Integrated Logistics Berhad, IOI Corporation Berhad, Lion Corporation Berhad and Maybank Investment Bank Berhad.

Datuk R. Karunakaran is a member of the Audit Committee and Nomination Committee.

GAN SIEW LIATExecutive Director, aged 50, Malaysian

Mdm Gan Siew Liat is primarily responsible for the Group’s human capital functions. She has been with the KNM Group since 1990 and was appointed as an Executive Director of KNM Group Berhad on 14 June 2003.

She was awarded a Certificate in Personnel Management from the Malaysian Institute of Personnel Management, and completed a Dale Carnegie course in Effective Speaking and Human Relations at the Dale Carnegie Institute of Houston in the United States of America. In 1990, she joined the Inter Merger Group as Administration Manager.

She is not a Director of any other public company.

Mdm Gan Siew Liat is the spouse of Ir Lee Swee Eng and the sister-in-law to Mr Chew Fook Sin.

Profile of Directors(Cont’d)


Profile of Directors(Cont’d)

CHEW FOOK SINExecutive Director, aged 55, Malaysian

Mr Chew Fook Sin is primarily responsible for the Group’s global sales and marketing activities. He has been with the Group since 1995 and was appointed as an Executive Director of KNM Group Berhad on 14 June 2003. He was re-designated as Executive Director (Group Contract Services) with effect from 1 March 2011.

He graduated with a Bachelor of Science in Electrical Engineering from the University of Arkansas, United States of America in 1987, then joined the Broadcasting Department of Malaysia. In 1990, he joined the Inter Merger Group as General Manager. He subsequently joined the KNM Group as Procurement Manager in 1995, and was promoted to Vice President (Manufacturing) in 1999 and Director, Commercial Division in 2002.

He is not a Director of any other public company.

Mr Chew Fook Sin is the brother-in-law to Ir Lee Swee Eng and Mdm Gan Siew Liat.

NG BOON SUExecutive Director, aged 54, Malaysian

Mr Ng Boon Su joined the Group as Chief Operating Officer (Operational Headquarters) and was appointed to the Board of KNM Group Berhad as an Executive Director on 14 March 2008. He was re-designated as Executive Director (Group Corporate Services) with effect from 1 March 2011. He is primarily responsible for the Group’s corporate services to subsidiaries of KNM Group. He graduated with a Bachelor of Arts Degree majoring in Economics from University Malaya in 1980.

Mr Ng was a banker with over 28 years experience in management, retail and commercial banking with RHB Bank Berhad since 1980. He had held several management positions from Branch Manager to Regional Manager, Commercial Banking and Area Manager for the Shah Alam, Klang and Port Klang area.

He is not a Director of any other public company.

Notes:1. Save for Ir Lee Swee Eng, Mdm Gan Siew Liat and Mr Chew Fook Sin, all other Directors of KNM Group

Berhad are not related to any family members of the Directors and/or major shareholders of the Company.2. All Directors have no conflict of interests with the Company.3. All Directors have no conviction for offences within the past 10 years.


Corporate GovernanceStatement

The Board of Directors of KNM Group Berhad (“the Board”) is guided and committed to continuously uphold the principles and best practices and to attain high standards of good corporate governance within the Group. The following paragraphs set out the manner in which the Group has applied the principles and best practices of the Malaysian Code on Corporate Governance throughout the financial year ended 31 December 2010.

THE BOARD

Role and Principal Responsibilities

The Company is headed by the Board who leads and controls the Company. Generally, the Board is responsible towards the overall strategic planning for the Group. It also participates in setting policies and directing the Company’s strategic objectives, providing leadership and oversight control, identifying and implementing appropriate systems to manage principal risks, reviewing the adequacy and integrity of its internal control and management information systems, ensuring a management succession plan as well as having a dedicated investor relations programme and shareholders’ communication policy in place.

As managing and controlling companies have become more complex and demanding, where appropriate, the Board resorts to the various Board Committees to assist the Board in discharging its duties and responsibilities. The existence of Board Committees does not diminish the Board’s responsibility for the affairs of the Company as the Board will review the recommendations of the various Board Committees (for example the Audit Committee, Remuneration Committee and Nomination Committee) as well as the feedbacks from the management.

However, certain key matters are reserved to be determined by the Board. These include, determining overall corporate strategy and business direction, formulating the annual business plan to enhance the Company’s business growth and create shareholders’ value, determining funding needs and capital expenditure, setting financial plans and budgets, reviewing financial statements and financial performance of the Company, ensuring necessary financial and other resources allocation to the management to facilitate successful strategy implementation as well as undertaking of corporate exercises involving mergers and acquisitions, new issues of securities, fund raising activities and so on.

Constituting an Effective Board

The establishment of an active and independent Board of Directors is paramount in improving corporate governance practices. The Board currently comprises of seven (7) Directors, four (4) of which are Executive Directors and three (3) Independent Non-Executive Directors. Independent Non-Executive Directors make up one-third of the Board membership.

The Executive Chairman/Chief Executive Officer, the Senior Independent Non-Executive Director, three (3) Executive Directors and two (2) Independent Non-Executive Directors together with their different age, financial, commercial, technical and operational expertise as well as business acumen and skills, bring with them a wide and diverse range of experience essential in the management and direction of the Company. In view of the composition of the Board and having regard to the caliber of the Directors and their range of skills, expertise and experience, the interest of investors, including the Company’s minority shareholders, is adequately protected and advanced. The brief profiles of the members of the Board are set out in the Profile of Directors in this Annual Report.

The Executive Chairman, Ir Lee Swee Eng also assumes the position of the Group’s Chief Executive Officer. In his role as the Executive Chairman, he is responsible for ensuring Board effectiveness, including ensuring all Directors receive timely and sufficient relevant information on financial, business, operational and corporate matters to enable each of them to actively and effectively participate in Board decisions. The Chairman encourages constructive and healthy debates and ensures that resolutions are circulated and deliberated so that all Board decisions reflect the collective view of the Board and not the views of an individual or small group of individuals. In his role as the Group’s Chief Executive Officer, Ir Lee Swee Eng is responsible for the efficient and effective day-to-day management of the business, operations and strategic direction of the Group and together with the other Executive Directors ensures that the policies and matters approved by the Board are effectively implemented.



(Cont’d)

In view of the vast experience of the Executive Chairman/Chief Executive Officer, the Board considers the departure from the recommended practice of separating the functions as appropriate under the present circumstances. The Board is mindful of the dual roles of Executive Chairman and Chief Executive Officer but is of the view that there are sufficient experienced and independent minded Directors on the Board to provide the assurance that there is sufficient check and balance of control, power and authority.

The Independent Non-Executive Directors are independent of management and are free from any and all business or other relationship which may materially affect or interfere with the exercise of their independent judgment. The role of the Non-Executive Directors is to constructively review and help develop proposals on strategy, scrutinise the performance of management in meeting agreed objectives, as well as monitor the reporting of performance including satisfying themselves on the integrity of financial information, and the financial control and risk management systems put in place by the Company are effective. Any queries or concerns regarding the Group may be conveyed to Dato’ Ab Halim bin Mohyiddin, the Audit Committee Chairman or any other Independent Director.

Board Meetings and Supply of Information

The Board meets on a schedular basis of at least four (4) times a year. Additional Board meetings will be convened as and when necessary. Dates for Board meetings are decided in advance after consultation with all Board members. In 2010, twelve (12) Board meetings were held. The attendance of each Director at the Board meetings held during 2010 is set out below:-

Number of meetings attended %

Ir Lee Swee Eng 12/12 100Lim Yu Tey 12/12 100Dato’ Ab Halim bin Mohyiddin 12/12 100Datuk Karownakaran @ Karunakaran a/l Ramasamy 2/2 100(appointedon27July2010)Gan Siew Liat 12/12 100Chew Fook Sin 11/12 92Ng Boon Su 12/12 100Dato’ Mohamad Idris bin Mansor 7/7 100(resignedon28April2010)Lee Hui Leong 6/6 100(retiredon8April2010)

The Board has a formal schedule of matters specifically reserved to it for decision to ensure that the direction and control of the Company are firmly in the Board’s hand. In consultation with the Board, the Executive Chairman/Chief Executive Officer and the respective committees and/or management team, where applicable, will develop the Group’s corporate objectives and set out the limits of empowerment for management’s or committees’ authority, duties and responsibilities.

The Board stresses on having timely reports and full access to quality information which is not just historical or financial oriented but information which goes beyond assessing the quantitative performance of the Company and/or the Group. The Board also looks at other information such as customer satisfaction, product and service quality, market share, market reaction and so forth thereby enabling each Board member to participate in Board deliberations and decisions as well as discharge their duties effectively.

The Executive Chairman/Chief Executive Officer as assisted by the Company Secretaries, undertakes primary responsibility for organizing information necessary for the Board to deal with the agenda at Board meetings and providing Board papers to all Board members to facilitate in the effective conduct and discussion of matters brought up in meetings. During the course of a meeting, proposals put forth by management to the Board for the Board’s deliberation and decision are provided with written reports and supporting documents with due facts, analysis and recommendations. The Executive Chairman/Chief Executive Officer ensures that all Board members are given ample opportunity to express their views and opinions during the meeting. Constructive debates on issues before the Board are highly encouraged. External parties and management representatives may present to provide additional insights into matters to be discussed during Board meetings. Advisers and professionals appointed by the Company in relation to any corporate proposals would be invited to attend Board meetings to explain, advise and clarify any issues raised.


The Board is briefed on issues raised at Board and Board Committees meetings. All discussions, decisions and conclusions are duly recorded in the minutes of meeting. Such minutes are subsequently circulated to ensure that all Directors are kept well informed of the Board’s and Board Committees’ activities and recommendations. These minutes are kept by the Company Secretaries and are open to inspection by the Directors at any time.

Appointments to the Board and Size of Board

All appointments to the Board and its various Board Committees are assessed and considered by the Nomination Committee. In making these recommendations, due consideration is given to the required mix of skills, knowledge, expertise, experience, professionalism and integrity that the proposed candidate(s) shall bring to complement the Board and/or Board Committees. The Board may also consider and exercise judgment in determining the appropriate number and size of the Board relative to the level of investment by the shareholders in the Company.

Re-election

In compliance with the Bursa Malaysia Securities Berhad Main Market Listing Requirements (“Listing Requirements”) and the provisions of the Company’s Articles of Association (“Articles”), all Directors of the Company shall retire from office at least once in every three (3) years but shall be eligible for re-election at the annual general meeting. New Director(s) appointed during any year shall retire and seek re-appointment at the next annual general meeting. This provides an opportunity for shareholders to renew their mandates and ensures that shareholders have a regular opportunity to reassess the composition of the Board.

At the forthcoming annual general meeting, one-third of the Board of Directors are subject to retirement by rotation pursuant to the provisions of the Company’s Articles. The re-election of the Directors concerned will be voted on by shareholders at the said annual general meeting. To assist shareholders in their decision, information on each Director standing for re-election is set out in the Profile of Directors.

THE BOARD COMMITTEES

Currently, there are three (3) standing Board Committees, comprising the Audit Committee, Nomination Committee and Remuneration Committee. Each Board Committee operates within the approved and clearly defined terms of reference and reports to the Board with their findings and recommendations. Extension of such authority may be expressly given for a specific purpose and the Board may delegate to such Board Committees or other ad hoc Committees to act on its behalf.

Audit Committee

All the present Audit Committee members are Independent Directors. The Audit Committee is chaired by an Independent Non-Executive Director who is a member of the Malaysian Institute of Accountants and the Malaysian Institute of Certified Public Accountants. Its other members comprise the Senior Independent Non-Executive Director and an Independent Non-Executive Director. The duties of the Audit Committee include inter alia, reviewing the Group’s accounting policies, financial reporting procedures, the Group’s system of internal controls, status of the Group’s risks and approval of the annual internal audit plan. In addition, all the Audit Committee members are able to read, analyse and interpret the quarterly results and year end financial statements from the external auditors in order to effectively discharge their functions.

The Company’s internal and external auditors do attend at the Audit Committee meetings and they have the opportunity to raise matters or concerns independently or separately with the Audit Committee without the presence of any Executive Director or management staff. The Chairman and Audit Committee members have free and direct access to consult, communicate and enquire with any senior management of the Company and the external and internal auditors of the Company at any time to stay informed of all matters affecting the Company.

The Audit Committee has explicit authority to investigate any matter within its terms of reference and full access to all information and resources required. Further details of the terms of reference and activities of the Audit Committee during the year are set out in the Audit Committee Report.

Corporate GovernanceStatement(Cont’d)



(Cont’d)

The Audit Committee meets regularly at least four (4) times annually and all discussions, decisions and conclusions are duly recorded in the minutes of meeting. Additional meetings may be held at the request of the Board, the Audit Committee, the management, the external and internal auditors. The Audit Committee met six (6) times in 2010 and the attendance of each member at the meetings is set out below:-


Dato’ Ab Halim bin Mohyiddin (Chairman) 6/6 100Lim Yu Tey 6/6 100Datuk Karownakaran @ Karunakaran a/l Ramasamy 2/2 100(appointedon27July2010)Dato’ Mohamad Idris bin Mansor 3/3 100(resignedon28April2010)

Nomination Committee

The Nomination Committee is chaired by the Senior Independent Non-Executive Director. Its other members comprise the Executive Chairman/Chief Executive Officer and two (2) Independent Non-Executive Directors. The Nomination Committee is mainly responsible for assessing and recommending candidates with the required mix of skills and attributes to fill Board and Board Committees vacancies as well as review or evaluate the appropriate balance, size, optimum mix of skills, experience and other qualities including core competencies which Non-Executive Directors will bring to the Board. The Nomination Committee recommends to the Board the Directors who are seeking re-election subject to the approval of the shareholders at annual general meetings. The Nomination Committee also assesses on an annual basis the effectiveness of the Board as a whole and the Board Committees as well as the respective individual Directors’ performance and contribution. All assessments and evaluations are duly discussed and recorded in the minutes of meeting.

The Nomination Committee will meet at least once a year. In 2010, the Nomination Committee met up four (4) times and the attendance of each member at the meetings is set out below:-


Lim Yu Tey (Chairman) 4/4 100Dato’ Ab Halim bin Mohyiddin 4/4 100Ir Lee Swee Eng 2/2 100(appointedon25May2010)Datuk Karownakaran @ Karunakaran a/l Ramasamy – –(appointedon26April2011)Dato’ Mohamad Idris bin Mansor 2/2 100(resignedon28April2010)

Remuneration Committee

The Remuneration Committee is chaired by an Independent Non-Executive Director. Its other members currently comprise the Executive Chairman/Chief Executive Officer and the Senior Independent Non-Executive Director. The Remuneration Committee is responsible for recommending to the Board, the remuneration of the Executive Directors, in all its forms, drawing from outside advice as necessary. With the availability of Directors remuneration policy and market survey information from external sources or human resources consultants, the Remuneration Committee ensures that the remuneration packages of the Directors are appropriate and competitive. All recommendations of the Remuneration Committee in respect of remuneration packages of the Executive Directors are referred to the Board for approval.

The Company’s remuneration scheme is linked to performance, service seniority, experience and scope of responsibilities. The Remuneration Committee ascertains and recommends the remuneration packages of the Executive Directors, including the Executive Chairman/Chief Executive Officer in accordance with the Company’s policy guidelines that strongly link remuneration to performance and benchmark the remuneration against that of the market surveys conducted by external sources or human resource consultants periodically.

Determination of Directors remuneration packages, be it that of the Executive Directors or the Non-Executive Directors, is a matter for the Board as a whole. No Director shall take part in any discussion or decision concerning his or her remuneration. Fees are paid to the Directors subject to the approval of shareholders at the annual general meetings.



The Remuneration Committee met twice in 2010, and the attendance of each member at the meeting is set out below:-


Dato’ Ab Halim bin Mohyiddin (Chairman) 2/2 100(appointedon25May2010)Ir Lee Swee Eng 2/2 100Lim Yu Tey 2/2 100Dato’ Mohamad Idris bin Mansor – –(resignedon28April2010)

DIRECTORS’ REMUNERATION

The primary objective of the Group’s remuneration policy is to attract and retain the Directors who perform and lead the Group. The remuneration of each Director generally reflects the level of responsibility and commitment that goes with Board membership.

For Non-Executive Directors, the level of remuneration is reflective of their experience and level of responsibilities, whereas, the component parts of remuneration package of the Executive Directors are structured to link to corporate and individual performance in line with the Company’s remuneration policy for its Directors.

The Remuneration Committee reviews annually the salaries of the Executive Directors and formulates recommendation to the Board for approval. The individuals concerned will abstain from all deliberations and decisions affecting his or her remuneration and that of the persons deemed connected to him or her.

The aggregate remuneration of the Company’s Directors for the financial year ended 31 December 2010 is categorised into appropriate components as follows:-

Other Benefits- Category of Fee Salary** emoluments in-kind Total Directors (RM) (RM) ***(RM) ****(RM) (RM)

Executive Directors* 321,017 2,811,200 52,000 55,174 3,239,391 Non-Executive Directors* 365,968 – 63,000 – 428,968

Total 686,985 2,811,200 115,000 55,174 3,668,359

Notes:* Duringthefinancialyearunderreview,thethenIndependentNon-ExecutiveChairmanresignedandanExecutiveDirector

retiredwhileanewIndependentNon-ExecutiveDirectorwasappointed.** Thesalaryisinclusiveofstatutoryemployer’scontributiontoEmployeesProvidentFund.*** Otheremolumentsincludebonusesandallowances.**** Otherbenefitsincludetheprovisionofhand-phonesandcompanycars.

The aggregate remuneration of the Company’s Directors as analysed into bands for the financial year ended 31 December 2010 is as follows:-

Range of No. of No. of Remuneration Executive Directors Non-Executive Directors Total

RM10,001 to RM50,000 – 1 1RM100,001 to RM150,000 – 3 3RM150,001 to RM200,000 1 – 1RM350,001 to RM400,000 1 – 1RM450,001 to RM500,000 2 – 2RM1,700,001 to RM1,750,000 1 – 1

Total 5 4 9*

Note:* Duringthefinancialyearunderreview,thethenIndependentNon-ExecutiveChairmanresignedandanExecutiveDirector

retiredwhileanewIndependentNon-ExecutiveDirectorwasappointed.


DIRECTORS’ TRAINING

The Company realizes and stresses the importance of training and having continuous upgrading of skills, knowledge and competencies as the strategic advancement and competitive tool not just for the Company but also for personal development of the respective Directors and the relevant staff concerned. The Company is committed to ensure that its Directors receive continuous education and further training updates from time to time. The Board shall, on a continuous basis, evaluate and determine the training needs of its members and subject matters of training that aid the Directors in the discharge of their duties as Directors.

All the current Directors of the Company have attended and completed the Mandatory Accreditation Programme and will undergo continuous training or education programmes from time to time to equip and keep themselves abreast of the latest developments in order to discharge their duties and responsibilities more effectively. A brief description of the various training or courses attended by the Directors for the financial year under review is as set out below:-


(Cont’d)

DirectorsTitle of the training programme/Name of organizer Date

Ir Lee Swee Eng Global Leadership Forum 2010 /KNMGroupBerhad(“KNM”)

10 February 2010

Lim Yu Tey Securities Commission (“SC) & Bursa Malaysia Securities Berhad (“Bursa”) Corporate Governance (“CG”) Week 2010 -

• CG Roundtable : Towards CG Excellence• Session by SC & Bursa : Independent Directors – Actual

Verses Perceived Independence /SC&Bursa

29 June 201030 June 2010

How Sustainable Are Our Businesses /KPMG

3 December 2010

Dato’ Ab Halim binMohyiddin

CG Guide - Towards Boardroom Excellence /KPMG

15 January 2010

SC & Bursa CG Week 2010 – Session by SC & Bursa -

• Independent Directors : Actual Verses Perceived Independence• Views from the Boardroom : Challenges Directors Face• Forum by Public Listed Companies : CG Best Practices /SC&Bursa

30 June 2010

Developing High Impact Board /Bank Negara Malaysia & Perbadanan Insurans Deposit Malaysia

12 & 13 April 2010; 10 & 11 May 2010;17 & 18 June 2010

and12 & 13 July 2010

BDO Tax Forum Series - Budget 2011 Rising Above the Competition /BDO Tax Services Sdn Bhd

26 October 2010

How Sustainable Are Our Businesses /KPMG

3 December 2010

Datuk Karownakaran @Karunakaran a/lRamasamy

Directors Training Programme Series 3 – Global Investment Performance Standards -

• Principles of Investment Performance Measurement and Reporting

• Purpose, Significance and Relevance of an Enterprise Wide Risk Management Framework for Investment Management /

PNBInvestmentInstitute

8 July 2010

Gan Siew Liat How Sustainable Are Our Businesses /KPMG

3 December 2010

Chew Fook Sin Global Leadership Forum 2010 /KNM

10 February 2010



DIRECTORS’ TRAINING (CoNt’d)

ACCESS TO INFORMATION AND ADVICE

The Directors, whether individually or as a full Board, have full and direct access to all information of the Company and advice of the Company Secretaries and independent professionals at the Company’s expense in furtherance of their duties, wherever necessary and on a case to case basis depending on the complexities of the matter involved.

Currently, the Group’s in-house Company Secretary is assisted by the external Company Secretary to effect all proper documentation, to meet all statutory obligations and compliances as well as to support the Executive Chairman of the Board in ensuring the effective functioning of the Board. Both the in-house and externally appointed Company Secretaries meet the requirements for the discharge of their duties and his/her removal is a matter for the Board as a whole.

ACCOUNTABILITY AND AUDIT

Financial Reporting

Shareholders are provided with fair assessments on the Company’s financial performance and prospects vide timely issuance of all quarterly reports, annual audited financial statements and announcements on significant developments affecting the Company in compliance with the Listing Requirements and/or the Companies Act 1965 (“the Act”).

The Board is assisted by the external auditors, the Company Secretaries and the Audit Committee to scrutinize information for disclosure to ensure its timeliness, accuracy and adequacy.

directors’ Responsibilities for the Financial Statements

Pursuant to the Act, the Directors are required to prepare and ensure that financial statements are drawn up in accordance with the applicable approved accounting standards in Malaysia and the provisions of the Act so as to give a true and fair view of the state of affairs of the Company and the Group for each financial year.

The Directors have overall responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group, and to detect and prevent frauds or other irregularities. The Directors are also responsible for ensuring that the Company keeps proper accounting records which disclose, with reasonable accuracy, the financial position of the Company and the Group and in compliance with the applicable approved accounting standards and the provisions of the Act.

DirectorsTitle of the training programme/Name of organizer Date

Ng Boon Su A Post Crisis World – Implication for Asia /StandardCharteredBankMalaysia

12 January 2010

Global Market Outlook /DeutscheBankMalaysia

20 January 2010

Economic Outlook /HSBCBankMalaysiaBerhad

21 January 2010

Global Leadership Forum 2010 /KNM

10 February 2010

SC & Bursa CG Week 2010 -

• Session by Malaysian Institute of Chartered Secretaries : Boardroom Ethics

• Session by Malaysian Alliance of Corporate Directors : Board Role, Directors Duties and Blind Spots, Biases and Other Pathologies in the Boardroom /

SC&Bursa

2 July 2010


In preparing the financial statements, the Directors have:-

1) adopted the appropriate accounting policies and applied them consistently;

2) made judgments and estimates that are reasonable and prudent;

3) ensured that all applicable accounting standards have been followed; and

4) prepared the financial statements on the going concern basis as the Directors having assessed and made enquiries on the Company’s financial position and prospects, have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.

The annual financial statements are audited by external auditors in accordance with the approved standards on auditing in Malaysia. In conducting the audit, the external auditors will obtain reasonable assurance that the financial statements are free of material misstatements. The external auditors assess the accounting principles used and significant estimates made by Directors in addition to evaluate the overall presentation of the financial statements.

Internal Controls and Internal Audit Functions

The Board has overall responsibility for maintaining a sound system of internal controls to safeguard shareholders’ investment and the Group’s assets, which encompasses risk management, financial, organizational, operational and compliance controls necessary for the Group to achieve its objectives within an acceptable risk profile. These controls can only provide reasonable but not absolute assurances against material misstatements, errors of judgment and losses or frauds.

Internal Audit function is established by the Board for the Group to review the adequacy of operational controls system, and in identifying, evaluating, monitoring and managing risks to provide reasonable assurance that such system will continue to operate satisfactorily and effectively in the Group. The Internal Audit function adds value and improves the Group’s operations and assist the Audit Committee to effectively discharge its duties by providing independent and objective assurance.

The Internal Audit function reports directly to the Audit Committee and operates in accordance with the framework set out by the Internal Audit Charter as approved by the Audit Committee. It is independently positioned to assist the Board and Audit Committee in obtaining the assurance they require in relation to the effectiveness of the Group’s system of internal controls. The Head of Internal Audit regularly reviews and appraises the systems of risk management, internal controls and governance processes within the Company and/or the Group.

The Company’s Internal Audit function is competently and adequately resourced to fulfill its purpose and perform its activities. It is currently managed and performed in-house and the costs attributable to the discharge of duties and performance of the Internal Audit function of the Company for the financial year under review is RM425,000.

More details of the system of internal controls of the Company are set out in the Statement on Internal Control.

Relationship with the Auditors

The Company maintains a transparent and professional relationship with both internal and external auditors through Audit Committee. Under its terms of reference, the Audit Committee has explicit authority to communicate directly with the Company’s internal and external auditors. The Audit Committee reviews the appointment of the Company’s external auditors and the fees payable to them on an annual basis. Meetings with the senior management, internal and/or external auditors are held as appropriate to discuss any issues arising from the interim and final audits, audit plans, audit findings and any other matters of concern that the internal and/or external auditors may wish to discuss. The Audit Committee meets the external auditors at least twice a year or whenever deemed necessary without any management or Executive Board members present.

The Audit Committee also receives other information such as that of the non-audit services provided by the external auditors. Based on such information, the Audit Committee has no reason to believe that such engagements have impaired or would impair the independence of the external auditors.

Further details of the terms of reference and activities of Audit Committee during 2010 are set out in the Audit Committee Report.


(Cont’d)



SHAREHOLDERS

The Company provides an open channel of communication with its shareholders, institutional investors and the investing public at large with the objectives of inter alia, providing timely, clear and complete information of the Group’s operations, updates, performance and new development based on permissible disclosures. The Company values feedbacks and dialogues with its investors, and believes that a constructive and effective investor relationship is essential to enhance shareholder value.

Communication with shareholders is also maintained by way of immediate announcements made in connection with material developments in the Company’s business and operations in addition to the timely issuance of quarterly and annual reports. Whilst the Company is endeavour to provide as much information as possible to its shareholders and other stakeholders, it is mindful of the legal and regulatory framework governing the release and disclosure of material and/or price-sensitive information. Information which is price-sensitive or those which may be regarded as undisclosed material information about the Group will not be disclosed until after the prescribed announcement has been released to Bursa.

Investor Relations

The Company uses the following key investor relations activities to update its investors:-

1) holding briefings, plant visits, conference calls and meetings with the institutional fund managers and financial analysts;

2) participating in roadshows and investors’ conferences, both domestically and internationally; and

3) establishing a website at http://www.knm-group.com for easy access and dissemination of the Group’s corporate information, quarterly and annual financial results, announcements to Bursa, news and latest happenings.

As part of the Group’s commitment towards having an effective investor relations and shareholders’ communication policy, the following departments have been established:-

1) the Corporate Development/Investor Relations Department, which is headed by the Director, Group Corporate Services, attends to the Group’s investor relations activities, engages with services of external public relations firm to promote the Group’s branding activities and create greater public awareness of the Group’s products and services as well as foster and maintain a close relations with the press and other members of the media; and

2) the Corporate Investment & Services Department, which is also headed by the Director, Group Corporate Services, maintains statutory documents and records, and the relevant official communication and correspondences with various authorities, at the registered office of the Company.

Annual General Meeting

Shareholder meetings, especially the annual general meetings, represent an important platform and forum for dialogue and interaction between the Company and its shareholders. Such general meetings are normally attended by all Directors. Explanations are provided during shareholder meetings in relation to proposed resolutions on key corporate proposals to enable shareholders to make informed decisions. Notice of general meetings provides separate resolutions to be proposed at the general meetings for each distinct issue and any item of special business included in a notice of general meeting is accompanied by an explanatory note on the effects of the proposed resolution. Questions from and interaction with shareholders are encouraged to further enhance communication between shareholders and the Board.

The Company’s external auditors and the relevant advisers of the Company will attend such general meetings upon invitation and be available to answer questions raised where appropriate. The Company accords sufficient time for discussion and questions at general meetings, and ensures all questions and issues are properly addressed and explained thereat. All meetings are recorded by the Company Secretaries in the minutes of the meeting, and copy of which is available for inspection at the Company’s registered office.

In addition, a press conference will generally be held immediately after such general meetings whereat, the Directors would explain and clarify any issues posed by the members of the media regarding the Company, save and except for such information that may be regarded as material or price sensitive in nature, which disclosure shall be made in strict adherence to the disclosure requirements as prescribed under the Listing Requirements and other various contractual or statutory rules and provisions that the Group may be subjected to.



(Cont’d)

CORPORATE SOCIAL RESPONSIBILITY (“CSR”)

The Group is committed to observe and alleviate the social well being of the community and carry out their CSR in any manner possible to promote humanitarian works to underprivileged and deserving ones as well as to ensure the sustainability of the environment, both locally and on the international front.

To the Company, CSR starts by integrating business practices that are based on ethical values and respect for the community, environment, shareholders and other stakeholders. The Group CSR framework is designed to deliver sustainable value to the society at large, and ensure the interest of the public, including that of the investors in general is adequately protected and the relevant regulatory requirements for which the Company and/or the Group are subjected to, will be duly complied with. The Group continually strives to be a good, caring and responsible corporate citizen.

Presently, the Group CSR framework focuses on four main areas, being the environment, the workplace, the community and the marketplace, in no particular order of priority.

Environment

The Group manages its operations in a manner which minimises environmental impacts and devotes to all the applicable environmental regulations in its consumption of resources and generation of waste processes. The Group’s Health, Safety and Environment Division establishes, regulates and enforces, among others, the relevant environmental policies, rules and regulations for the Group.

The Group’s move and diversification into the renewable energy and green technology sectors are based mainly, if not primarily, on the Group’s dedication to support the reduction of waste and gas emissions into the environment from its business operations. The Group has embarked into business of renewable technologies for energy, fertilisers and waste heat recovery systems, carbon dioxide capture and storage, emission control via the following involvements:-

1) extraction of biodiesel from palm oil and jatropha, and bioetanol from cassava;

2) converting waste to energy, and organic waste to organic fertiliser; and

3) engaging in sulphur and mercury removal process systems,

as well as such other systems dealing in carbon dioxide capture and storage, emission control and waste heat recovery systems, etc.

Wherever possible, all staff are encouraged to “repair, reduce, reuse and recycle” and adopt energy saving measures, for instance, switching off the lights during breaks and using energy efficient bulbs, wherever possible.

Workplace

The Group acknowledges and commits to create a safe and conducive working environment for all its employees. The Group’s Health, Safety and Environment Division establishes policies and procedures and reinforces the Group’s safety culture by inculcating good safety and fire prevention practices, heightening safety awareness and providing safety gear, conducting safety talks, as well as implementing such other safety courses and training activities so as to attain zero loss time injury hours at its manufacturing facilities.

Children of the Company’s staff who have performed well in their primary and secondary school examinations are given cash rewards in recognition of their success to bolster their morale and confidence, and to encourage and motivate them to pursue further studies and excel in a variety of disciplines.

As part of the human capital development, the Group conducts various in-house training programmes focusing on quality leadership, building effective performance and job related to equip the employees with improved skills and knowledge.



Community

The Group’s main sponsorship, outreach and community investment activities include contributions, donations and philanthropic support towards various deserving and worthy causes. The Group also provides internship training programmes to local diploma and vocational students for knowledge enrichment as well as complementing and nurturing talents among these students for their personal growth and future employment needs. The Executive Chairman/Chief Executive Officer, Ir Lee Swee Eng actively contributes and personally participates as a panel member of the University Tunku Abdul Rahman Industry Advisory Panel.

On 3 August 2010, the Group had participated in the Kuala Lumpur Rat Race 2010, which is an annual charity run/event organized by The Edge and Bursa. The Group was one of the 139 participating organizations. The event raised RM1.752 million in aid of 20 charitable organizations dedicated to looking after the welfare of the disabled, the underprivileged and the aged.

On 9 January and 10 January 2010, the Company co-sponsored a charity ballet performance entitled “Carmen & Paquita” (organized by Danceworks Production, Ena Ballet Studio) at the Istana Budaya, Kuala Lumpur. This event showcased ballet dances comprising more than 18 awards wining international ballet dancers. It gave local dancers an opportunity to work with foreign renowned artistes from Japan, USA, UK and China. All box-office proceeds from the event were donated to a number of worthy local charitable organizations such as Living Hope Malaysia, SPCA Selangor, Lions Life-Line Leukemia Funds and Yayasan Sin Chew.

The Company was one of the advertisers for the charity ballet performances entitled “Don Quixote” and “International Ballet Gala” (co-produced by Ena Ballet Studio Company of Nara City, Japan and Danceworks Production, Malaysia) held on 14 January and 16 January 2011 at National Theatre of Malaysia, Istana Budaya. These programs showcased 26 international dancers from Japan, Australia, Germany, Austria, USA and Thailand as well as more than 30 Malaysians. It gave local dancers an opportunity to be inspired and perform in the highest level with guest artists. This year saw an increase in the number of beneficiaries as compared to the year before. The Group is proud to be associated with the efforts of the co-producers towards the development of ballet in this country.

Marketplace

The Company is committed to ensure that all information released is accurate, concise, timely and in compliance with the various regulatory requirements that the Group is subjected to.

The Company maintains good visibility and constantly interacts with its stakeholders such as investors, portfolio analysts, fund managers, bankers, government bodies and its corporate clients through a variety of channels, whereby accurate and concise information on the Group is provided through briefings, meetings, teleconferences, dialogues and visits to the Group’s manufacturing facilities to enable its stakeholders to better understand its business operations.

Briefings to investors (if any) are usually conducted on a quarterly basis after the release of the Company’s quarterly financial results. The Group is mindful of the expectations of the investment community and therefore strategizes effectively to attain or even surpass their expectations.

ADDITIONAL COMPLIANCE INFORMATION

The following additional information is provided in compliance with the Listing Requirements:-

1. Approved Utilisation of Proceeds Raised from Corporate Proposal announced to Bursa

On 21 October 2010, KNM had obtained the necessary approval from the Securities Commission for the issuance of up to RM1,500 million (in aggregate nominal value) in Islamic Commercial Papers/Islamic Medium-Term Notes under the Islamic Commercial Papers/Islamic Medium-Term Notes (“ICP/IMTN”) Programme based on the Islamic principle of Musyarakah to be established by KNM. There were no issuance during the financial year.

The Group has not embarked on the Exchangeable Bonds Issue by KNM Capital Sdn Bhd which the Securities Commission had vide its letter dated 13 December 2010 granted a further extension of time until 30 May 2011 for the implementation of the proposed Exchangeable Bonds Issue.



(Cont’d)

2. Share Buy-Backs

The Company had purchased 21,110,000* of its own shares during the financial year ended 31 December 2010, all of which were held as treasury shares and maintained by the Company. Details are as follows:-

Total Lowest Highest consideration No. of price paid price paid Average paid (including shares Par value for each for each price per transaction bought per share share share share costs) Month back (RM) (RM) (RM) (RM) (RM) January – – – – – – February – – – – – – March 10,000 0.25 0.795 0.795 0.800 8,008.09 April 5,000,000 0.25 0.510 0.510 0.511 2,554,790.00 May 12,000,000 0.25 0.485 0.520 0.514 6,166,794.34 June 1,000,000 0.25 0.490 0.495 0.496 496,081.03 July – – – – – – August – – – – – – September 3,100,000 0.25 0.395 0.410 0.397 1,230,409.80 October – – – – – – November – – – – – – December – – – – – –

Total 21,110,000* 0.495 10,456,083.26

Note:* Atotalof21,110,000sharesofRM0.25each(orresultant5,277,500sharesofRM1.00eachuponcompletionof

shareconsolidationinvolvingtheconsolidationofevery4ordinarysharesofRM0.25eachinKNMGroupBerhadinto1ordinaryshareofRM1.00each,andlistedandquotedonBursaMalaysiaSecuritiesBerhadwitheffectfrom8December2010)werepurchasedandheldastreasurysharesduringthefinancialyearended31December2010.

3. Related Party transactions

All related party transactions for 2010 are set out in Note 26 to the Financial Statements.

An internal compliance framework exists to ensure the Company meets its obligations, including that of related party transactions under the Listing Requirements. The Audit Committee will review all related party transactions and report the same to the Board.

A Director who has interest in a transaction abstains from deliberation and voting on the relevant resolution in respect of such transaction at the Board meeting and at any general meeting convened to consider such transaction.

4. options, Warrants or Convertible Securities

No options, warrants or convertible securities were issued by the Company during the financial year under review.

5. American depository Receipt (“AdR”) or Global depository Receipt (“GdR”) programme

The Company did not sponsor any ADR or GDR programme during the financial year under review.


6. Imposition of Sanctions and/or Penalties

There were no sanctions and/or penalties imposed on the Company and its subsidiaries, Directors or management by any relevant regulatory bodies.

7. Non-Audit Fees

The amount of non-audit fees paid or payable to the external auditors and its affiliates in connection with services rendered to the Group and/or the Company for the financial year ended 31 December 2010 is as follows:-

Due/Payment to Purpose Amount (RM)

Messrs KPMG Professional fees rendered for review of Statement on Internal Control and other engagements 83,000

Affiliates of KPMG Professional fees rendered for taxation, financial and in Malaysia tax due diligence 976,854

Affiliates of KPMG Professional fees rendered for taxation, financial and in overseas tax due diligence 912,610

Total : 1,972,464

8. Variation in Results

There was no significant variance between the results for the financial year under review and the unaudited results previously released by the Company. The Company had not released or announced any estimated profit, financial forecast and projection for the financial year ended 2010.

9. ProfitGuarantee

No profit guarantees were given by the Company for the financial year under review.

10. Material Contracts

There were no material contracts entered into by the Company and/or its subsidiaries involving Directors and/or major shareholders’ interests either still subsisting at the end of the financial year ended 31 December 2010 or which were entered into since the end of the previous financial year.

11. Contracts Related to Loans

There were no contracts relating to a loan by the Company and its subsidiaries in respect of the preceding item.

12. Revaluation of Landed Properties

The Company’s revaluation policy in respect of the financial year ended 31 December 2010 is disclosed in Note 2(d)(i) to the Financial Statements.



Audit Committee Report

The Audit Committee of the Company is pleased to present the Audit Committee Report for the financial year ended 31 December 2010.

MEMBERS, MEETINGS HELD AND ATTENDANCE OF MEMBERS

The members of the Audit Committee are totally Independent Non-Executive Directors and they comprise three (3) in number. The attendance of each member at the six (6) meetings held during the financial year ended 31 December 2010 are as follows:-

Name of member Designation Directorship of the member Attendance

Dato’ Ab Halim bin Mohyiddin Chairman Independent Non-Executive 6/6 Director (100%)

Lim Yu Tey Member Senior Independent 6/6 Non-Executive Director (100%)

Datuk Karownakaran @ Karunakaran Member Independent Non-Executive 2/2 a/l Ramasamy * Director (100%)

Dato’ Mohamad Idris bin Mansor ** Member Independent Non-Executive 3/3 Director (100%)

Notes:* DatukKarownakaran@Karunakarana/lRamasamywasappointedasIndependentNon-ExecutiveDirector

on27July2010.** Dato’MohamadIdrisbinMansorhadresignedastheCompany’sIndependentNon-ExecutiveChairmanon

28April2010.

TERMS OF REFERENCE

(I) Composition

1. The Board of Directors (“Board”) of the Company must appoint an Audit Committee (“Committee”) from amongst its Directors which fulfils the following Bursa Malaysia Securities Berhad (“Bursa Securities”) Main Market Listing Requirements (“Listing Requirements”):-

(a) the Committee must comprise of at least 3 members;

(b) all the Committee members must be Non-Executive Directors, with a majority of them being Independent Directors, of whom shall not be:-

(i) Executive Directors of the Company or any related corporations; or

(ii) a spouse, parent, brother, sister, child (including adopted or step child and the spouse of such brother, sister or child) of an Executive Director of the Company, or any of the Company’s related corporation; or

(iii) any person having a relationship which, in the opinion of the Board, would interfere with the exercise of the independent judgment in carrying out the functions of the Committee.

(c) at least one member of the Committee:-

(i) must be a member of the Malaysian Institute of Accountants; or

(ii) if he is not a member of the Malaysian Institute of Accountants, he must have at least 3 years’ working experience and:

(aa) he must have passed the examinations specified in Part I of the First Schedule of the Accountants Act, 1967; or

(bb) he must be a member of one of the associations of accountants specified in Part II of the First Schedule of the Accountants Act, 1967; or

(iii) fulfils such other Listing Requirements as prescribed or approved by Bursa Securities.


Audit Committee Report (Cont’d)

2. The Company must ensure that no Alternate Director is appointed as a member of the Committee.

3. The members shall elect a Chairman from amongst their number who shall be an Independent Director.

4. If a member ceases to be a member which results in the non-compliance of the composition, the Board shall, within 3 months of that event appoint such number of new member or members as may be required to make up the minimum number of 3 members.

5. The Board of the Company must review the term of office and performance of the Committee and each of its members at least once every 3 years to determine whether such Committee and members have carried out their duties in accordance with their terms of reference.

(II) Objectives

The objectives of the Committee are to:-

1. provide assistance to the Board in fulfilling the Board’s fiduciary responsibilities on financial, accounting, management controls, financial reporting and business ethics practices of the Company, and to ensure that such practices conform to the highest possible standards of corporate governance; and

2. provide greater emphasis on the audit functions by serving as the focal point for communication between other Directors, the external auditors, internal auditors and the management in all matters relating to financial accounting, reporting and controls and providing a forum for discussion that is independent of the management. It is the Board’s principal agent in ensuring the independence of the Company’s external auditors, the objectivity of the Company’s internal auditors, the integrity of management and management policies and the adequacy of disclosures to shareholders.

(III) Functions

Without limiting the generality of this written terms of reference, the Company must ensure the Committee shall, amongst others, discharge the following functions:-

1. Review the following and report the same to the Board of the Company:-

(a) with the external auditor, the audit plan;

(b) with the external auditor, his evaluation of the system of internal controls;

(c) with the external auditor, his audit report;

(d) the assistance given by employees of the Company to the external auditor;

(e) the adequacy of the scope, functions, competency and resources of the internal audit function and that it has the necessary authority to carry out his work;

(f) the internal audit programme, processes, the results of the internal audit programme, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit functions;

(g) the quarterly results and year end financial statements, prior to the approval by the Board, focusing particularly on:-

(i) changes in or implementation of major accounting policy changes;(ii) significant and unusual events; and(iii) compliance with accounting standards and other legal requirements;

(h) any related party transaction and conflict of interest situation that may arise within the Company or Group including any transaction, procedure or course of conduct that raises questions of management integrity;



(i) any letter of resignation from the external auditors of the Company;

(j) whether there is reason (supported by grounds) to believe that the Company’s external auditor is not suitable for re-appointment; and

(k) any allocation of options during the year under the Company’s Employee Share Option Scheme (“ESOS”) to ensure compliance in accordance with the By-laws of the Company’s ESOS.

2. Recommend the nomination of a person or persons as external auditors.

3. Carry out such other responsibilities, functions or assignments as may be assigned by the Board.

4. Where the Committee is of the view that a matter reported by it to the Board of the Company has not been satisfactorily resolved resulting in a breach of the Listing Requirements, the Committee must promptly report such matter to Bursa Securities.

(IV) Audit Committee Report

1. The Company must ensure that its Board prepares an Audit Committee Report at the end of each financial year that complies with items (IV)2 and (IV)3 below.

2. The Audit Committee Report must be clearly set out in the Annual Report of the Company.

3. The Audit Committee Report shall include the following:-

(a) the composition of the Committee, including the name, designation (indicating the Chairman) and the directorship of the members (indicating whether the Directors are independent or otherwise);

(b) the terms of reference of the Committee;

(c) the number of Committee meetings held during the financial year and details of attendance of each Committee member;

(d) a summary of the activities of the Committee in the discharge of its functions and duties for that financial year of the Company; and

(e) a summary of the activities of the internal audit function or activity.

(V) Rights The Company must ensure that wherever necessary and reasonable for the performance of its duties, the

Committee shall, in accordance with a procedure to be determined by the Board and at the cost of the Company:-

(a) have authority to investigate any matter within its terms of reference;

(b) have the resources which are required to perform its duties;

(c) have full and unrestricted access to any information pertaining to the Company;

(d) have direct communication channels with the internal auditors and person(s) carrying out the internal audit function or activity;

(e) be able to obtain independent professional or other advice; and

(f) be able to convene meetings with the external auditors, the internal auditors or both, excluding the attendance of other Directors and management or employees of the Company, whenever deemed necessary.


(VI) Internal Audit

1. The Company must establish an internal audit function which is independent of the activities it audits.

2. The Company must ensure its internal audit function reports directly to the Committee.

(VII) Procedure and Meetings

1. The Committee may regulate its own procedure, in particular:-

(a) the calling of meetings;

(b) the notice to be given of such meetings;

(c) the voting and proceedings of such meetings;

(d) the keeping of minutes; and

(e) the custody, production and inspection of such minutes.

2. The Committee must have not less than 4 meetings in a financial year, and such additional meetings as the Chairman may decide in order to fulfill its duties.

3. The Chairman shall also convene a meeting of the Committee if requested to do so by any member, the management or the internal or external auditors to consider any matter within the scope of responsibilities of the Committee.

4. A quorum must comprise a majority of Independent Directors and must not have less than 2 members.

5. The Head of Finance, Head of Internal Audit, and if required, the external auditors, shall normally attend meetings but may be excused at the discretion of the Committee. However, the Committee should meet with the external auditors without any Executive Directors or executives present at least twice a year.

6. The Company must ensure that other Directors and employees attend any particular Committee meeting only at the Committee’s invitation, specific to the relevant meeting.

7. Pursuant to Article 148 of the Company’s Articles of Association, members of the Committee may participate in a meeting of the Committee by means of conference telephone, conference videophone or any similar or other communications equipment by means of which all persons participating in the meeting can hear each other. Such participation in a meeting shall constitute presence in person at such meeting.

8. The Committee may pass circular resolutions in writing, signed by a majority of the members pursuant to Article 149 of the Company’s Articles of Association which shall be valid and effectual as if it is passed at a meeting of the Committee duly convened and held and may consist of several documents in the like form each signed by one or more members.

9. The Company Secretary or, if more than 1 of them, shall be the Secretary of the Committee. In the event any of the Company Secretaries is unable to attend, an assistant or deputy Secretary(s) may be appointed for that specific meeting.

10. The Secretary [which expression includes the assistant or deputy Secretary appointed under Item VII(9)] must give notice of all meetings, record minutes and maintain a record of minutes of all meetings held by the Committee and circulate the minutes of each meeting of the Committee to all members of the Board as a reporting procedure. The Chairman’s confirmation of the Minutes shall be taken as a correct proceeding thereat.

(VIII) Variation 1. The above Terms of Reference may be determined and/or varied by the Company’s Board of Directors

at any time and from time to time.




ACTIVITIES DURING THE YEAR

During the financial year under review, the Committee had:-

1. reviewed with the external auditors the audit plan, results of the audit, audit reports and recommendations;

2. reviewed and adopted the internal audit plan for 2011, including its scope and areas of audit;

3. reviewed and deliberated on activities of audits conducted by the Internal Audit Department for the year under review;

4. reviewed financial statements including quarterly financial announcements to the Bursa Securities and year end financial statements and recommended the same for approval by the Board, upon being satisfied that, inter alia, the financial reporting and disclosure requirements of the relevant authorities had been complied with, including deliberation of any significant issues resulting from the audit of the financial statements by the external auditors;

5. reviewed recurrent related party transactions that were entered into by the Group;

6. reviewed significant accounting policies that were affected by the introduction of the new Malaysian Accounting Standards and Financial Reporting Standards; and

7. reviewed with the external auditors on audit strategy and scope for the statutory audit of the Company’s financial statements for the financial year ended 31 December 2010.

INTERNAL AUDIT FUNCTIONS

The Group has an in-house Internal Audit Department which operates across the Group and independent of the activities or operations of the subsidiaries and departments. The duties of the Internal Audit Department are to provide reasonable assurance in the effective execution of responsibilities of Committee members by providing verifications, examinations and evaluations of the Group’s system of internal controls.

The Head of the Internal Audit Department reports directly to the Committee highlighting major weaknesses in control procedures of auditable areas as set out in the internal audit plan. Where appropriate, relevant corrective and/or preventive actions will also be recommended for implementation in order to further strengthen the existing system of internal controls of the Group. During the year, among others, Internal Audit Department had carried out the following activities:-

• reviewed and ascertained adequacy of internal controls through operational and compliance audits;• reported audit findings of highlighted weaknesses with recommendations to the Audit Committee on a quarterly

basis; and• performed follow-up review for corrective and/or preventive actions of the weaknesses.

The costs amounting to approximately RM425,000 were incurred for the internal audit functions in respect of the financial year ended 31 December 2010.


Statement onInternal Control

The Board of Directors is committed to maintaining a sound system of internal controls in the Group and is pleased to provide the following statement on internal control that outlines the nature and scope of internal control of the Group during the year as required under Paragraph 15.26(b) of the Bursa Malaysia Securities Berhad Main Market Listing Requirements.

RESPONSIBILITY

The Board is ultimately responsible for the Group’s system of internal controls and reviewing its effectiveness. Such a system is designed to manage and reduce, rather than eliminate, the risk of failure to achieve business objectives and can provide only a reasonable and not an absolute assurance against risk. The system of internal controls covers risk management, financial, operational and compliance controls. On-going reviews are and will continuously be carried out to ensure the effectiveness, adequacy and integrity of the system of internal controls in safeguarding the Group’s assets and shareholders’ investment in the Company. The Board also believes that the Group’s system of internal controls and risk management practices are vital to good corporate governance.

RISK MANAGEMENT

The Company has developed a risk management framework and has put in place an Enterprise-Wide Risk Management framework to identify the key risks faced by the Group, the potential impact and likelihood of those risks occurring, the control effectiveness and the action plans being taken to manage those risks to the desired level.

INTERNAL CONTROL

The key elements of the certain operating activities of the Group’s system of internal controls are as follows:-

• An organisational structure specifying lines of responsibility and delegation of authority.

• The Financial Authority Limits delineate authorization limits for securing of jobs and services, purchases of goods and/or services and capital expenditure for each level of management to ensure proper identification of accountabilities and segregation of duties.

• Management executive committee meetings involving the Executive Directors, senior management and projects personnel are conducted to discuss the state of affairs and progress for projects and operational businesses.

• The Quality Assurance departments conduct internal quality audits to monitor compliance with ISO requirements at respective subsidiaries with ISO accreditation.

• The Health, Safety and Environment departments at the fabrication facilities carry out ongoing health, safety and environment activities to promote staff safety awareness and compliance.

• The Board and Audit Committee review the operational and financial performance at quarterly Board and Audit Committee meetings.

The Head of the Group Internal Audit Department reports audit matters directly to the Audit Committee of the Group functionally to preserve the independence of the function. The internal audit work is focused on areas of priority in accordance with its audit plan as approved by the Audit Committee.

ASSOCIATED COMPANIES

The Group’s system of internal controls does not cover associates and jointly controlled entities.

MONITORING

The system of internal controls will continue to be reviewed, added to or updated by the Board in line with the changes in operating environment.

The Board is pleased to report that there were no material losses or contingencies requiring disclosure in the Company’s Annual Report 2010 under review as a result from weaknesses in internal control.


Analysis of Shareholdings as at 18 May 2011

Authorised Share Capital : RM1,250,000,000.00Issued and Paid-up Share Capital : RM1,001,092,593*Class of Shares : Ordinary shares of RM1.00 eachVoting Rights : On show of hand - 1 vote for each shareholder On a poll - 1 vote for each share held *Inclusiveof22,991,275treasuryshares

DISTRIBUTION OF SHAREHOLDINGS (as per Record of Depositors as at 18 May 2011)

No. of No. of Range of Shareholdings Shareholders % Shares % #

Less than 100 1,000 2.98 47,601 0.00100 to 1,000 7,264 21.65 4,745,022 0.491,001 to 10,000 20,473 61.03 77,059,063 7.8810,001 to 100,000 4,289 12.79 111,714,832 11.42100,001 to less than 5% of issued shares 515 1.54 520,800,344 53.255% and above of issued shares 2 0.01 263,734,456 26.96

TOTAL 33,543 100.00 978,101,318 ^ 100.00

^Excluding22,991,275treasuryshares

THIRTY LARGEST SHAREHOLDERS (as per Record of Depositors as at 18 May 2011)

No. Name of Shareholders No. of Shares Held % #

1. Inter Merger Sdn Bhd 203,922,430 20.85 2. Citigroup Nominees (Tempatan) Sdn Bhd 59,812,026 6.12 - Employees Provident Fund Board 3. Lembaga Tabung Haji 34,230,300 3.50 4. Citigroup Nominees (Tempatan) Sdn Bhd 26,320,987 2.69 - Employees Provident Fund Board (PHEIM)

5. HSBC Nominees (Asing) Sdn Bhd 22,518,200 2.30 - Exempt AN for JPMorgan Chase Bank, National Association (Norges BK Lend)

6. Tegas Klasik Sdn Bhd 17,960,727 1.84

7. HSBC Nominees (Asing) Sdn Bhd 17,802,863 1.82 - Exempt AN for JP Morgan Bank Luxembourg S.A. 8. Citigroup Nominees (Asing) Sdn Bhd 13,868,500 1.42 - CIPLC for UBS (Lux) Equity SICAV-Emerging Markets Growth

9. Citigroup Nominees (Tempatan) Sdn Bhd 12,950,000 1.32 - Employees Provident Fund Board (NOMURA)

10. HSBC Nominees (Asing) Sdn Bhd 11,856,000 1.21 - Exempt AN for The Bank of New York Mellon (Mellon ACCT)

11. Citigroup Nominees (Asing) Sdn Bhd 10,055,975 1.03 - CB LDN for Scottish Equitable PLC (SEA)


Analysis of Shareholdingsas at 18 May 2011 (Cont’d)

THIRTY LARGEST SHAREHOLDERS (CONT’D)

No. Name of Shareholders No. of Shares Held % #

12. HSBC Nominees (Asing) Sdn Bhd 9,720,700 0.99 - TNTC for Saudi Arabian Monetary Agency

13. Citigroup Nominees (Asing) Sdn Bhd 9,411,425 0.96 - CBNY for Dimensional Emerging Markets Value Fund

14. Cartaban Nominees (Asing) Sdn Bhd 9,089,900 0.93 - State Street London Fund JY67 for the Emerging Markets Equity Fund (RIC PLC)

15. Cartaban Nominees (Asing) Sdn Bhd 8,446,900 0.86 - Government of Singapore Investment Corporation Pte Ltd for Government of Singapore (C)

16. HSBC Nominees (Asing) Sdn Bhd 6,444,400 0.66 - Exempt AN for JPMorgan Chase Bank, National Association (U.S.A.)

17. HSBC Nominees (Asing) Sdn Bhd 6,086,500 0.62 - HSBC-FS for LEGG Mason Western Asset Southeast Asia Special Situations Trust (201061)

18. Cartaban Nominees (Asing) Sdn Bhd 5,843,850 0.60 - SSBT Fund FJ4V for Asian Small Companies Portfolio

19. DB (Malaysia) Nominee (Asing) Sdn Bhd 5,571,800 0.57 - Exempt AN for Deutsche Bank AG Singapore (PWM Asing)

20. Permodalan Nasional Berhad 5,400,000 0.55

21. Lee Swee Eng 5,062,500 0.52

22. HSBC Nominees (Asing) Sdn Bhd 4,772,648 0.49 - Exempt AN for JPMorgan Chase Bank, National Association (Saudi Arabia)

23. HSBC Nominees (Asing) Sdn Bhd 4,590,000 0.47 - Exempt AN for JPMorgan Chase Bank, National Association (Norges BK NLend)

24. Citigroup Nominees (Tempatan) Sdn Bhd 4,568,068 0.47 - ING Insurance Berhad (INV-IL PAR)

25. Gan Siew Liat 4,197,500 0.43

26. SBB Nominees (Tempatan) Sdn Bhd 4,063,400 0.41 - Kumpulan Wang Persaraan (Diperbadankan)

27. Cartaban Nominees (Asing) Sdn Bhd 4,049,000 0.41 - State Street Luxembourg Fund DW37 for DWS Invest Asian Small/Mid Cap (DWS INVST SICAV)

28. TASEC Nominees (Tempatan) Sdn Bhd 4,043,750 0.41 - Tiah Thee Kian

29. HSBC Nominees (Asing) Sdn Bhd 3,990,800 0.41 - BNYM SA/NV for UBS (JP) Emerging Markets Growth Mother Fund (MTBJ)

30. Ooi Cheow Har 3,875,000 0.40 TOTAL 540,526,149 55.26


Analysis of Shareholdings as at 18 May 2011 (Cont’d)

SHAREHOLDINGS OF SUBSTANTIAL SHAREHOLDERS (as per Register of Substantial Shareholders of the Company as at 18 May 2011)

No. of Shares Held in KNM Group Berhad Name of Shareholders Direct % # Indirect % #

Inter Merger Sdn Bhd 204,956,833 20.95 – –Ir Lee Swee Eng 12,426,186 1.27 222,917,560 a 22.79Gan Siew Liat 4,197,500 0.43 222,917,560 b 22.79Employees Provident Fund Board 104,702,013 10.70 – –Elliott Capital Advisors L.P. – – 49,012,200 c 5.01

DIRECTORS’ INTERESTS IN SHARES IN KNM GROUP BERHAD AND RELATED CORPORATION (as per Register of Directors’ Shareholdings of the Company as at 18 May 2011)

No. of Shares Held in KNM Group Berhad Name of Directors Direct % # Indirect % #

Ir Lee Swee Eng 12,426,186 1.27 222,917,560 a 22.79Lim Yu Tey 875,000 0.09 – –Dato’ Ab Halim bin Mohyiddin 1,362,500 0.14 – –Datuk Karownakaran @ Karunakaran a/l Ramasamy – – – –Gan Siew Liat 4,197,500 0.43 222,917,560 b 22.79Chew Fook Sin 3,057,300 0.31 17,960,727 d 1.84Ng Boon Su – – – –

Members’ Capital Contribution KPS Technology & Engineering LLC Name of Director Direct % Indirect %

Ir Lee Swee Eng USD100,000 10.81 USD600,000 e 64.87

Notes:# Percentageinterestisbasedonthetotalissuedandpaid-upsharecapitalofRM978,101,318comprising1,001,092,593

ordinarysharesofRM1.00eachexcluding22,991,275treasurysharesheldasat18May2011.a DeemedinterestedbyvirtueofhisindirectinterestinInterMergerSdnBhd(“IMSB”)anddirectinterestinTegasKlasikSdn

Bhd(“TKSB”).b DeemedinterestedbyvirtueofherindirectinterestinIMSBandthedirectinterestofherspouse,IrLeeSweeEnginTKSB.c Deemedinterestedpursuanttosection6AoftheCompaniesAct1965.d DeemedinterestedbyvirtueofhisdirectinterestinTKSB.e DeemedinterestedbyvirtueofhisdirectandindirectinterestsinKNMGroupBerhad.


List of Top 10Major Propertiesowned by the Group as at 31 December 2010

Location Existing Use TenureLandArea

Built-upArea

ApproximateAge Of The

Building

Date ofAcquisition/Revaluation

Net Book Value(RM’000)

1. Via Valtrighe, 5 & 624030 Terno d’lsola (BG)Italy; &

Via Italia24030 Mapello (BG)ltaly

(i) Fabrication plant

(ii) Staff house

(iii) Staff house

(iv) Agricultural area

(v) Industrial area

(vi) Reserved area

–

–

–

–

–

–

–

–

–

22,595 m2

194,660 m2

3,225 m2

48,582 m2

396 m2

120 m2

–

–

–

1st phase – 44 years

2nd phase – 19 years

50 years

29 years

–

–

–

31/12/2009

–

–

–

–

31/12/2009

} 93,986}}}}}}}}}}}}}}}

2. 6204-46 AveTofield, AB TOB 450Canada

(i) Industrial land (ii) Fabrication plant &

office building

–

–

457,299 m2

–

–

9,862 m2

–

–

31/12/2009

31/12/2009

} 36,570}}}

3. Kawasan Industri Terpadu KabilJl. Hang Kesturi 1 Kav A21Kelurahan Batu BesarKecematan NongsaBatam 29467Indonesia

(i) Industrial land

(ii) Fabrication plant & office building

(ii) Industrial land

(iv) Office building

Leasehold(30 years)

expiring on13/8/2036

–

Leasehold(30 years)

expiring on4/6/2015

–

82,824 m2

–

30,894 m2

–

–

17,493 m2

–

3,692 m2

–

–

–

–

–

–

–

–

–

–

} 34,589}}}}}}}}}}}}}

4. Jebel Ali Free ZoneDubai, UAE

Fabrication plant &office building

Leasehold(10 years)


90,000 m2 23,000 m2 19 years 28/12/2009 } 33,126}}}

5. Selferitzer Allee 26Meerane, Germany



(extension on adjacent land)

Leasehold(63 years)


Leasehold(66 years)


12,000 m2

10,500 m2

5,093 m2

5,300 m2

5 years

2 years

1/8/2005

19/2/2008

} 33,008}}}}}}}}

6. Lot 1863, Jalan Pelabuhan 2Kuantan Port26080 KuantanPahang Darul MakmurMalaysia


– 134,153 m2 28,230 m2 6 years 31/12/2009 } 29,560}}}}

7. Jiangsu Province ChangshuEconomic Development Area -“Chang Rang Guo Yong(2002) Zi No. 192”;

“Shu Fangquanzheng BixiZi No. 10001641”;

“Chang Guo Yong (2009)Zi No. 04329”; &

“Shu Fangquanzheng BixiZi No. 10001644”,China

(i) Industrial land


(iii) Industrial land

(iv) Fabrication plant & office building

Leasehold(50 years)

expiring on 9/7/2052

Leasehold(50 years)


Leasehold(50 years)


Leasehold(50 years)


33,537 m2

–

33,333 m2

–

–

17,012 m2

–

23,818 m2

–

9 years

–

4 years

27/12/2004

31/12/2009

31/12/2008

31/12/2009

} 27,236}}}}} }}}}}}}}}}}}}


Location Existing Use TenureLandArea

Built-upArea

ApproximateAge Of The

Building

Date ofAcquisition/Revaluation

Net Book Value(RM’000)

8. Lot 208, Jalan PBR 19 &Lots 2835 & 2836, Jalan PBR 22Bukit Rambai Industrial EstateTanjung Minyak, MelakaMalaysia

(i) Industrial land (Lot 2837)

(ii) Industrial land (Lot 2836)

(iii) Industrial land (Lot 2835)


(Lot 2837)

(v) Fabrication plant & office building

(Lots 2835 & 2836)

Leasehold(99 years)


Leasehold(99 years)


Leasehold(99 years)


–

–

17,769 m2

5,042 m2

5,857 m2

–

–

–

6,612 m2

–

9,879 m2

6,369 m2

–

–

–

19 years

7 years

31/12/2004

31/12/2004

31/12/2004

31/12/2009

31/12/2009

} 19,464}}}}} }}}}}}}}}}}}}}}}

9. Lot - Piranema Streetcorner with Republic Square andCeciliano Adel de Almeida StreetSerra, Espirito Santo;

Lot - Luiz Prestes Streetcorner with Jacob Dalla StreetSerra, Espirito Santo;

Lot - North Road BR -101KM127 SooretamaEspirito Santo;

Building Galpao SooretamaBR - 101, KM127 SooretamaEspirito Santo;

Lot - Area ICastelo Branco Avenue1577 CarapinaSerra, Espirito Santo;

Lot - Area IICastelo Branco Avenue1577 CarapinaSerra, Espirito Santo; &

Lot - Area I & IICastelo Branco Avenue1577 CarapinaSerra, Espirito Santo,Brazil

(i) Vacant land

(ii) Vacant land

(iii) Fabrication plant & office building


(v) Fabrication plant & office building

(vi) Fabrication plant

(vii)Fabrication plant & office building

Freehold

Freehold

Freehold

Freehold

Freehold

Freehold

Freehold

3,037 m2

1,747 m2

190,000 m2

–

13,015 m2

12,800 m2

–

–

–

–

9,658 m2

–

–

9,740 m2

–

–

–

–

–

–

32 years

31/12/2009

31/12/2009

31/12/2009

31/12/2009

3/12/2009

3/12/2009

3/12/2009

} 16,706}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}

10. Bottroper Strasse 279GladbeckGermany


Freehold 26,290 m2 6,363 m2 49 years 2/6/2008 } 13,617}}}

List of Top 10Major Properties

owned by the Group as at 31 December 2010 (Cont’d)


37 Directors’ Report

41 Statements of Financial Position

43 Statements of Comprehensive Income

45 Consolidated Statement of Changes in Equity

46 Statement of Changes in Equity

47 Statements of Cash Flows

50 Notes to the Financial Statements

116 Statement by Directors

116 Statutory Declaration

117 Independent Auditors’ Report

Financial Statements

Directors’ Reportfor the year ended 31 December 2010

The Directors have pleasure in submitting their report and the audited financial statements of the Group and of the Company for the year ended 31 December 2010.

PRINCIPAL ACTIVITIES

The Company is principally engaged in investment holding and provision of management services, whilst the principal activities of the subsidiaries are as stated in Note 30 to the financial statements. There has been no significant change in the nature of these activities during the financial year.

RESULTS

Group Company RM’000 RM’000

Profit attributable to: Owners of the Company 118,201 24,375 Minority interest 4,272 –

122,473 24,375

RESERVES AND PROVISIONS

There were no material transfers to or from reserves and provisions during the financial year except as disclosed in the financial statements.

DIVIDENDS

Since the end of the previous financial year, no dividends were paid during the financial year under review.

On 23 February 2011, the Board of Directors declared an interim ordinary dividend of 3 sen per share tax exempt totaling RM29,343,040 in respect of the year ended 31 December 2010. The dividend was paid on 19 April 2011.

DIRECTORS OF THE COMPANY

Directors who served since the date of the last report are:

Lee Swee Eng Dato’ Ab. Halim bin Mohyiddin Lim Yu Tey Gan Siew Liat Chew Fook Sin Ng Boon Su Datuk Karownakaran @ Karunakaran A/L Ramasamy (Appointedon27July2010) Dato’ Mohamad Idris bin Mansor (Resignedon28April2010)


DIRECTORS’ INTERESTS IN SHARES

The interests and deemed interests in the shares of the Company and of its related corporations (other than wholly-owned subsidiaries) of those who were Directors at year end (including the interest of the spouses or children of the Directors who themselves are not Directors of the Company) as recorded in the Register of Directors’ Shareholdings are as follows:

Number of ordinary shares of RM1.00* each At Share At 1.1.2010 Bought Sold Consolidation* 31.12.2010

Shareholdings in whichdirectors have directinterests in the Company

Lee Swee Eng 45,384,745 – – (34,038,559) 11,346,186Dato’ Ab. Halim bin Mohyiddin 5,450,000 – – (4,087,500) 1,362,500Lim Yu Tey 3,500,000 – – (2,625,000) 875,000Gan Siew Liat 16,790,000 – – (12,592,500) 4,197,500Chew Fook Sin 12,229,200 – – (9,171,900) 3,057,300

Shareholdings in whichdirectors have indirectinterests in the Company

Lee Swee Eng 891,670,245 – – (668,752,684) 222,917,561Gan Siew Liat 891,670,245 – – (668,752,684) 222,917,561Chew Fook Sin 71,842,908 – – (53,882,181) 17,960,727 * TheordinarysharesofRM0.25eachwereconsolidatedintoordinarysharesofRM1.00eachduringthefinancial

year.

Number of ordinary shares of USD 1 each At At 1.1.2010 Bought Sold 31.12.2010

Shareholdings in which a directorhas direct interest in a subsidiary - KPS technology & Engineering LLC

Lee Swee Eng 100,000 – – 100,000

By virtue of their interests in the Company, Lee Swee Eng, Gan Siew Liat and Chew Fook Sin are also deemed to have interests in the subsidiaries during the financial year to the extent that KNM Group Berhad has an interest. None of the other Directors holding office at 31 December 2010 had any interest in the ordinary shares of the Company and of its related corporations during the financial year.

DIRECTORS’ BENEFITS

Since the end of the previous financial year, no Director of the Company has received nor become entitled to receive any benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by certain Directors as shown in the financial statements or the fixed salaries of full time employees of the Company or of related corporation) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which the Director is a member, or with a corporation in which the Director has a substantial financial interest, other than as disclosed in Note 26 to the financial statements.

There were no arrangements during and at the end of the financial year which had the object 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.

Directors’ Reportfor the year ended 31 December 2010 (Cont’d)



ISSUE OF SHARES AND DEBENTURES

At the Extraordinary General Meeting held on 19 November 2010, the shareholders of the Company approved the share consolidation of every four (4) ordinary shares of RM0.25 each into one (1) ordinary share of RM1.00 each.

There were no other changes in the authorised, issued and paid-up capital of the Company during the financial year.

There were no debentures issued during the financial year.

OPTIONS GRANTED OVER UNISSUED SHARES

No options were granted to any person to take up unissued shares of the Company during the year.

ShaRE Buy-BaCk

On 23 June 2010, the shareholders of the Company renewed the Company’s plan to repurchase its own shares as disclosed in Note 14.2 to the financial statements. During the financial year, the Company repurchased 21,110,000 of its issued ordinary shares of RM0.25 each listed on the Main Market of Bursa Malaysia Securities Berhad from the open market at an average price of approximately RM0.49 per share. The total consideration paid was RM10,456,083 including transaction costs of RM28,083. The repurchase transactions were financed by internally generated funds. The shares repurchased are retained as treasury shares. None of the treasury shares held were resold or cancelled during the financial year.

As at 31 December 2010, the Company held 19,797,375 ordinary shares of RM1.00 each as treasury shares out of its total issued and paid-up share capital. Hence, the number of outstanding shares in issue and paid-up after deducting treasury shares as at 31 December 2010 is 981,295,218 ordinary shares of RM1.00 each. The treasury shares have no rights to voting, dividends or participation in other distributions.

Subsequent to the financial year end, the Company repurchased 3,193,900 of its own shares for a total cash consideration of RM8,426,326 from the open market.

OTHER STATUTORY INFORMATION

Before the statements of comprehensive income and statements of financial position of the Group and of the Company were made out, the Directors took reasonable steps to ascertain that:

(i) all known bad debts have been written off and adequate provision made for doubtful debts, and

(ii) all current assets which were unlikely to be realised in the ordinary course of business have been written down to an amount which they might be expected so to realise.

At the date of this report, the Directors are not aware of any circumstances:

(i) that would render the amount written off for bad debts, or the amount of the provision for doubtful debts in the Group and in the Company inadequate to any substantial extent, or

(ii) that would render the value attributed to the current assets in the financial statements of the Group and of the Company misleading, or

(iii) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the

Group and of the Company misleading or inappropriate, or

(iv) not otherwise dealt with in this report or the financial statements, that would render any amount stated in the financial statements of the Group and of the Company misleading.


OTHER STATUTORY INFORMATION (CONT’D)

At the date of this report, there does not exist:

(i) any charge on the assets of the Group or of the Company that has arisen since the end of the financial year and which secures the liabilities of any other person, or

(ii) any contingent liability in respect of the Group or of the Company that has arisen since the end of the financial year.

No contingent liability or other liability of any company in the Group has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due.

In the opinion of the Directors, except for the effects arising from the change in accounting policies as disclosed in the financial statements, financial performance of the Group and of the Company for the financial year ended 31 December 2010 have not been substantially affected by any item, transaction or event of a material and unusual nature nor has any such item, transaction or event occurred in the interval between the end of that financial year and the date of this report.

SIGNIFICANT EVENTS DURING THE YEAR

The significant events during the year are as disclosed in Note 31 to the financial statements.

SUBSEQUENT EVENTS

The significant subsequent events are as disclosed in Note 32 to the financial statements.

AUDITORS

The auditors, Messrs KPMG, have indicated their willingness to accept re-appointment.

Signed on behalf of the Board of Directors in accordance with a resolution of the Directors:

…………………………………………………………Dato’ Ab. Halim bin Mohyiddin

…………………………………………………………Lee Swee Eng

Kuala Lumpur,

Date: 29 April 2011



Statements ofFinancial Position

as at 31 December 2010

Group Company Note 31.12.2010 31.12.2009 1.1.2009 31.12.2010 31.12.2009 RM’000 RM’000 RM’000 RM’000 RM’000 restated restated

Assets Property, plant and equipment 3 748,722 836,016 752,677 – – Goodwill 4 798,974 955,173 928,168 – – Other intangible asset 4 620,858 782,670 845,806 – – Interest in subsidiaries 5 – – – 1,131,333 38,186 Interest in associates 6 455 1,652 2,212 – – Interest in jointly-controlled entities 7 316 – – – – Other investments, including derivatives 8 3,620 2,632 2,720 – – Deferred tax assets 9 195,946 107,119 36,351 – 333 Amount due from subsidiary 10 – – – 351,330 1,481,707

Total non-current assets 2,368,891 2,685,262 2,567,934 1,482,663 1,520,226

Other investment, including derivatives 8 16,331 – – – – Inventories 11 69,063 106,571 97,166 – – Trade and other receivables 12 718,406 770,256 1,251,168 184,514 187,545 Current tax assets 55,224 6,461 16,492 – – Cash and cash equivalents 13 296,237 571,723 516,303 3,777 128,405

Total current assets 1,155,261 1,455,011 1,881,129 188,291 315,950

Total assets 3,524,152 4,140,273 4,449,063 1,670,954 1,836,176

Equity Share capital 1,001,093 1,001,093 989,610 1,001,093 1,001,093 Reserves (213,480) 189,562 217,600 274,838 285,294 Retained earnings 930,828 818,031 606,683 39,319 14,944

Total equity attributable to owners of the Company 14 1,718,441 2,008,686 1,813,893 1,315,250 1,301,331Minority interest 12,328 3,046 6,224 – –

Total equity 1,730,769 2,011,732 1,820,117 1,315,250 1,301,331


Statements ofFinancial Positionas at 31 December 2010 (Cont’d)

Group Company Note 31.12.2010 31.12.2009 1.1.2009 31.12.2010 31.12.2009 RM’000 RM’000 RM’000 RM’000 RM’000 restated restated

Liabilities Loans and borrowings 15 380,493 592,037 296,722 250,950 351,330 Long term payables 16 25,552 32,810 30,672 – – Long service leave liability 1,911 3,302 2,514 – – Deferred tax liabilities 9 265,928 338,440 429,361 – –

Total non-current liabilities 673,884 966,589 759,269 250,950 351,330

Loans and borrowings 15 664,641 663,185 1,133,667 100,380 175,665 Trade and other payables 17 446,920 495,558 702,611 3,653 7,540 Current tax liabilities 7,938 3,209 33,399 721 310

Total current liabilities 1,119,499 1,161,952 1,869,677 104,754 183,515

Total liabilities 1,793,383 2,128,541 2,628,946 355,704 534,845

Total equity and liabilities 3,524,152 4,140,273 4,449,063 1,670,954 1,836,176

The notes on pages 50 to 114 are an integral part of these financial statements.


Statements ofComprehensive Income

for the year ended 31 December 2010

Group Company Note 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000 restated

RevenueContract revenue 1,556,975 1,825,665 – –Sales of goods and services 2,128 13,910 – – Management fees – – 3,336 5,188Dividend income – – 25,000 –

1,559,103 1,839,575 28,336 5,188

Cost of salesContract costs recognised as an expense (1,264,550) (1,403,343) – – Cost of goods sold and services (1,195) (11,939) – – (1,265,745) (1,415,282) – –

Gross profit 293,358 424,293 28,336 5,188Other income 45,053 137,743 – –Administration expenses (203,194) (199,399) (5,962) (3,747)Other operating expenses (38,033) (158,561) (53) (102)

Results from operating activities 18 97,184 204,076 22,321 1,339Financing costs 20 (54,193) (72,038) (19,817) (26,020)Interest income 3,282 6,552 23,194 28,521Share of profit/(loss) in associates and jointly-controlled entities, net of tax 237 (476) – –

Profit before tax 46,510 138,114 25,698 3,840Tax expense 21 75,963 119,733 (1,323) (1,191)

Profit for the year 122,473 257,847 24,375 2,649

Other comprehensive income Foreign currency translation differences for foreign operations (132,712) 10,970 – – Net investment in subsidiary (259,056) (62,127) – – Cash flow hedge 4,761 – – – Surplus on revaluation of property, plant and equipment – 43,677 – –

Tax effect of revaluation of property, plant and equipment – (6,356) – –

Total other comprehensive income for the year net of tax (387,007) (13,836) – – Total comprehensive income for the year (264,534) 244,011 24,375 2,649


Group Company Note 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000 restated

Profit attributable to: Owners of the Company 118,201 260,556 24,375 2,649 Minority interest 4,272 (2,709) – –

Profit for the year 122,473 257,847 24,375 2,649

Total comprehensive income attributable to: Owners of the Company (268,141) 245,644 24,375 2,649 Minority interests 3,607 (1,633) – –

Total comprehensive income for the year (264,534) 244,011 24,375 2,649

Basic earnings per ordinary share (sen) 22 12.02 26.29


Statements ofComprehensive Incomefor the year ended 31 December 2010 (Cont’d)


Consolidated Statementof Changes in Equity


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Statementof Changes in Equityfor the year ended 31 December 2010

Attributable to owners of the Company Non-distributable distributable Share Share Treasury Share option Retained Note capital premium shares reserve earnings TotalCompany RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 January 2009 989,610 319,139 (21,006) 287 61,503 1,349,533Total comprehensive income for the year – – – – 2,649 2,649Issuance of shares - ESOS 11,483 – – – – 11,483Dividend to shareholders 23 – – – – (49,208) (49,208)Transfer to share premium for share options exercised – 287 – (287) – –Share buy-back – – (13,126) – – (13,126)

At 31 December 2009/ 1 January 2010 1,001,093 319,426 (34,132) – 14,944 1,301,331Total comprehensive income for the year – – – – 24,375 24,375Share buy-back – – (10,456) – – (10,456)

At 31 December 2010 1,001,093 319,426 (44,588) – 39,319 1,315,250

Note 14.1 Note 14.2 Note 14.5 Note 14.8



Statements ofCash Flows


Group Company Note 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Cash flows from operating activities Profit before tax 46,510 138,114 25,698 3,840 Adjustments for: Amortisation of intangible assets 33,506 59,639 – – Depreciation of property, plant and equipment 7,788 6,878 – – Dividend income – – (25,000) – (Gain)/Loss on disposal of property, plant and equipment (26) 575 – – (Gain)/Loss on foreign exchange - unrealised (3,091) 46,508 – 95 Interest expenses 48,963 61,379 19,723 26,019 Interest income (3,282) (6,552) (23,194) (28,521) Impairment loss on property, plant and equipment – 4,825 – – Provision for foreseeable losses 12,521 38,450 – – Share of (profit)/loss in associates and jointly-controlled entities (237) 476 – – Change in fair value of forward contract (13,577) – – –

Operating profit/(loss) before changes in working capital 129,075 350,292 (2,773) 1,433 Changes in working capital: Inventories 37,509 (8,638) – – Receivables, deposits and prepayments 47,331 359,343 1,306 1,846 Payables and accruals and long service leave liability (66,915) (203,915) (4,062) 4,409

Cash generated from/ (used in) operations 147,000 497,082 (5,529) 7,688 Tax paid (93,251) (69,632) (579) (1,423) Interest paid (1,622) (24) – – Interest received 3,282 6,552 23,194 28,521

Net cash generated from operating activities 55,409 433,978 17,086 34,786



Cash flows from investing activities Acquisition of other intangible assets (1,725) (3,070) – – Deemed acquisition of minority interest due to fair value adjustment 837 (1,544) – – Acquisition of property, plant and equipment (ii) (56,350) (81,959) – – Acquisition of subsidiaries, net of cash acquired – (5,525) – – Advances to subsidiary companies – – 39,740 (367,810) Investment in jointly-controlled entity (337) (500) – – Investment in subsidiary companies – – (610) – Proceeds from disposal of property, plant and equipment 1,080 3,029 – – Dividend Received – – 25,000 – Proceeds from issuance of share to minority interest 6,288 – – –

Net cash (used in)/generated from investing activities (50,207) (89,569) 64,130 (367,810)

Cash flows from financing activities Dividend paid to shareholders of the Company – (49,208) – (49,208) Finance charges/Interest paid (47,341) (61,355) (19,723) (26,019) Proceeds from CP/MTN 85,000 310,000 – – Repayment of CP/MTN (90,000) (340,000) – – Proceeds from issuance of share capital – 11,483 – 11,483 Proceeds from/(Repayment of) bills payable 9,041 (43,734) – – Repayment of finance lease liabilities (5,596) (252) – – Repayment of term loans and revolving credit (212,488) (120,587) (175,665) 526,995 Share buy-back (10,456) (13,126) (10,456) (13,126) Dividend paid to minority interest (613) – – –

Net cash (used in)/generated from financing activities (272,453) (306,779) (205,844) 450,125

Net (decrease)/increase in cash and cash equivalents (267,251) 37,630 (124,628) 117,101Cash and cash equivalents at 1 January 553,783 516,153 128,405 11,304

Cash and cash equivalents at 31 December (i) 286,532 553,783 3,777 128,405

Statements ofCash Flowsfor the year ended 31 December 2010 (Cont’d)


(i) Cash and cash equivalents

Cash and cash equivalents included in the cash flow statements comprise the following balance sheet amounts:

Group Company 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000

Cash and bank balances 211,390 373,766 518 966Deposits with licensed banks and financial institutions 84,847 197,957 3,259 127,439Bank overdrafts (9,705) (17,940) – –

286,532 553,783 3,777 128,405

(ii) Acquisition of property, plant and equipment

During the financial year, the Group acquired property, plant and equipment with an aggregate cost of RM68,538,000 (2009: RM83,576,000), of which RM12,188,000 (2009: RM1,617,000) was acquired by means of hire purchase.


Statements ofCash Flows

for the year ended 31 December 2010 (Cont’d)


Notes to theFinancial Statements

KNM Group Berhad is a public limited liability company, incorporated and domiciled in Malaysia and is listed on the Main Market of the Bursa Malaysia Securities Berhad. The addresses of the principal place of business and registered office are as follows:

Registered office and principal place of business15, Jalan Dagang SB 4/1Taman Sungai Besi Indah 43300 Seri KembanganSelangor Darul Ehsan

The consolidated financial statements of the Company as at and for the year ended 31 December 2010 comprise the Company and its subsidiaries (together referred to as the “Group” and individually referred to as “Group entities”) and the Group’s interest in associates and jointly controlled entities. The financial statements of the Company as at and for the year ended 31 December 2010 do not include other entities.

The Company is principally engaged in investment holding activities and provision of management services, whilst the principal activities of the subsidiaries are as stated in Note 30 to the financial statements.

The financial statements were authorised for issue by the Board of Directors on 29 April 2011.

1. BASIS OF PREPARATION

(a) Statement of compliance

The financial statements of the Group and of the Company have been prepared in accordance with Financial Reporting Standards (“FRSs”), generally accepted accounting principles and the Companies Act, 1965 in Malaysia.

The Group and the Company have not applied the following accounting standards, interpretations and amendments that have been issued by the Malaysian Accounting Standards Board (MASB) which are not yet effective for the Group and the Company:

FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 March 2010• Amendments to FRS 132, FinancialInstruments:Presentation-ClassificationofRightsIssues

FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 July 2010• FRS 1, First-timeAdoptionofFinancialReportingStandards (revised)• FRS 3, BusinessCombinations (revised)• FRS 127, ConsolidatedandSeparateFinancialStatements (revised)• Amendments to FRS 2, Share-basedPayment• Amendments to FRS 5, Non-current Assets Held for Sale and Discontinued Operations• Amendments to FRS 138, Intangible Assets• IC Interpretation 12, Service Concession Agreements• IC Interpretation 16, HedgesofaNetInvestmentinaForeignOperation• IC Interpretation 17, Distributions of Non-cash Assets to Owners• Amendments to IC Interpretation 9, ReassessmentofEmbeddedDerivatives

FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2011• Amendments to FRS 1, First-timeAdoptionofFinancialReportingStandards

– LimitedExemptionfromComparativeFRS7DisclosuresforFirst-timeAdopters– AdditionalExemptionsforFirst-timeAdopters

• Amendments to FRS 2, GroupCash-settledShareBasedPaymentTransactions• Amendments to FRS 7, FinancialInstruments:Disclosures–ImprovingDisclosuresaboutFinancial

Instruments• IC Interpretation 4, DeterminingwhetheranArrangementcontainsaLease• IC Interpretation 18, Transfers of Assets from Customers• Improvements to FRSs (2010)



(Cont’d)

1. BASIS OF PREPARATION (CONT’D)

(a) Statement of compliance (Cont’d)

FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 July 2011• IC Interpretation 19, ExtinguishingFinancialLiabilitieswithEquityInstruments• Amendments to IC Interpretation 14, PrepaymentsofaMinimumFundingRequirement

FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2012• FRS 124, RelatedPartyDisclosures (revised)• IC Interpretation 15, AgreementsfortheConstructionofRealEstate

The Group and the Company plan to apply the abovementioned standards, interpretations and amendments from the annual period beginning 1 January 2011 for those standards, interpretations and amendments that will be effective for annual periods beginning on or after 1 March 2010, 1 July 2010 and 1 January 2011, except for FRS 1 (revised), Amendments to FRS 1, Amendments to FRS 2, Amendments to FRS 5 and IC Interpretation 12, which are not applicable to the Group and the Company.

Following the announcement by the MASB on 1 August 2008, the Group and the Company’s financial statements will be prepared in accordance with the International Financial Reporting Standards (IFRS) framework for annual periods beginning on 1 January 2012.

The initial application of a standard, an amendment or an interpretation, which will be applied prospectively, or which requires extended disclosures, is not expected to have any financial impacts to the current and prior periods financial statements upon their first adoption.

The initial applications of the other standards, amendments and interpretations are not expected to have any material impact on the financial statements of the Group and the Company other than expected changes in accounting policies as discussed below.

(i) FRS 3 (revised), Business Combination

FRS 3 (revised) incorporates the following changes that are likely to be relevant to the Group’s operation:

• The definition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations.

• Contingent consideration will be measured at fair value, with subsequent changes therein recognised in profit or loss.

• Transaction costs, other than share and debt issue costs, will be expensed as incurred.

• Any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognised in profit or loss.

• Any minority (will be known as non-controlling) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis.

FRS 3 (revised), which becomes mandatory for the Group’s 2011 consolidated financial statements, will be applied prospectively and therefore there will be no impact on prior periods in the Group’s 2011 consolidated financial statements.


Notes to theFinancial Statements(Cont’d)

1. BASIS OF PREPARATION (CONT’D)

(a) Statement of compliance (Cont’d)

(ii) FRS 127 (2010), Consolidated and Separate Financial Statements

• The amendments to FRS 127 require changes in group composition to be accounted for as equity transactions between the group and its minority (will be known as non-controlling) interest holders. Currently, changes in group composition are accounted for in accordance with the accounting policies as described in note 2 (a)(iv).

• The amendments to FRS 127 require all losses attributable to minority interest to be absorbed by minority interest i.e., the excess and any further losses exceeding the minority interest in the equity of a subsidiary are no longer charged against the Group’s interest. Currently, such losses are accounted for in accordance with the accounting policies as described in note 2 (a)(vi).

The above changes in accounting policies are not expected to have material impacts to the Group.

(b) Basis of measurement

The financial statements have been prepared on the historical cost basis except as disclosed in the notes to the financial statements.

(c) Functional and presentation currency

These financial statements are presented in Ringgit Malaysia (RM), which is the Company’s functional currency. All financial information is presented in RM and has been rounded to the nearest thousand, unless otherwise stated.

(d) Use of estimates and judgements

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimate is revised and in any future periods affected.

There are no significant areas of estimation uncertainty and critical judgements in applying accounting policies that have significant effect on the amount recognised in the financial statements other than those disclosed in the following note:

• Note3 - Revaluationofpropertyanddepreciationofplantandmachinery• Note4 - Measurementoftherecoverableamountsofthecash-generatingunits• Note9 - Recognitionofunutilisedtaxlossesandunabsorbedcapitalallowances• Note12.1 - Constructionwork-in-progress

2. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to the periods presented in these financial

statements, and have been applied consistently by Group entities, other than those disclosed in the following notes:

Note 2 (c) – Financial instrumentsNote 2 (e) – Leased assetsNote 2 (r) – Operating segments



(Cont’d)

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(a) Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities, including unincorporated entities, controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. Subsidiaries are consolidated using the purchase method of accounting.

Under the purchase method of accounting, the financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Investments in subsidiaries are stated in the Company’s statement of financial position at cost less any impairment losses, unless the investment is classified as held for sale (or included in a disposal group that is classified as held for sale).

(ii) Associates

Associates are entities including unincorporated entities, in which the Group has significant influence, but not control, over the financial and operating policies.

Investment in associates are accounted for in the consolidated financial statements using the equity method less any impairment losses, unless it is classified as held for sale or included in a disposal group that is classified as held for sale. The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of the equity accounted associates, after adjustments if any, to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.

When the Group’s share of losses exceeds its interest in an equity accounted associate, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.

Investments in associates are stated in the Company’s statement of financial position at cost less any impairment losses, unless the investment is classified as held for sale.

(iii) Jointly-controlled entities

A jointly-controlled entity is an entity over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions.

Investment in jointly-controlled entities are accounted for in the consolidated financial statements using the equity method less any impairment losses (unless it is classified as held for sale or included in a disposal group that is classified as held for sale). The consolidated financial statements include the Group’s share of the profit or loss of the equity accounted jointly-controlled entity, after adjustments if any, to align the accounting policies with those of the Group, from the date that joint-control commences until the date that joint-control ceases.

When the Group’s share of losses exceeds its interest in an equity accounted jointly-controlled entity, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the jointly-controlled entity.

Investments in jointly-controlled entities are stated in the Company’s statement of financial position

at cost less any impairment losses, unless the investment is classified as held for sale or include in a diposal group that is classified as held for sale.



2. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of consolidation (Cont’d)

(iv) Changes in Group composition

When a group purchases a subsidiary’s equity shares from minority interests for cash consideration and the purchase price has been established at fair value, the accretion of the Group’s interests in the subsidiary is accounted for as a purchase of equity interest for which the acquisition method of accounting is applied.

The Group treats all other changes in group composition as equity transactions between the Group and its minority shareholders. Any difference between the Group’s share of net assets before and after the change, and any consideration received or paid, is adjusted to or against Group reserves.

(v) transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

(vi) Minority interest

Minority interest at the end of the reporting period, being the portion of the net identifiable assets of subsidiaries attributable to equity interests that are not owned by the Company, whether directly or indirectly through subsidiaries, are presented in the consolidated statement of financial position and statement of changes in equity within equity, separately from equity attributable to the owners of the Company. Minority interests in the results of the Group is presented on the face of the consolidated statement of comprehensive income as an allocation of the total comprehensive income for the year between minority interest and the owners of the Company.

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Group’s interest is allocated with all such profits until the minority’s share of losses previously absorbed by the Group has been recovered.

(b) Foreign currency

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies at the end of reporting period are retranslated to the functional currency at the exchange rate at that date.

Non-monetary assets and liabilities denominated in foreign currencies are not retranslated at the end of the reporting date except for those that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments or a financial instrument designated as a cash flow hedge of currency risk, which are recognised in other comprehensive income.



(Cont’d)


(b) Foreign currency (Cont’d)

(ii) operations denominated in functional currencies other than Ringgit Malaysia (RM)

The assets and liabilities of operations in functional currencies other than RM, including goodwill and fair value adjustments arising on acquisition, are translated to RM at exchange rates at the end of the reporting period, except for goodwill and fair value adjustments arising from business combinations before 1 January 2006 which are reported using the exchange rates at the dates of the acquisitions. The income and expenses of foreign operations are translated to RM at exchange rates at the dates of the transactions.

Foreign currency differences are recognised in other comprehensive income and accumulated

in the foreign currency translation reserve (FCTR). When a foreign operation is disposed of, in part or in full, the relevant amount in the FCTR is transferred to profit or loss as part of the profit or loss on disposal.

When settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and are presented in the FCTR within equity.

(c) Financial instruments

Arising from the adoption of FRS 139, FinancialInstruments:RecognitionandMeasurement, with effect from 1 January 2010, financial instruments are categorised and measured using accounting policies as mentioned below. Before 1 January 2010, different accounting policies were applied. Significant changes to the accounting policies are discussed in Note 33.

(i) Initial recognition and measurement

A financial instrument is recognised in the financial statements when, and only when, the Company becomes a party to the contractual provisions of the instrument.

A financial instrument is recognised initially, at its fair value plus, in the case of a financial instrument not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial instrument.

An embedded derivative is recognised separately from the host contract and accounted for as a derivative if, and only if, it is not closely related to the economic characteristics and risks of the host contract and the host contract is not categorised at fair value through profit or loss. The host contract, in the event an embedded derivative is recognised separately, is accounted for in accordance with policy applicable to the nature of the host contract.

(ii) Financial instrument categories and subsequent measurement

The Group and the Company categorise financial instruments as follows:

Financial assets

(a) Financialassetsatfairvaluethroughprofitorloss

Fair value through profit or loss category comprises financial assets that are held for trading, including derivatives (except for a derivative that is a designated and effective hedging instrument) or financial assets that are specifically designated into this category upon initial recognition.

Derivatives that are linked to and must be settled by delivery of unquoted equity instruments whose fair values cannot be reliably measured are measured at cost.

Other financial assets categorised as fair value through profit or loss are subsequently measured at their fair values with the gain or loss recognised in profit or loss.




(c) Financial instruments (Cont’d)

(ii) Financial instrument categories and subsequent measurement (Cont’d)

Financial assets (Cont’d)

(b) Held-to-maturity investments Held-to-maturity investments category comprises debt instruments that are quoted in an

active market and the Group or the Company has the positive intention and ability to hold to maturity.

Financial assets categorised as held-to-maturity investments are subsequently measured at amortised cost using the effective interest method.

(c) Loans and receivables Loans and receivables category comprises debt instruments that are not quoted in an active

market, trade and other receivables and cash and cash equivalents.

Financial assets categorised as loans and receivables are subsequently measured at amortised cost using the effective interest method.

(d) Available-for-salefinancialassets

Available-for-sale category comprises investment in equity and debt securities instruments that are not held for trading.

Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. Other financial assets categorised as available-for-sale are subsequently measured at their fair values with the gain or loss recognised in other comprehensive income, except for impairment losses, foreign exchange gains and losses arising from monetary items and gains and losses of hedged items attributable to hedge risks of fair value hedges which are recognised in profit or loss. On derecognition, the cumulative gain or loss recognised in other comprehensive income is reclassified from equity into profit or loss. Interest calculated for a debt instrument using the effective interest method is recognised in profit or loss.

All financial assets, except for those measured at fair value through profit or loss, are subject to review for impairment. (See note 2(k)(i))

Financial liabilities

All financial liabilities are subsequently measured at amortised cost other than those categorised as fair value through profit or loss.

Fair value through profit or loss category comprises financial liabilities that are held for trading, derivatives (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument) or financial liabilities that are specifically designated into this category upon initial recognition.

Derivatives that are linked to and must be settled by delivery of unquoted equity instruments whose fair values cannot be reliably measured are measured at cost.

Other financial liabilities categorised as fair value through profit or loss are subsequently measured at their fair values with the gain or loss recognised in profit or loss.



(Cont’d)



(iii) Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.

Financial guarantee contracts are classified as deferred income and are amortised to profit or loss using a straight-line method over the contractual period or, when there is no specified contractual period, recognised in profit or loss upon discharge of the guarantee. When settlement of a financial guarantee contract becomes probable, an estimate of the obligation is made. If the carrying value of the financial guarantee contract is lower than the obligation, the carrying value is adjusted to the obligation amount and accounted for as a provision.

(iv) Regularwaypurchaseorsaleoffinancialassets

A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.

A regular way purchase or sale of financial assets is recognised and derecognised, as applicable, using trade date accounting. Trade date accounting refers to:

(a) the recognition of an asset to be received and the liability to pay for it on the trade date, and (b) derecognition of an asset that is sold, recognition of any gain or loss on disposal and the

recognition of a receivable from the buyer for payment on the trade date.

(v) Hedge accounting

Cashflowhedge

A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction and could affect the profit or loss. In a cash flow hedge, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income and the ineffective portion is recognised in profit or loss.

Subsequently, the cumulative gain or loss recognised in other comprehensive income is reclassified from equity into profit or loss in the same period or periods during which the hedged forecast cash flows affect profit or loss. If the hedge item is a non-financial asset or liability, the associated gain or loss recognised in other comprehensive income is removed from equity and included in the initial amount of the asset or liability. However, loss recognised in other comprehensive income that will not be recovered in one or more future periods is reclassified from equity into profit or loss.

Cash flow hedge accounting is discontinued prospectively when the hedging instrument expires or is sold, terminated or exercised, the hedge is no longer highly effective, the forecast transaction is no longer expected to occur or the hedge designation is revoked. If the hedge is for a forecast transaction, the cumulative gain or loss on the hedging instrument remains in other comprehensive income until the forecast transaction occurs. When the forecast transaction is no longer expected to occur, any related cumulative gain or loss recognised in other comprehensive income on the hedging instrument is reclassified from equity into profit or loss.





(vi) derecognition

A financial asset or part of it is derecognised when, and only when the contractual rights to the cash flows from the financial asset expire or the financial asset is transferred to another party without retaining control or substantially all risks and rewards of the asset. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in equity is recognised in the profit or loss.

A financial liability or a part of it is derecognised when, and only when, the obligation specified in the contract is discharged or cancelled or expires. On derecognition of a financial liability, the difference between the carrying amount of the financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in the profit or loss.

(d) Property, plant and equipment

(i) Recognition and measurement

Freehold land and capital work-in-progress are stated at cost/valuation less any accumulated impairment losses. All other items of property, plant and equipment are stated at cost/valuation less accumulated depreciation and any accumulated impairment losses.

The Group revalues its freehold land and buildings every 5 years and at shorter intervals whenever the fair value of the revalued assets is expected to differ materially from their carrying value. Additions subsequent to their revaluation are stated in the financial statements at cost until the next revaluation exercise.

Freehold land and buildings are stated at Directors’ valuation based on professional valuations

on the open market basis conducted in December 2009. The next valuation is expected to be in 2014.

Surpluses arising from revaluation are recognised in other comprehensive income and accumulated in the revaluation reserve account. Any deficit arising is offset against the revaluation reserve to the extent of a previous increase for the same property. In all other cases, a decrease in carrying amount is charged into the profit or loss.

Cost includes expenditures that are directly attributable to the acquisition of the asset, any other costs directly attributable to bringing the asset to working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. The cost of self-constructed assets includes the cost of materials and direct labour and for qualifying assets, borrowing costs are capitalised in accordance with the accounting policy on borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

The cost of property, plant and equipment recognised as a result of a business combination is based on fair value at acquisition date. The fair value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The fair value of other items of plant and equipment is based on the quoted market prices for similar items when available and replacement costs when appropriate.

When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by

comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within “other income” or “other operating expenses” respectively in the income statements. When revalued assets are sold, the amounts included in the revaluation surplus reserve are transferred to retained earnings.



(Cont’d)


(d) Property, plant and equipment (Cont’d)

(ii) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of these parts that are replaced is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in the income statements as incurred.

(iii) depreciation

Depreciation is calculated over depreciable amount, which is the case of an asset less its residual value. Depreciation is recognised in the profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Freehold land is not depreciated. Property, plant and equipment under construction (capital work in progress) are not depreciated until the assets are ready for their intended use.

The estimated useful lives for the current and comparative periods are as follows:

Leasehold land 45 - 60 yearsBuildings 25 - 60 yearsBuilding improvements 14 yearsPlant and machineries 4 - 10 yearsMotor vehicles 5 yearsFurniture, fittings and equipment 10 years

Depreciation methods, useful lives and residual values are reassessed at end of the reporting period.

(e) Leased assets

(i) Finance lease

Leases in terms of which the Group or the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.

(ii) operating lease

Leases, where the Group or the Company does not assume substantially all the risks and rewards of the ownership are classified as operating leases and, the leased assets are not recognised on the Group’s statement of financial position.

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.




(e) Leased assets (Cont’d)

(ii) operating lease (Cont’d)

Lease incentives received are recognised in profit or loss as an integral part of the total lease expense, over the term of the lease. Contingent rentals are charged to profit or loss in the reporting period in which they are incurred.

Certain leasehold land were revalued in December 2004 and the Group has retained the unamortised revalued amount as the surrogate carrying amount of prepaid lease payments in accordance with the transitional provision in FRS 117.67A when it first adopted FRS 117, Leases in 2006.

Prior to 1 January 2010, a leasehold land that normally has an indefinite economic life and title is not expected to pass to the lessee by the end of the lease term is treated as an operating lease. The payment made on entering into or acquiring a leasehold land was accounted for as an operating lease represents prepaid lease payments. With effect from 1January 2010, the Group has adopted the amendment made to FRS 117 in 2010 in relation to the classification of lease of land. As a result, leasehold land which in substance is a finance lease has been reclassified and measured as such retrospectively.

(f) Intangible assets

(i) Goodwill

Goodwill arises on business combinations and is measured at cost less any accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment and an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity accounted investee.

For acquisitions prior to 1 January 2006, goodwill represents the excess of the cost of the acquisition over the Group’s interest in the fair values of the net identifiable assets and liabilities.

For business acquisitions beginning from 1 January 2006, goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree.

Any excess of the Group’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of acquisition (negative goodwill) is recognised immediately in profit or loss.

(ii) other intangible assets

Intangible assets, other than goodwill, that are acquired by the Group, which have finite useful lives, are stated at cost less any accumulated amortisation and any accumulated impairment losses.

The fair value of technology and marketing related intangible assets acquired in a business combination is based on the discounted estimated royalty payments that have been avoided as a result of the intangible assets being owned. The fair value of customer related intangible assets acquired in a business combination is determined using the multi-period excess earnings method, whereby the subject assets is valued after deducting a fair return on all other assets that are part of creating the related cash flows.

The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.



(Cont’d)


(f) Intangible assets (Cont’d)

(iii) Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.

(iv) Amortisation

Goodwill and intangible assets with indefinite useful lives are tested for impairment annually and whenever there is an indication that they may be impaired.

Other intangible assets are amortised from the date that they are available for use.

Amortisation of intangible assets is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets.

The estimated useful lives are as follows:

• Technology related intangible asset 15 years• Customer related intangible asset 1 - 20 years

Amortisation methods, useful lives and residual values are reviewed at the end of each reporting period and adjusted, if appropriate.

(g) Inventories

Inventories comprise raw materials, tools and consumables, work in progress, merchandise for resale and finished goods which are stated at the lower of cost and net realisable value. The cost of raw materials, tools and consumables and merchandise for resale is determined on a first-in first-out principle and includes the cost of direct materials and incidental costs in bringing these inventories to their existing location and condition. In the case of work in progress and finished goods, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

The fair value of inventories acquired in a business combination is determined based on its estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.

(h) Receivables

Prior to 1 January 2010, receivables were initially recognised at their costs and subsequently measured at cost less allowance for doubtful debts.

Following the adoption of FRS 139, trade and other receivables are categorised and measured as loans and receivables in accordance with note 2(c).

(i) Constructions work-in-progress

Constructions work-in-progress represent the gross unbilled amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profit recognised to date less progress billing and recognised losses. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity.

Construction work-in-progress is presented as part of trade and other receivables as amount due from contract customers in the statement of financial position for all contracts in which costs incurred plus recognised profits exceed progress billings. If progress billings exceed costs incurred plus recognised profits, then the difference is presented as deferred income in the statement of financial position.




(j) Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, balances and deposits with banks and financial institutions. For the purpose of the cash flow statement, cash and cash equivalents are presented net of bank overdrafts and pledged deposits.

Cash and cash equivalents (other than bank overdraft) are categorised and measured as loans and receivables in accordance with policy note 2 (c).

(k) Impairment of assets

(i) Financial assets

All financial assets (except for financial assets categorised as fair value through profit or loss, investments in subsidiaries, associates and joint ventures) are assessed at each reporting date whether there is any objective evidence of impairment as a result of one or more events having an impact on the estimated future cash flows of the asset. Losses expected as a result of future events, no matter how likely, are not recognised. For an equity instrument, a significant or prolonged decline in the fair value below its cost is an objective evidence of impairment.

An impairment loss in respect of loans and receivables and held-to-maturity investments is recognised in profit or loss and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account.

An impairment loss in respect of available-for-sale financial assets is recognised in profit or loss and is measured as the difference between the asset’s acquisition cost (net of any principal repayment and amortisation) and the asset’s current fair value, less any impairment loss previously recognised. Where a decline in the fair value of an available-for-sale financial asset has been recognised in the other comprehensive income, the cumulative loss in other comprehensive income is reclassified from equity and recognised to profit or loss.

An impairment loss in respect of unquoted equity instrument that is carried at cost is recognised in profit or loss and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

Impairment losses recognised in profit or loss for an investment in an equity instrument is not reversed through profit or loss.

If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, to the extent that the asset’s carrying amount does not exceed what the carrying amount would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in profit or loss.

(ii) other assets

The carrying amounts of other assets (except for inventories, assets arising from construction contract and deferred tax asset) are reviewed at the end of each reporting period to determine whether there is any indication of impairment.

If any such indication exists, then the asset’s recoverable amount is estimated. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination.



(Cont’d)


(k) Impairment of assets (Cont’d)

(ii) other assets (Cont’d)

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (groups of units) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at the end of each reporting period for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount since the last impairment loss was recognised. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

(l) Payables

Payables are measured initially and subsequently at cost. Payables are recognised when there is a contractual obligation to deliver cash or another financial asset to another entity.

Following the adoption of FRS 139, trade and other payables are categorised and measured as financial liabilities in accordance with note 2(c)(ii).

(m) Equity instruments

All equity instruments are stated at cost on initial recognition and are not re-measured subsequently.

(i) Issue expenses

Incremental costs directly attributable to issue of equity instruments are recognised as a deduction from equity.

(ii) Repurchase of share capital

When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction from equity and is not re-valued for subsequent changes in the fair value or market price of shares. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity.

Where treasury shares are distributed as share dividends, the cost of the treasury shares is applied in the reduction of the share premium account or distributable reserves, or both.

Where treasury shares are reissued by re-sale in the open market, the difference between the sales consideration net of directly attributable costs and the carrying amount of the treasury shares is recognised in equity.




(n) Employee benefits

Short-termemployeebenefits

Short-term employee benefit obligations in respect of salaries, annual bonuses, paid annual leave and sick leave are measured on an undiscounted basis and are expensed as the related service is provided.

A provision is recognised for the amount expected to be paid under short-term cash bonus if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

The Group’s contribution to the statutory pension funds are charged to the income statements in the year to which they relate. Once the contributions have been paid, the Group has no further payment obligations.

Long service leave The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit

that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on national government bonds that have maturity dates approximating the terms of the Group’s obligations.

(o) Income tax

Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to a business combination or items recognised directly in equity or other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted by the end of the reporting period, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities in the statement of financial position and their tax bases. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, and the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss. Deferred tax is measured at the tax rates that are expected to apply to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the end of the reporting period.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available

against which the temporary difference can be utilised. Deferred tax assets are reviewed at the end of each reporting period and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Unutilised tax incentives are treated as tax base of assets and are recognised as a reduction of tax expense as and when they are utilised.

(p) Revenue and other income

(i) Construction contracts

Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. As soon as the outcome of a construction contract can be estimated reliably, contract revenue and contract cost are recognised in profit or loss in proportion to the stage of completion of the contract.

The stage of completion is assessed by reference to surveys of work performed. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable.

An expected loss on a contract is recognised immediately in the profit or loss.



(Cont’d)


(p) Revenue and other income (Cont’d)

(ii) dividend income

Dividend income is recognised in the profit or loss on the date that the Group’s or the Company’s right to receive payment is established.

(iii) Management fee

Management fee is recognised on an accrual basis.

(iv) Services

Revenue from services rendered is recognised in the profit or loss in proportion to the stage of completion of the transaction at the end of the reporting period. The stage of completion is assessed by reference to surveys of work performed.

(v) Goods sold

Revenue from the sale of goods is measured at fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods.

(vi) Interest income

Interest income is recognised as it accrues using the effective interest method in profit or loss except for interest income arising from temporary investment of borrowings taken specifically for the purpose of obtaining a qualifying asset which is accounted for in accordance with the accounting policy on borrowing costs.

(q) Borrowing costs

All borrowing costs are recognised in the profit or loss using the effective interest method, in the period in which they are incurred except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to be prepared for its intended use.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or completed.

(r) Earnings per ordinary share

The Group presents basic earnings per ordinary share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.




(s) Segment reporting

In the previous year, a segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

Following the adoption of FRS 8, Operating Segments, an operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. An operating segment’s operating results are reviewed regularly by the chief operating decision maker, which in this case is the Managing Director of the Group, to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

(t) Contingent liabilities

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

3. PROPERTY, PLANT AND EQUIPMENT

Furniture, CapitalGroup Building Plant and Motor fittings and work-in- Land Buildings improvements machineries vehicles equipment progress Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Cost/Valuation

At 1 January 2009 (restated) 44,810 392,651 6,270 406,681 12,658 52,365 46,902 962,337Additions 7,714 13,687 396 23,821 358 7,134 30,466 83,576Disposals – – – (4,562) (78) (56) – (4,696)Transfer – 24,160 – 6,343 – 4 (30,507) – Acquisition of subsidiaries – – – 89 – – – 89Revaluation 17,744 (5,106) – – – – – 12,638Reclassification to other receivables (1,645) – – – – – – (1,645)Impairment loss charged to income statement – (9,166) – – – – (85) (9,251)Effect of movements in exchange rates 3,842 7,531 421 10,480 591 512 929 24,306

At 31 December 2009/ 1 January 2010(restated) 72,465 423,757 7,087 442,852 13,529 59,959 47,705 1,067,354Additions – 13,865 1,592 38,906 508 9,125 4,542 68,538Disposals – – – (1,633) (293) (70) – (1,996)Reclassification – 26,428 – 15,207 – 30 (41,665) – Effect of movements in exchange rates (4,606) (50,845) (765) (49,835) (1,498) (8,126) (2,618) (118,293)

At 31 December 2010 67,859 413,205 7,914 445,497 12,246 60,918 7,964 1,015,603



(Cont’d)

3. PROPERTY, PLANT AND EQUIPMENT (CONT’D)

Furniture, CapitalGroup Building Plant and Motor fittings and work-in- Land Buildings improvements machineries vehicles equipment progress Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

depreciation

At 1 January 2009 (restated) 746 26,146 2,319 145,518 8,063 26,868 – 209,660Depreciation for the year 324 14,336 496 35,115 1,305 7,855 – 59,431Disposals – – – (1,002) (41) (49) – (1,092)Adjustment for revaluation – (35,373) – – – – – (35,373)Impairment loss charged to income statement – (4,426) – – – – – (4,426)Effect of movements in exchange rates (10) (683) 200 3,303 412 (84) – 3,138

At 31 December 2009/ 1 January 2010 (restated) 1,060 – 3,015 182,934 9,739 34,590 – 231,338Depreciation for the year 282 15,320 342 34,520 1,264 7,437 – 59,165Disposals – – – (590) (286) (66) – (942)Effect of movements in exchange rates (50) 4,423 (245) (20,719) (1,135) (4,954) – (22,680)

At 31 December 2010 1,292 19,743 3,112 196,145 9,582 37,007 – 266,881

Carrying amounts

At 1 January 2009 44,064 366,505 3,951 261,163 4,595 25,497 46,902 752,677

At 31 December 2009/ 1 January 2010 71,405 423,757 4,072 259,918 3,790 25,369 47,705 836,016

At 31 December 2010 66,567 393,462 4,802 249,352 2,664 23,911 7,964 748,722

3.1 Depreciation charge for the year is allocated as follows:

Group 2010 2009 RM’000 RM’000

Income statement (Note 18) 7,788 6,878Construction work-in-progress (Note 12.1) 51,377 52,553

59,165 59,431

3.2 Revaluation

Freehold land and buildings are stated at Directors’ valuation based on professional valuations on the open market basis conducted in December 2009 by a chartered surveyor in W.M. Malik & Kamaruzaman, C.H Williams Talhar & Wong, Jiangsu Zhongda Real Estate Appraisal & Consultation Co. Ltd, PT Duta Perkasa Propertindo, Cluttons LLC, Suncorp Valuations Ltd, Gabetti Property Solutions Franchising Agency, PWC AG WPG and CPCON Gestao Patrimonial.



3. PROPERTY, PLANT AND EQUIPMENT (CONT’D)

3.2 Revaluation (Cont’d)

Had freehold land been carried at historical cost and the buildings at historical cost less accumulated depreciation, the carrying amount of the freehold land and buildings that would have been included in the financial statements at the end of the year would be as follows:

Group 2010 2009 RM’000 RM’000

Freehold land 25,390 28,444Buildings 379,261 397,420

404,651 425,864

3.3 Security

Certain freehold land and buildings of the Group costing/valued at RM88,461,000 (2009: RM116,843,000) in subsidiaries are charged to certain licensed banks as security for credit facilities granted to the subsidiaries (Note 15.3).

3.4 Land

Included in the carrying amounts of land are:

Group 31.12.2010 31.12.2009 1.1.2009 RM’000 RM’000 RM’000 restated restated

Leasehold land- Unexpired period less than 50 years 11,177 12,321 9,682- Unexpired period more than 50 years 12,256 12,895 8,340 Freehold land 43,134 46,189 26,042

66,567 71,405 44,064

The carrying amounts of land at 1 January 2009 and 31 December 2009 have been adjusted following the adoption of the amendments to FRS 117, leases, where leasehold land, in substance is a finance lease, has been reclassified from prepaid lease payments to property, plant and equipment.

3.5 assets acquired under finance lease

The carrying amounts of property, plant and equipment acquired under finance lease purchase agreements are as follows:

Group 2010 2009 RM’000 RM’000

Freehold land 4,906 5,899Building 5,156 6,453Plant and machineries 14,022 410Furniture, fittings and equipment 157 1,097Motor vehicle 19 –Capital work-in-progress 229 –

24,489 13,859



(Cont’d)

4. INTANGIBLE ASSET

Other intangible Note Goodwill assets TotalGroup RM’000 RM’000 RM’000

CostAt 1 January 2009 928,168 879,618 1,807,786Reclassification 6,545 (6,545) – Acquisitions through business combinations 33.1 4,515 39 4,554Additions – 3,070 3,070Fair value adjustments 4.1.1 7,260 – 7,260Effect of movements in exchange rates 8,685 (138) 8,547

At 31 December 2009 / 1 January 2010 955,173 876,044 1,831,217Additions – 1,725 1,725Purchase consideration adjustment 4.1.2 (837) – (837)Effect of movements in exchange rates (155,362) (147,307) (302,669)

At 31 December 2010 798,974 730,462 1,529,436

Amortisation At 1 January 2009 – (33,812) (33,812)Amortisation for the year – (59,639) (59,639)Effect of movements in exchange rates – 77 77

At 31 December 2009/1 January 2010 – (93,374) (93,374) Amortisation for the year – (33,506) (33,506)Effect of movements in exchange rates – 17,276 17,276

At 31 December 2010 – (109,604) (109,604)

Carrying amountsAt 1 January 2009 928,168 845,806 1,773,974

At 31 December 2009 / 1 January 2010 955,173 782,670 1,737,843

At 31 December 2010 798,974 620,858 1,419,832

Note 4.1 Note 4.2



4. INTANGIBLE ASSET (CONT’D)

4.1 Goodwill

The goodwill recognised on the acquisition is attributable mainly to the skills and technical talent of the acquired business’s work force and the synergies expected to be achieved from integrating the companies into the Group’s existing oil, gas and petrochemical industry.

4.1.1 Fair value adjustment

The goodwill arising from the acquisition of KNM Sistemas de Processamento do Brasil Ltda and its subsidiaries in October 2008 was determined provisionally and the fair value exercise and purchase price allocation in respect of the said acquisition was completed in 2009. The effect of fair value adjustments were as follows:

2009Brazil unit RM’000

Provisional goodwill as at 31 December 2008 24,248Effect of fair value adjustments: - Revaluation of property, plant and equipment (8,085)- Deferred tax arising from revaluation of property, plant and equipment 2,749- Contract cost adjustments 13,060- Minority interest share of fair value adjustments (1,544)- Capitalisation of incidental acquisition cost 1,080

7,260Effect of movements in exchange rates 7,948

Goodwill after fair value adjustment and purchase price allocation 39,456

The fair value adjustments have not been retrospectively adjusted as the effects are not material

in the context of the Group financial statements.

4.1.2 Purchase consideration adjustment

The purchase consideration of acquisition of KNM Sistemas de Processamento do Brasil Ltda was reduced by RM837,000 and it was adjusted against the cost of investment.

4.2 Other intangible assets

Other intangible assets comprise mainly technology including patents, customers related intangibles including customer contracts and supply agreement and marketing related intangibles including tradenames. These intangible assets with finite useful lives are amortised over their useful lives ranging from 1 to 20 years while the others with infinite useful lives are tested for impairment annually or shorter if there is an indication of impairment.

4.3 Amortisation and impairment charge

Amortisation of technology and customers related intangible assets is included in other operating expenses in the profit or loss.



(Cont’d)

4. INTANGIBLE ASSET (CONT’D)

4.4 Impairment testing for cash-generating units containing goodwill

For the purpose of impairment testing, goodwill is allocated to the Group’s geographical unit which represents lowest level within the Group at which the goodwill is monitored for internal management purpose.

The aggregate carrying amounts of goodwill allocated to each unit are as follow: Group 2010 2009 RM’000 RM’000

Australia unit 6,672 6,672Germany unit 756,187 909,045Brazil unit 36,115 39,456

Total 798,974 955,173

The recoverable amounts of the cash-generating units were based on value in use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates of 1% to 2% (2009: 2%).

Value in use was determined by discounting the future cash flows generated from the continuing use of the unit and was based on the following key assumptions:

(i) The basis used to determine the value assigned to the budgeted gross margins is the average gross margins achieved in the year immediately before the budgeted year increased for expected efficiency improvements.

(ii) The pre-tax discount rate used is as follows:

2010 2009

Australia unit 9% 10%Germany unit 10% 10%Brazil unit 24% 24%

The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both external sources and internal sources (historical data).

5. INTEREST IN SUBSIDIARIES

Company 2010 2009 RM’000 RM’000

Unquoted shares - at cost 38,796 38,186Amount due from subsidiaries 1,092,537 –

1,131,333 38,186

The amount due from subsidiaries relates to advances which are unsecured, non repayable and interest free.

The entire non repayable advances are recognised as the Company’s interest in subsidiaries.

Details of the subsidiaries are shown in Note 30 to the financial statements.



6. INTEREST IN ASSOCIATES

Group 2010 2009 RM’000 RM’000

Unquoted shares - at cost 2,350 2,350Less: Impairment loss (697) (697)Effect of movement in exchange rates (296) (1)

1,357 1,652Reclassified to other investment (1,374) – Additions 214 –Share of post-acquisition reserve 258 –

455 1,652

Details of the associates are as follows:

Effective ownership Country of interestName of Company incorporation Principal Activities 2010 2009

PolyAn Gesellschaft Germany Development, modification – 20.25% zur Herstellung von and production of polymers Polymeren für spezielle for special applications and Anwen dungen und services in the field of Analytik mbH polymer analytics.

KNM-DP Fabricators Malaysia Dormant. 28% 28% Sdn. Bhd.

Kimma Thai Co. Ltd Thailand Dormant. 49% 49%

Subsidiary of KNM-dP Fabricators Sdn. Bhd.

KNM-DP Harta Bina Malaysia Dormant. 65% 65% Sdn. Bhd.

Subsidiary of Kimma thai Co. Ltd

KNM Projects Thailand Operate the business of 74% 74% (Thailand) Co. Ltd providing the services relating to the arrangement of design, engineering, procurement, construction testing and other kinds of services relating to oil, gas, petrochemical, minerals, biofuel and energy industries.



(Cont’d)

6. INTEREST IN ASSOCIATES (CONT’D)

Summary financial information on associates:

Group Profit / Total Total Revenues (Loss) assets liabilities (100%) (100%) (100%) (100%)2010 RM’000 RM’000 RM’000 RM’000

KNM-DP Fabricators Sdn. Bhd. ^ – (7) 99 3,407KNM-DP Harta Bina Sdn. Bhd. ^ – (2) 13 5Kimma Thai Co. Ltd.** – (14) 224 230KNM Project (Thailand) Co. Ltd** 5,360 541 2,266 1,329

5,360 518 2,602 4,971

2009

PolyAn Gesellschaft zur Herstellung Von Polymeren für spezielle Anwendungen und Analytik mbH ^ 3,834 (832) 4,080 5,603KNM-DP Fabricators Sdn. Bhd.** – (12) 101 3,402KNM-DP Harta Bina Sdn. Bhd. ** – (3) 139 4Kimma Thai Co. Ltd^ – (10) 21 10KNM Project (Thailand) Co. Ltd.^ – (12) – (12)

3,834 (869) 4,341 9,007

** Audited by another firm of accountants. ^ Based on management accounts as at 31 December 2009/31 December 2010.

During the financial year, the equity interest of the Group in PolyAn Gesellschaft zur Herstellung von Polymeren für spezielle Anwendungen und Analytik mbH reduced from 20.25% to 18.41% and the Group ceased to have significant influence over the entity. Hence the entity has been classified as other investment.

The Group’s share of the cumulative losses of KNM-DP Fabricators Sdn. Bhd. and its subsidiary, KNM-DP

Harta Bina Sdn. Bhd. amounting to RM740,181 (2009: RM737,596) has not been recognised in the Group’s profit or loss using equity accounting because the Group’s share of losses of these associates exceeded the carrying amount of its investments in the associates.

7. INTEREST IN jOINTly-CONTROllED ENTITIES

Group 2010 2009 RM’000 RM’000

Unquoted shares - at cost 837 500Share of loss post acquisition reserve (497) (476)Effect of movements in exchange rates (24) (24)

316 –



7. INTEREST IN jOINTly-CONTROllED ENTITIES (CONT’D)

Details of the jointly-controlled entities are as follows:

Effective ownership Country of interestName of Company incorporation Principal Activities 2010 2009

KPN Gas Technology Malaysia Provision of project 50% 50% Sdn. Bhd. management, process management process know how, engineering, procurement, construction, commissioning, start-up, operation, spare parts and maintenance for the field gas separation and gas treatment facilities including desalting, gas dehydration, gas sweetening, natural gas liquids recovery, sulphur recovery and modular units.

Verwater KNM Sdn. Bhd. Malaysia Involved in the business of 50% 50% relocating and jacking of tank catalyst change-out and chemical cleaning work

KNM Grinaker-LTA Republic of Manufacturing of process and 49.9% – (Proprietary) Limited South Africa pressure vessels, heat transfer equipment, industrial boilers, tank farms, process skids and modules for Republic of South Africa market and on a case to case basis for other markets

The Group’s aggregate share of the asset and liabilities of jointly-controlled entities are as follows:

Group 2010 2009 RM’000 RM’000

Non-current assets 89 118Current assets 2,154 355Non-current liabilities (79) (61)Current liabilities (2,516) (464) Effect of movement in exchange rates – (24)

Share of net asset of jointly-controlled entity (352) (76)



(Cont’d)

7. INTEREST IN jOINTly-CONTROllED ENTITIES (CONT’D)

The Group’s aggregate share of the revenue and expenses of jointly-controlled entities are as follows:

Group 2010 2009 RM’000 RM’000

Revenue 1,862 –Expenses (2,501) (552)

Share of net expenses of jointly-controlled entities (639) (552)

The Group’s share of the cumulative losses of KPN Gas Technology Sdn. Bhd. amounting to RM668,000 (2009 - RM76,000) has not been recognised in the Group’s profit or loss using equity method because the Group’s share of losses of the jointly-controlled entity exceeded the carrying amount of its investment in the jointly-controlled entity.

8. OTHER INVESTMENTS, INCLUDING DERIVATIVES

Club Shares Member- Total Unquoted ship FFEC2010 RM’000 RM’000 RM’000 RM’000

Non currentAvailable-for-sale financial asset 3,620 3,520 100 –

CurrentFinancial assets at fair value through profit or loss:- - Held for Trading, which relates to forward foreign exchange contracts (“FFEC”) 16,331 – – 16,331

19,951 3,520 100 16,331

Representing items: At cost 3,520 3,520 – – At fair value 16,431 – 100 16,331

19,951 3,520 100 16,331

2009

Non current At cost 2,632 2,562 70 –

Representing items: At cost 2,632 2,562 70 –



9. DEFERRED TAX ASSETS/(LIABILITIES)

Recognised deferred tax assets/(liabilities)

Deferred tax assets and liabilities are attributable to the following:

Assets Liabilities Net 2010 2009 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Group

Property, plant and equipment 2,025 919 (31,870) (12,344) (29,845) (11,425) Revaluation – – (206,696) (279,424) (206,696) (279,424) Provisions 21,251 14,096 – (490) 21,251 13,606Other items 19,110 4,278 (59,220) (55,030) (40,110) (50,752)Tax loss carry-forward 185,418 96,674 – – 185,418 96,674

Tax assets/(liabilities) 227,804 115,967 (297,786) (347,288) (69,982) (231,321)Set off of tax (31,858) (8,848) 31,858 8,848 – –

Net tax assets/(liabilities) 195,946 107,119 (265,928) (338,440) (69,982) (231,321)

Company

Provisions – 333 – – – 333

The unutilised tax losses do not expire under current tax legislation except for unutilised tax losses of RM8,368,620 (2009: Nil) relating to an overseas subsidiary which will expire after 5 years (from 2010) under the legislation of that country.

Unrecognised deferred tax assets

No deferred tax has been recognised for the following item:

Group 2010 2009 RM’000 RM’000

Tax loss carry-forward 77,537 114,083Unutilised capital allowances 27 27

The above items do not expire under current tax legislation unless there is a substantial change in shareholders (more than 50%). Deferred tax assets have not been recognised in respect of unutilised tax losses and unutilised capital allowances above because it is not probable that future taxable profit will be available against which the Group can utilise the benefits there from.



(Cont’d)

9. DEFERRED TAX ASSETS AND LIABILITIES (CONT’D)

Movement in temporary differences during the year

Recognised Effect of Recognised Effect of in income Recognised movements in income movements At statement in equity in exchange At statement in exchange At 1.1.2009 (Note 21) (Note 21) rates 31.12.2009 (Note 21) rates 31.12.2010Group RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Property, plant and equipment (16,259) 4,834 – – (11,425) (18,420) – (29,845)Revaluation (317,320) 45,413 (6,356) (1,161) (279,424) 36,569 36,159 (206,696)Provisions 11,433 2,173 – – 13,606 7,645 – 21,251Other items (79,923) 29,171 – – (50,752) 10,642 – (40,110)Tax loss carry-forward 9,059 87,615 – – 96,674 88,744 – 185,418

(393,010) 169,206 (6,356) (1,161) (231,321) 125,180 36,159 (69,982)

Company

Provisions 556 (223) – – 333 (333) – –

10. AMOUNT DUE FROM SUBSIDIARIES

The amount due from subsidiaries relates to advances which is unsecured, interest free and is not repayable within the next twelve months except for an amount of RM351,330,000 (2009: RM526,995,000), which bear interest of 2.25% (2009: 2.25%) per annum above cost of funds.

11. INVENTORIES

Group 2010 2009 RM’000 RM’000

At cost: Raw materials 33,439 61,046 Tools and consumables 14,562 21,692 Work in progress 513 203 Merchandise for resale 242 139 Finished goods – 1,714

48,756 84,794At net realisable value: Raw materials 14,611 13,807 Tools and consumables 5,696 7,970

69,063 106,571



12. TRADE AND OTHER RECEIVABLES


TradeTrade receivables 254,689 273,951 – –Amount due from contract customers 12.1 426,541 384,632 – –

681,230 658,583 – –

Non-tradeAmount due from- subsidiaries 12.2 – – 179,744 181,469- associates 12.2 1,088 – 13 – - jointly controlled entity 12.2 826 – – –- related parties 12.2 – 102 – – Other receivables 17,032 95,153 2,964 4,476Deposits 12.3 9,413 4,249 23 –Prepayments 8,817 12,169 1,770 1,600

37,176 111,673 184,514 187,545

718,406 770,256 184,514 187,545

12.1 Construction work-in-progress

Group 2010 2009 RM’000 RM’000

Aggregate costs incurred to date 2,375,740 2,602,811Add: Net attributable profits 536,931 677,208Less: Foreseeable losses (12,521) (38,450)

2,900,150 3,241,569Less: Progress billings (2,530,955) (2,964,838)

369,195 276,731Amount due to contract customers (Note 17) 57,346 107,901

Amount due from contract customers 426,541 384,632



(Cont’d)

12. TRADE AND OTHER RECEIVABLES (CONT’D)

12.1 Construction work-in-progress (Cont’d)

Additions to aggregate costs incurred during the year include:

Group 2010 2009 RM’000 RM’000

Depreciation of property, plant and equipment (Note 3.1) 51,377 52,553Hire of plant and machineries 13,112 11,691Interest expenses 192 1,249Rental of premises 15,422 12,231Rental of machineries 144 422Staff costs 161,216 229,853

Interest in aggregate costs was capitalised at an average rate of 3.2% (2009: 4.25%) per annum.

12.2 Amount due from subsidiaries, related parties and associates

The amounts due from subsidiaries, related parties and associates are unsecured, interest free and repayable on demand except for RM143,283,000 (2009: RM167,781,000) due from a subsidiary which is subject to interest of 1.30% to 2.50% (2009: 1.30% to 1.80%) per annum.

12.3 Deposits

Included in deposits of the Group are as follows:-

i) rental deposit for building of RM165,000 (2009: RM165,000) paid to a company in which certain directors have financial interest.

ii) deposit paid for the purchase of property, plant and equipment amounting to RM201,210 (2009: RM1,645,000).

13. CASH AND CASH EQUIVALENTS


Cash and bank balances 211,390 373,766 518 966Deposits with licensed banks 79,135 98,716 – 58,547Deposits with other financial institutions 5,712 99,241 3,259 68,892

296,237 571,723 3,777 128,405



14. CAPITAL AND RESERVES

14.1 Share capital

Group and Company 2010 2009 Number Number of shares Amount of shares Amount ’000 RM’000 ’000 RM’000

Ordinary shares of RM1.00/RM0.25 each Authorised: At 1 January 5,000,000 1,250,000 5,000,000 1,250,000 Share Consolidation (3,750,000) – – –

31 December 1,250,000 1,250,000 5,000,000 1,250,000

Ordinary shares of RM1.00/RM0.25 each Issued and fully paid At 1 January 4,004,370 1,001,093 3,958,440 989,610 Movement during the year pursuant to: - Share Consolidation (3,003,277) – – – - Employees’ share option scheme (“ESOS”) – – 45,930 11,483

At 31 December 1,001,093 1,001,093 4,004,370 1,001,093

At the Extraordinary General Meeting held on 19 November 2010, the shareholders of the Company approved the share consolidation of every four (4) ordinary shares of RM0.25 each into one (1) ordinary share of RM1.00 each.

14.2 Treasury shares

The shareholders of the Company, by a special resolution passed in the annual general meeting held on 23 June 2010, renewed the Company’s plan 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 21,110,000 (2009: 21,444,400) of its issued ordinary shares of RM0.25 each listed on the Main Market of Bursa Malaysia Securities Berhad from the open market at an average price of approximately RM0.49 (2009: RM0.61) per share. The total consideration paid was RM10,456,083 (2009: RM13,126,102) including transaction costs of RM28,083 (2009: RM32,537). The repurchase transactions were financed by internally generated funds.

As at 31 December 2010, the Company held 19,797,375 ordinary shares of RM1.00 (2009: 58,079,500 ordinary shares of RM0.25 each) as treasury shares out of its total issued and paid-up share capital. Hence, the number of outstanding shares in issued and paid-up after deducting treasury shares as at 31 December 2010 is 981,295,218 (2009: 3,946,290,875 ordinary shares of RM0.25 each) ordinary shares of RM1.00 each. The shares repurchased are retained as treasury shares. None of the treasury shares held were resold or cancelled during the financial year.

The treasury shares have no rights to voting, dividends or participation in other distribution.



(Cont’d)

14. CAPITAL AND RESERVES (CONT’D)

14.3 Revaluation reserve

The revaluation reserve relates to the revaluation of buildings and land. 14.4 Translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the

financial statements of the Group entities with functional currency other than RM as well as the exchange differences arising from monetary items that in substance form the Company’s net investment in subsidiary.

14.5 Share option reserve

The share option reserve comprises the cumulative value of employee services received for the issue of share options. When the option is exercised, the amount from the share option reserve is transferred to share premium. When the share options expire, the amount from the share option reserve is transferred to retained earnings.

14.6 Hedging reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedges related to hedged transactions that have not yet occurred.

14.7 Fair value reserve

The fair value reserve comprises the cumulative net change in the fair value of available-for-sale financial assets until the investments are derecognised or impaired.

14.8 Retained earnings

Subject to agreement by the Inland Revenue Board, the Company has sufficient Section 108 tax credit and tax exempt income to frank all of its distributable reserves at 31 December 2010 if paid out as dividends.

The Finance Act 2007 introduced a single tier company income tax system with effect from 1 January 2008. As such, the remaining section 108 tax credit available to the Company until such time the credit is fully utilised or upon expiry of the six year transitional period on 31 December 2013, whichever is earlier.



15. LOANS AND BORROWINGS

Group 2010 2009 RM’000 RM’000

Non-currentFloating rate term loans – secured 289,734 394,024 – unsecured 15,838 34,636Fixed rate term loans – unsecured 1,862 2,646Murabahah Commercial Paper (CP)/Medium Term Notes (MTN) – unsecured 60,000 150,000Finance lease liabilities – Floating rate 5,784 651Finance lease liabilities – Fixed rate 7,275 10,080

380,493 592,037

CurrentBank overdrafts – secured 5,293 14,638 – unsecured 245 3,302Bills payable – unsecured 73,782 64,740Floating rate term loans – secured 107,390 185,595 – unsecured 47,058 59,586Fixed rate term loans – secured 4,167 – – unsecured 5,473 6,648Murabahah Commercial Paper (CP)/Medium Term Notes (MTN) – unsecured 205,000 120,000Revolving credit – unsecured 209,552 206,304Finance lease liabilities – Floating rate 5,559 286Finance lease liabilities – Fixed rate 1,122 2,086

664,641 663,185

1,045,134 1,255,222

Company 2010 2009 RM’000 RM’000

Non-currentFloating rate term loans - secured 250,950 351,330

CurrentFloating rate term loans - secured 100,380 175,665

351,330 526,995



(Cont’d)

15. LOANS AND BORROWINGS (CONT’D)

15.1 The bank overdraft for the Malaysian’s subsidiaries are subject to interest ranging from 0.50 % to 1.00% (2009: 0.5% to 1.5%) above the lenders’ base lending rate or discount rate per annum whilst the bill payables are subject to interest ranging from 0.83% to 3.71% (2009: 1.00% to 4.56%) per annum.

The bank overdraft and bills payable for the overseas subsidiaries are subject to interest ranging from 13.89% to 26.82% (2009: 13.89% to 26.82%) per annum.

In connection with the bank overdraft and trade facilities, the subsidiaries have agreed on the following significant covenants, among others:

(i) The Group debt to equity ratio shall not be more than 1.75 (2009: 1.75) times at all times.

(ii) The ratio of profit before interest and tax to interest expense of a subsidiary shall not be less than 2 (2009: 2) times at all times. The bank has granted an indulgence to the subsidiary for breach of this ratio for a period of one year from April 2011.

(iii) Not to dispose or divest any of its tangible assets which will materially and adversely affect its existing business operation (other than in the ordinary course of business).

(iv) Not to dispose or divest any of its material subsidiaries.

(v) Maintenance of equity to asset ratio of not less than 20%

15.2 The secured term loans of the Group are secured by way of:

(i) Legal charge over the industrial land and buildings of a subsidiary located in the Italian Republic.

(ii) Legal charge over the building of a subsidiary located in Germany.

The secured term loans are subject to interest ranging from 2.54% to 12.68% (2009: 1.55% to 7.52%) per annum.

The Ringgit Term Loan facility covenants include the following:


(ii) The finance service cover ratio of the Group shall not be less than 1.50 (2009: 1.50) times at all times.

In addition, the term loan facility is secured by way of a pledge of the Group’s shares in a foreign subsidiary, including assignment over all dividend payments arising there from.

15.3 The unsecured term loans of the Group were supported by way of corporate guarantee by the Company.

The unsecured term loans were subject to interest ranging from 1.09%-6.46% (2009: 1.99% to 7.52%) per annum.



15. LOANS AND BORROWINGS (CONT’D)

15.4 CP/MTN granted by licensed banks has the following significant covenants:


(ii) The finance service cover ratio of the Group shall not be less than 1.5 (2009: 1.5) times at all times.

(iii) Not to declare or pay any dividend or make any distributions whether income or capital in nature to its shareholders in the event that:-

(a) a breach of financial covenant would occur if such payment is made; or

(b) an event of default has occurred and is continuing or following such payment, an event of default would occur.

(iv) First legal charge over the Syariah compliant Designated Accounts and monies standing therein.

The CP/MTN are subject to profit rates ranging from 3.7% to 5.8% (2009: 4.23% to 5.80%) per annum.

15.5 Revolving credit of the Group granted by the licensed banks has the following significant covenants:

(i) The Group debt to tangible equity ratio shall not be more than 1.75 (2009: 1.75) times at all times.

(ii) The Group consolidated debt to EBITDA ratio shall not exceed 3.5 (2009: 3.5) times at all times. The bank has agreed to allow a moratorium period of up to 31 July 2011 to remedy the breach of this ratio.

(iii) The debts service cover ratio of the Group shall not be less than 1.5 (2009: 1.5) times at all times.

The revolving credits were subject to interest ranging from 1.98% to 4.18% (2009: 2.57% to 4.40%) per annum.

15.6 Finance lease liabilities

Finance lease liabilities are payable as follows:

2010 2009 Minimum Minimum lease lease payments Interest Principal payments Interest PrincipalGroup RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Less than one year 7,592 (912) 6,680 3,351 (979) 2,372 Between one and five years 11,619 (1,788) 9,831 6,480 (1,712) 4,768More than five years 3,481 (252) 3,229 6,742 (779) 5,963

22,692 (2,952) 19,740 16,573 (3,470) 13,103

The finance lease liabilities are subject to interest ranging from 4.1% to 23.1% (2009: 4.8% to 23.1%) per annum.



(Cont’d)

16. LONG TERM PAYABLES

Group 2010 2009 RM’000 RM’000

Social security institutions 14,988 19,191Other long term payables 10,564 13,619

25,552 32,810

Amounts payable to social security institutions of foreign subsidiaries are unsecured, interest free (2009: 4%) and not repayable within the next twelve months.

17. TRADE AND OTHER PAYABLES


TradeTrade payables 185,883 168,159 – – Amount due to contract customers (Note 12.1) 57,346 107,901 – –

243,229 276,060 – –

Non-tradeAmount due to- subsidiaries 17.1 – – 175 – - jointly controlled entity 17.1 215 – – – - Related parties 17.1 7,030 11,620 – – Other payables 29,047 72,085 170 2,101Accrued expenses 157,759 135,793 3,308 5,439Financial liabilities at fair value through profit or loss: Held for trading (“FFEC”) 9,640 – – –

203,691 219,498 3,653 7,540

446,920 495,558 3,653 7,540

17.1 amount due to subsidiaries, jointly-controlled entity and subsidiaries

The amounts due to subsidiaries, jointly-controlled entities and related parties are unsecured, interest free and repayable on demand.



18. RESULTS FROM OPERATING ACTIVITIES


Results from operating activities is arrived at after charging: Auditors’ remuneration Audit services Company’s auditors - current year 522 452 185 175 - prior year – 82 10 50 Affiliates of Company’s auditors - current year 3,018 2,947 – – - prior year – 82 – – Other auditors 41 81 – – Other services - Company’s auditors 83 81 83 81 - Local affiliates of Company’s auditors 977 584 – – Allowance for impairment loss on doubtful debts 9,073 26,897 – – Amortisation of intangible assets 33,506 59,639 – – Bad debts written off – 3,404 – – Depreciation of property, plant and equipment (Note 3.1) 7,788 6,878 – – Directors’ emoluments: - Remuneration 2,926 3,150 2,657 2,881 - Fees 687 714 687 714 Impairment loss of property, plant and equipment – 4,825 – – Net Loss on foreign exchange – – 53 102 Rental of premises 12,703 14,037 – – Rental of equipment 2,369 2,764 – – Personnel expenses - Contribution to Employees’ Provident Fund 8,760 13,467 – – - Wages, salaries and others 108,990 114,364 – – Loss on disposal of property, plant and equipment – 575 – – Provision for foreseeable losses 12,521 38,450 – –

and after crediting: Net Gain on foreign exchange 3,308 92,646 – – Bad debts recovered 12,479 2,769 – – Allowance for impairment loss on doubtful debts no longer required 18,268 – – – Gain on disposal of property, plant and equipment 26 – – – Reversal of provision for foreseeable losses 7,578 – – –



(Cont’d)

19. KEY MANAGEMENT PERSONNEL COMPENSATION

The key management personnel compensation are as follows:


Directors- Fees 687 714 687 714- Remuneration 2,926 3,150 2,657 2,881- Employee benefits (including estimated monetary value of benefit-in-kind) 55 74 55 74

3,668 3,938 3,399 3,669Subsidiaries directors- Short-term employee benefits 6,379 5,941 – –

Other key management personnel- Short-term employee benefits 5,494 5,017 – –

15,541 14,896 3,399 3,669

Other key management personnel comprises persons other than the Directors of Group entities, having authority and responsibility for planning, directing and controlling the activities of the entity either directly or indirectly.

20. FINANCING COSTS


Interest expenses of financial liabilities that are not at fair value through profit or loss: - Term loans 23,958 44,242 19,723 26,019 - CP/MTN 16,088 12,934 – – - Revolving credit 6,316 4,139 – – - Bank overdraft 1,622 24 – – - Finance lease 979 40 – –

48,963 61,379 19,723 26,019Bank and other charges 5,422 11,908 94 1 54,385 73,287 19,817 26,020

Recognised in profit or loss 54,193 72,038 19,817 26,020Capitalised on qualifying assets:- - Construction work-in-progress 192 1,249 – –

54,385 73,287 19,817 26,020



21. TAX EXPENSE


Current tax expense Malaysian - current year 1,963 1,766 1,033 945 - under/(over) provision in prior year 56 380 (43) 23 Overseas - current year 41,647 54,012 – – - under/(over) provision in prior year 5,551 (6,685) – –

49,217 49,473 990 968

Deferred tax expense - current year (117,115) (169,003) 333 223 - over provision in prior year (8,065) (203) – –

(125,180) (169,206) 333 223

Total tax expense (75,963) (119,733) 1,323 1,191

Profit for the year 122,474 257,847 24,375 2,649Total tax expense (75,963) (119,733) 1,323 1,191

Profit excluding tax 46,511 138,114 25,698 3,840

Income tax using Malaysian tax rate of 25% 11,627 34,529 6,425 960Effect of tax rates in foreign jurisdictions* 6,408 (22,568) – –Non-deductible expenses 11,056 24,142 1,191 208Tax exempt income (6,572) (48,160) (6,250) –Tax incentives (88,950) (117,656) – –Effect of tax losses not recognised 7,000 16,141 – – Utilisation of previously unrecognised temporary differences (14,074) – – – Others – (59) – –

(73,505) (113,631) 1,366 1,168Under/(Over) provision in prior year - Current tax expense 5,607 (6,305) (43) 23 - Deferred tax expense (8,065) 203 – –

Total tax expense (75,963) (119,733) 1,323 1,191

* TaxratesinseveralforeignjurisdictionsaredifferentfromthetaxratesinMalaysia.

tax recognised directly in equity

Group 2010 2009 RM’000 RM’000

Deferred tax liabilities arising from revaluation of freehold land and building – 6,356



(Cont’d)

22. EaRNINGS PER ORDINaRy ShaRE - GROuP

Basic earnings per ordinary share

The calculation of basic earnings per ordinary share at 31 December 2010 was based on the profit attributable to ordinary shareholders of RM118,201,000 (2009: RM260,556,000) and the weighted average number of ordinary shares outstanding during the year of 983,409,000 (2009 Restated: 991,094,000).

Group 2010 2009 ’000 ’000 restated

Issued ordinary shares at beginning of the year 4,004,370 3,958,440Effect of Share Consolidation (2,950,228) (2,950,228)Effect of exercise of ESOS – 30,642Effect of treasury shares held (70,732) (47,760)

Weighted average number of ordinary shares 983,410 991,094

Group 2010 2009 sen sen

Basic earnings per ordinary share 12.02 26.29

The previous years’ earnings per ordinary share has been restated based on the profit attributable to ordinary shareholders of RM260,556,000 and weighted average number of shares outstanding during the year of 991,094,000 ordinary shares after taking into consideration the share consolidation effect of 2,950,228,000 ordinary share.

23. DIVIDENDS

Dividends recognised in the prior year by the Company were:

Sen per Total share amount Date of (net) RM’000 payment

2009Interim 2008 ordinary (net of tax) 0.75 29,525 18 March 2009Interim 2008 ordinary (tax exempt) 0.50 19,683 18 March 2009

49,208

On 23 February 2011, the Board of Directors declared an interim ordinary dividend of 3 sen per share tax exempt totaling RM29,343,040 in respect of the year ended 31 December 2010. The dividend was paid on 19 April 2011.



24. CONTINGENT lIaBIlITIES - uNSECuRED


Guarantees and contingencies relating to borrowings of subsidiaries – – 1,882,871 2,063,047

25. COMMITMENTS

Group 2010 2009 RM’000 RM’000

Capital commitments:Property, plant and equipment Contracted but not provided for in the financial statements 71,541 49,571 Authorised but not contracted for 72,825 75,872

144,366 125,443

Investment Authorised but not contracted for 14,827 –

26. RELATED PARTIES

For the purposes of these financial statements, parties are considered to be related to the Group or the Company if the Group or the Company has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group or the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.

Controlling related party relationships are as follows:

(i) Its subsidiaries companies as disclosed in Note 30. (ii) Its associates as disclosed in Note 6.

(iii) Its jointly-controlled entities as disclosed in Note 7.

(iv) The substantial shareholders of the Company, Inter Merger Sdn. Bhd.

(v) Inter Merger Sdn. Bhd., IMT O&G Solutions Sdn. Bhd. and IM Bina Sdn. Bhd., companies in which the directors, Lee Swee Eng and Gan Siew Liat have substantial financial interest.

(vi) Tofield Realty Development Corporation, wholly-owned subsidiary of Asiavertek Sdn. Bhd. of which Lee

Swee Eng and Gan Siew Liat have substantial financial interest.

(vii) Nasser Hazza is an entity controlled by Mohammed Nasser Hazza Al Fehaid Al Subaei, a director of KNM Saudi Limited Co.

(viii) KPS Technology & Engineering LLC, a company in which Lee Swee Eng is a substantial shareholder.



(Cont’d)

26. RELATED PARTIES (CONT’D)

The significant related party transactions of the Group, other than key management personnel compensation are as follows:

Group Allowance Transactions Gross balance Net balance for doubtful amount for outstanding outstanding receivables the year ended from/(to) from/(to) at 31 December 31 December 31 December 31 December RM’000 RM’000 RM’000 RM’000

2010Related parties

Inter Merger Sdn. Bhd. (314) (314) – Rentalofpremises 1,209 Administrative charges 480

IM Bina Sdn. Bhd. (858) (858) –Contract billing payable 1,620

IMT O&G Solutions Sdn Bhd – – –Purchaseofmaterials 41 Tofield Realty Development Corporation (495) (495) –General mechanical and engineering 412

Nasser Hazza (5,362) (5,362) –General construction, civil and related mechanical and engineering work 2,524

KPS Technnology & Engineering LLC (21) (21) –Administrative and other support services 2,280

KNM-DP Fabricators Sdn. Bhd. – 495 – (495)



26. RELATED PARTIES (CONT’D)

Group Allowance Transactions Gross balance Net balance for doubtful amount for outstanding outstanding receivables the year ended from/(to) from/(to) at 31 December 31 December 31 December 31 December RM’000 RM’000 RM’000 RM’000

2009Related parties

Inter Merger Sdn. Bhd. (82) (82) –Rentalofpremises 1,209 Administrative charges 556

IM Bina Sdn. Bhd. (382) (382) –Contract billing payable 7,722

IMT O&G Solutions Sdn Bhd (FormerlyknownasInter MergerTradingSdn.Bhd.) Purchaseofmaterials 60

Tofield Realty Development Corporation (187) (187) –General mechanical and engineering 815

Nasser Hazza (41) (41) –General construction, civil and related mechanical and engineering work 1,072

KPS Technnology & Engineering LLC 57 57 –Provision/Receiptofmechanical and engineering, generalAdministrative and other support services 2,323

KNM-DP Fabricators Sdn. Bhd. 2,834 – (2,834)

All the amounts outstanding are unsecured, interest free, repayable on demand and expected to be settled with cash.



(Cont’d)

27. FINANCIAL INSTRUMENTS

Certain comparative figures have not been presented for 31 December 2009 by virtue of the exemption given in paragraph 44AA of FRS 7.

27.1 Categories of financial instruments

The table below provides an analysis of financial instruments categorised as follows:

(a) Loans and receivables (L&R);(b) Fair value through profit or loss (FVTPL);

- Held for trading (HFT), or(c) Available-for-sale financial assets (AFS);(d) Held-to-maturity investments (HTM); and(e) Other liabilities (OL).

Carrying L&R/ FVTPL amount (OL) HFT AFS RM’000 RM’000 RM’000 RM’000

2010Financial assetsGroup

Other investments including derivatives 19,951 – 16,331 3,620Trade and other receivables 709,589 709,589 – – Cash and cash equivalents 296,237 296,237 – –

1,025,777 1,005,826 16,331 3,620

CompanyAmount due from subsidiary 351,330 351,330 – –Trade and other receivables 182,744 182,744 – – Cash and cash equivalents 3,777 3,777 – –

537,851 537,851 – –

Carrying L&R/ amount (OL) RM’000 RM’000

2010Financial liabilitiesGroupLoans and borrowings (1,045,134) (1,045,134)Trade and other payables, including derivatives (472,472) (472,472)

(1,517,606) (1,517,606)

CompanyLoans and borrowings (351,330) (351,330)Trade and other payables (3,653) (3,653)

(354,983) (354,983)



27. FINANCIAL INSTRUMENTS (CONT’D)

27.2 Net gains and losses arising from financial instruments

Group Company 2010 2010 RM’000 RM’000

Net gains/(losses) arising on: Fair value through profit or loss: - Held for trading (“FFEC”) 6,691 – Loans and receivables (17,320) 23,247 Financial liabilities measured at amortised cost (51,877) (19,723)

(62,506) 3,524

27.3 Financial risk management objectives and policies

The Group has exposure to the following risks from its use of financial instruments:

• Credit risk• Liquidity risk• Market risk

27.4 Credit risk

The Group’s primary exposure to credit risk arises mainly through its trade receivables. The Company’s exposure principally arises from financial guarantees and loans and advances extended to its subsidiaries.

Receivables

Risk management objectives, policies and processes for managing the risk

The Group’s primary exposure to credit risk arises through its receivables. The management has an informal credit policy in place and the exposure to credit risk is monitored on an ongoing basis.

Due to our global operations, we continuously seek opportunities in various countries with good growth and expansion. As a result of our global operations, we are subject to risks associated with our operations in countries which are or may be subject to international trade and economic sanctions or other restrictions.

The management exercises strict and prudent monitoring of their business activities globally on a regular basis as well as exercising conservative commercial decision before undertaking any new projects.

The Group may be exposed to risk of civil unrest, sanctions or restrictions imposed on countries where the Group operates or have business in via supply of products which could have an impact on Group earnings.

Exposure to credit risk

There was no significant concentration of credit risk for its trade receivables.

The maximum exposure to credit risk for the Group is represented by the carrying amount of the receivables presented in the statement of financial position.

The Group uses aging analysis as the primary reporting tool to monitor the credit quality of the receivables. Receivables past due 60 days are monitored more regularly on the collection efforts.



(Cont’d)


27.4 Credit risk (Cont’d)

Receivables (Cont’d)

The ageing of receivables as at the end of the reporting period was:

Note Gross Impairment Net RM’000 RM’000 RM’000

Group2010Not past due 108,866 – 108,866Past due 0 – 30 days 92,346 – 92,346Past due 31- 60 days 27,764 – 27,764Past due 61 – 120 days 13,349 (1,042) 12,307Past due more than 120 days 58,157 (44,751) 13,406

300,482 (45,793) 254,689

The allowance account in respect of trade receivables is used to record impairment losses where the Group is doubtful of the collection. Doubtful amount will be written off against the allowance account if recovery channels are exhausted.

The movements in the allowance for impairment losses of receivables during the financial year were:

Group 2010 RM’000

At 1 January, restated 66,543Impairment loss recognised 9,073Impairment loss reversed (18,268)Impairment loss written off (4,513)Effect on the movement of exchange rate (7,042)

At 31 December 45,793

Financial guarantees


The Company provides unsecured financial guarantees to banks in respect of banking facilities granted to certain subsidiaries.

The Company monitors on an on-going basis the subsidiaries performances and repayment made by the subsidiaries.


At reporting date, there was no indication of any subsidiaries would default on serving their obligations. The financial guarantees have not been recognised since the fair value on initial recognition was not material.

Loans and Advances


The Company provides unsecured loans and advances to certain subsidiaries.


At reporting date, there was no indication of non-recoverability of the outstanding amount.




27.5 Liquidity risk

The Group’s exposure to liquidity risk primarily arises from its capabilities to meet its financial obligation as and when it falls due. The Group’s and the Company’s exposure to liquidity risk arises principally from its various payables, loans and borrowings.


The Group and the Company structured loans and borrowings with banks to fit its cash flow management while maintaining sufficient liquidity in cash and adequate credit funding facilities to meet financial liabilities as and when fall due.

Maturity analysis

The table below summarises the maturity profile of the Group’s and the Company’s financial liabilities as at the end of the reporting period based on undiscounted contractual payments:

Group Contractual interest/ More Carrying profit rates Contractual less than 1 - 2 2 - 5 than2010 amount per annum cash flows 1 year years years 5 years RM’000 % RM’000 RM’000 RM’000 RM’000 RM’000

Non-derivative financialliabilitiesCP/MTN 265,000 3.75 – 5.80 273,251 209,550 18,048 45,653 – Term loans – secured - Brazilian real (“BRL”) 4,167 12.68 4,842 3,228 1,614 – – - Euro 45,794 2.54 – 5.55 57,818 8,224 5,641 16,583 27,370 - RM* 351,330 5.26 –5.31 392,938 122,000 112,373 158,565 – Term loans – unsecured - RMB 9,360 6.46 10,268 4,290 4,046 1,932 – - CAD 33,093 1.35 – 2.15 33,804 33,804 – – – - Euro 22,702 1.09 – 3.10 23,863 11,116 11,116 1,223 408 - USD 5,076 5.00 5,166 5,166 – – – Revolving credit – unsecured - Euro 71,552 2.19 72,279 72,279 – – – - RM 138,000 3.40 – 4.18 138,435 138,435 – – – Bill payables – unsecured - USD 51,225 0.83 – 3.71 51,672 51,672 – – – - RM 22,556 0.83 – 3.71 22,713 22,713 – – –Hire purchase and lease creditors 19,741 9.48 – 23.14 22,692 7,369 3,628 6,599 5,096Bank overdraft - USD 245 – 245 245 – – – - BRL 5,293 13.89 – 26.82 5,293 5,293 – – –Trade and other payables, excluding derivative 372,689 372,689 372,689 – – –

1,417,823 1,487,968 1,068,073 156,466 230,555 32,874DerivativefinancialliabilitiesForward exchange contracts (gross settled): Outflow – – 527,570 527,570 – – – Inflow (6,689) (534,259) (534,259) – – –

1,411,134 1,481,279 1,061,384 156,466 230,555 32,874



(Cont’d)


27.5 Liquidity risk (Cont’d)

Maturity analysis (Cont’d)

Company Contractual interest/ More Carrying profit rates Contractual less than 1 - 2 2 - 5 than2010 amount per annum cash flows 1 year years years 5 years RM’000 % RM’000 RM’000 RM’000 RM’000 RM’000

Non-derivative financialliabilitiesTerm loans – secured - RM* 351,330 5.26 – 5.31 392,938 122,000 112,373 158,565 –

* During the year, the repayment term of the Company’s 3-year Ringgit Term Loan facility of RM702,660,000 with outstanding of RM351,330,000 as at 31 December 2010, was granted an extension. The maturity analysis above is presented based on this revised repayment term. Subsequent to the financial year end, the Company has accepted a revised offer from the bank to extend the facility for another 3 years maturing in 2015 with a one year moratorium to commence repayment in 2012.

27.6 Market risk

The Group is subjected to risk of changing in market prices such as interest rates and foreign exchange rates that will affect the Group’s financial position or cash flows.

27.6.1 Foreign currency risk

The Group’s exposure to foreign currency risk is resulted from contract revenue, purchases, borrowings and inter-group balances denominated in a currency other than the respective functional currencies of the Group entities.


Exposure to foreign currency risk is monitored on an ongoing and each individual subsidiary basis. The Group hedges its foreign currency risk where necessary to protect the underlying value of ascertained foreign currency transactions against its cash flow requirements.

Exposure to foreign currency risk

The Group’s exposure to foreign currency (a currency which is other than the functional currency of the Group entities) risk, based on carrying amounts as at the end of the reporting period was:

Denominated inGroup USd Euro RM2010 RM’000 RM’000 RM’000

Trade receivables 12,779 6,170 15,289Deposit with licensed bank 12,649 – –Cash at bank balances 4,945 12,259 2,061Trade payables (4,101) (7,692) (6,423)Other payables and accruals (856) (1,122) (4,134)Bill Payables (15,674) (2,838) (1,391)Forward exchange contracts (6,295) 64 –

Net exposure in the statement of financial position 3,447 6,841 5,402




27.6 Market risk (Cont’d)

27.6.1 Foreign currency risk (Cont’d)

Currency risk sensitivity analysis

Foreign currency risk mainly arises from Group entities which have US Dollar and Euro functional currency. The exposure to currency risk of Group entities which do not have a US Dollar and Euro functional currency is not material and hence, sensitivity analysis is not presented.

A 5 percent strengthening of Malaysian Ringgit against the US Dollar and Euro at the end of the reporting period would have increased equity and post-tax profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.

Profit Equity or lossGroup RM’000 RM’000

2010USD (9,262) 342EURO 57,041 172RM – 270

A 5 percent weakening of Malaysian Ringgit against the US Dollar and Euro at the end of the reporting period would have had equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remained constant.

27.6.2 Interest rate risk

The Group’s investments in fixed rate debt securities and its fixed rate borrowings are exposed to a risk of change in their fair value due to changes in interest rates. The Group’s variable rate borrowings are exposed to a risk of change in cash flows due to changes in interest rates. Investments in equity securities and short term receivables and payables are not significantly exposed to interest rate risk.


The return on excess cash and bank balances is optimised with interest bearing placement with reputable licensed banks and financial institutions. Borrowings was decided on working capital funding needs and to best fit cash management of the Group.



(Cont’d)



27.6.2 Interest rate risk (Cont’d)

Exposure to interest rate risk

The interest rate profile of the Group’s and the Company’s significant interest-bearing financial instruments, based on carrying amounts as at the end of the reporting period was:


Fixed rate instrumentsFinancial assets 84,846 197,957 3,259 127,439Financial liabilities (260,561) (255,078) – –

(175,715) (57,121) 3,259 127,439

Floating rate instrumentsFinancial assets – – 351,330 526,995Financial liabilities (784,573) (1,001,145) (351,330) (526,995)

(784,573) (1,001,145) – –

Interest rate risk sensitivity analysis

(a) Fairvaluesensitivityanalysisforfixedrateinstruments

The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore, a change in interest rates at the end of the reporting period would not affect profit or loss.

(b) Cashflowsensitivityanalysisforvariablerateinstruments

A change of 25 basis points (bp) in interest rates at the end of the reporting period would have increased (decreased) equity and post-tax profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

Equity Profit or loss 25 bp 25 bp 25 bp 25 bp increase decrease increase decrease Group RM’000 RM’000 RM’000 RM’000 2010 Floating rate instruments – – 1,990 (1,990)





27.6.3 Cashflowhedge

The Group entered into forward cash flow hedge of its expected proceeds/ payments from/to accounts receivables and accounts payables.

The following depicts the expected cash flow streams associated with the hedges undertaken and period affecting profit or loss:

Expected Carrying cash Under 1 – 2 amount flows 1 year yearsGroup RM’000 RM’000 RM’000 RM’000

2010Proceeds from accounts receivable 164,907 170,453 132,445 38,008Payments to accounts payables (1,913) (2,196) (2,196) –

During the year, net loss of RM1,479,658 (2009: Nil) was recognised in the other comprehensive income. An ineffective net gain of RM5,743,740 (2009: Nil) was recognised in profit or loss during the year.

27.7 Fair value of financial instruments

The carrying amounts of cash and cash equivalents, trade and other receivables, trade and other payables, and short-term borrowings approximate their fair value due to the relatively short term nature of these financial instruments.

The carrying amounts of the floating rate term loans and amount due from subsidiary approximate fair values as they are subject to variable interest rates which in turn approximate the current market interest rates for similar loans at the end of the reporting period.

It was not practical to estimate the fair value of the Group’s investment in unquoted shares due to the lack of comparable quoted market prices, inability to estimate fair value without incurring excessive costs and immaterial in the opinion of the Management.

The carrying amount and fair value of financial assets and liabilities, other than mentioned above are show as follow:-

2010 2009 Carrying Fair Carrying Fair amount value amount value RM’000 RM’000 RM’000 RM’000

GroupFixed rate term loan - unsecured 11,502 11,625 3,120 2,380Forward exchange contracts: - Assets 16,331 16,331 – 7,961 - Liabilities (9,640) (9,640) – – Finance lease liabilities-Fixed rate (8,397) (8,397) (12,166) (12,166)



(Cont’d)


27.7 Fair value of financial instruments (Cont’d)

The following summarises the method used in determining the fair value of financial instruments reflected in the above tables.

derivatives

The fair value of forward exchange contracts is assessed using the quoted market price.

Non-derivativefinancialliabilities

Fair value which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the end of the reporting period.

Interest rates used to determine fair value

2010

Fixed rate term loans 3.10% – 12.68%Finance lease liabilities-Fixed rate 4.90% – 23.14%

28. CAPITAL MANAGEMENT

The Group’s capital management objective is focused on maintaining healthy Debt-to-Equity Ratio (DER) which is an effective indicator of the Group’s financial strengths in addition to complying with the financial covenants prescribed to the Group by financial institutions.

As at 31 December 2010, the Group recorded a DER at 0.60 (2009: 0.62) as compared to the financial covenants of not exceeding 1.75 times.

Group 2010 2009 RM’000 RM’000

Total Debt 1,038,445 1,247,261

Total equity 1,730,769 2,011,732

Debt-to-equity ratios 0.60 0.62

29. OPERATING SEGMENT

The Group’s resources allocation is assessed on a quarterly basis or as needed basis in accordance to the business performance and requirements of the respective geographical’s operating unit as reviewed and determined by the Group’s Chief Operating Decision Maker (CODM) whom is also the Managing Director of the Group. Hence, segment information is presented by geographical locations that the Group operates in. The format of the geographical segments is based on the Group’s operation management and internal reporting structure. Inter-segment pricing is determined based on negotiated terms.

Reporting on segmental profit, assets and liabilities include items directly attributable to geographical segments. Unallocated items mainly comprise of interest-earning assets and related revenue, interest-bearing loans, borrowings and related expenses, and tax assets and liabilities.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.



29. OPERATING SEGMENT (CONT’D)

The segments are classified into geographical presence as follows:

Geographical segment Countries

Asia & Oceania Malaysia, China, Hong Kong, India, Singapore, Brunei Darussalam, Indonesia, South Africa and Australia

Europe British Virgin Islands, United Arab Emirates, Netherlands, Saudi Arabia, Italy, and Germany

America Brazil, United States of America and Canada

Geographical segments

Asia and Oceania Europe America Consolidated 2010 2009 2010 2009 2010 2009 2010 2009 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

Revenue 392,930 499,045 1,065,507 1,254,941 100,666 85,589 1,559,103 1,839,575Cost of sales (345,641) (357,082) (831,645) (943,281) (88,459) (114,919) (1,265,745) (1,415,282)

Gross profit 47,289 141,963 233,862 311,660 12,207 (29,330) 293,358 424,293Administration expenses and others (50,964) (29,295) (136,429) (161,172) (8,781) (29,750) (196,174) (220,217)

Operating profit/(loss) (3,675) 112,668 97,433 150,488 3,426 (59,080) 97,184 204,076Share of profit/(loss) in associates and jointly-controlled entities, net of tax 237 (476) – – – – 237 (476)

Segment profit 97,421 203,600

Financing costs (54,193) (72,038)Interest income 3,282 6,552

Profit before tax 46,510 138,114

Segment assets 916,474 1,039,406 2,379,905 2,863,799 227,773 237,068 3,524,152 4,140,273

Segment liabilities 1,044,880 1,193,150 611,211 784,306 137,293 151,085 1,793,384 2,128,541

Capital expenditure 17,984 49,969 50,720 29,188 1,559 7,489 70,263 86,646Depreciation charged to income statements 4,509 2,680 3,042 3,625 237 249 7,788 6,554Non-cash expenses/ (income) other than depreciation 12,100 95,458 43,000 45,901 – 39,263 55,100 180,622



(Cont’d)

30. SUBSIDIARIES

The principal activities of the subsidiaries, their places of incorporation and the interests of KNM Group Berhad are as follows:

Effective Country of OwnershipName of Company Principal Activities Incorporation Interest 2010 2009

Subsidiaries of the Company

KNM Process Systems Design, manufacture, assembly Malaysia 100% 100% Sdn. Bhd. and commissioning of process equipment, pressure vessels, heat exchangers, skid mounted assemblies, process pipe systems, storage tanks, specialised structural assemblies and module assemblies for the oil, gas and petrochemical industries.

KNM International Provision of management, Malaysia 100% 100% Sdn. Bhd. technical advisory, licence and trademark services to international related companies and related international investments. KNM Capital Sdn. Bhd. Provision of funding and treasury Malaysia 100% 100% services and all related functions.

KNM Management Provision of qualifying services Malaysia 100% 100% Services Sdn. Bhd. under the overseas head quarters (OHQ) concept which includes management, treasury, financial advisory, technical support, marketing, business development and procurement and all related functions.

KNM Renewable Dormant. Malaysia 100% 100% Energy Sdn. Bhd. KNM Capital Labuan Provision of funding and treasury Labuan 100% 100% Limited services and all related functions.

KNM Services (Singapore) Dormant. Singapore 100% 100% Pte. Ltd. ^

KNM China Pte Limited Investment holding. Hong Kong 100% –

Litwin Asia Pacific Investment holding. Malaysia 51% – Sdn. Bhd.

KNM Eurasia Sdn. Bhd. Investment holding. Malaysia 100% 100%

KNM Petrosab Sdn. Bhd. Dormant. Malaysia 50% –



30. SUBSIDIARIES (CONT’D)


Subsidiary of KNM Petrosab Sdn Bhd

KNM Petrosab Dormant. Malaysia 100% – Engineering Sdn. Bhd.

Subsidiaries of KNM Eurasia Sdn Bhd KNM Process Systems Dormant. Malaysia 100% 100% (Kazakhstan) Sdn Bhd

KNM Process Systems Dormant. Malaysia 100% 100% (Uzbekistan) Sdn. Bhd.

KNM Process Systems Dormant. Malaysia 100% 100% (Turkmenistan) Sdn. Bhd.

Subsidiaries of KNM Process Systems Sdn. Bhd. KNM OGPET (East Design, manufacture, assembly Malaysia 100% 100% Coast) Sdn. Bhd. and commissioning of process equipment, pressure vessels, heat exchangers, skid mounted assemblies, process pipe systems, storage tanks, specialised structural assemblies and module assemblies for the oil, gas and petrochemical industries.

Duraton Engineering Provision of project manpower, Malaysia 100% 100% Sdn. Bhd. engineering, non-destructive testing and technical consultancy services.

Perwira Awan Sdn. Bhd. Property investment. Malaysia 100% 100%

KNM Technical Services Provision of technical services Malaysia 100% 100% Sdn. Bhd. and other associated services related to the oil, gas and petrochemical industries.

Sumber Amantech Provision of project Malaysia 100% 100% Sdn. Bhd. management and technical services.



(Cont’d)



Subsidiaries of KNM Process Systems Sdn. Bhd. (Cont’d)

KNM Exotic Equipment Design, manufacture, assembly Malaysia 100% 100% Sdn. Bhd. and commissioning of process equipment, pressure vessels, heat exchangers, skid mounted assemblies, process pipe systems, storage tanks, specialised structural assemblies and module assemblies for the oil, gas and petrochemical industries.

KNM Europa BV * Investment holding. Netherlands 100% 100%

KNM Pty. Ltd. *@ Design, manufacture, sale and Australia 100% 100% service of heat exchange systems.

Borsig Boiler Systems Dormant. Malaysia 100% 100% Sdn. Bhd.

Deutsche KNM GmbH * Investment holding. Germany 100% 100%

KNM Sistemas de Investment holding. Brazil 100% 100% Processamento do Brasil Ltda *@

Subsidiaries of KNM China Pte Limited

BORSIG Compression Dormant. Hong Kong 100% – (China) Pte Limited ^ BORSIG Valves (China) Dormant. Hong Kong 100% – Pte Limited ^

Subsidiaries of KNM Europa BV

FBM Hudson Italiana Design and manufacture of Italy 100% 100% SpA * air-cooled heat exchangers, specialty shell and tube heat exchangers and process gas waste heat boilers for the oil, gas, petrochemical and desalination industries.





Subsidiaries of KNM Europa BV (Cont’d)

FBM ICOSS S.r.l * Design and construction of fully Italy 100% 100% welded plate type heat exchanger plates, bundle exchangers and jacketed pressure vessels for different fields such as chemical, petrochemical, textile pharmaceutical, food industry, aerospace and research industries.

KNM Corporation ^ Investment holding. Canada 100% 100%

Subsidiaries of KNM Corporation

KNM Process Equipment Design, manufacture, Canada 100% 100% Inc ^ procurement and manufacturing of process equipment, including without limitation pressure vessels, reactors, column and towers, drums, heat exchangers, air fin coolers, process gas waste heat boilers, specialised shell, tube heat exchangers, condensers, spheres, process tanks, mounded bullets, process skid packages and turnkey storage facilities for the oil, gas, petrochemicals and mineral processing industries in Canada and the North America region.

KNM Industries Inc ^ An asset holding company and Canada 100% 100% shall own the land, manufacturing plant and machinery in relation to the Group’s manufacturing facility in Edmonton, Alberta, Canada.

KPS Inc ^ Investment holding. Canada 100% 100%

Subsidiaries of KPS Inc

KPS Technology & Provision of sulphur removal United 65% 60% Engineering LLC ^ and recovery related services States of to clients in the oil, gas and America energy/power industries in relation to sulphur removal and recovery technology.



(Cont’d)



Subsidiary of KNM Pty Ltd

W E Smith Engineering Thermal and mechanical design, Australia 100% 100% Pty Ltd *@ drafting, manufacture of shell and tube heat exchangers, vessels, columns and feed water heaters.

HEA Australia Manufacture of air-cooled, Australia 100% 100% Pty Ltd *@ shell and tube, and plate heat exchangers, vessels and columns.

PT Heat Exchangers Manufacture of air-cooled, Indonesia 100% 100% Indonesia *@ shells, tube plates, frame heat exchangers, vessels and columns.

Subsidiaries of KNM Exotic Equipment Sdn. Bhd. BORSIG Industrial Dormant. Malaysia 100% 100% Services Sdn Bhd.

KMK Power Sdn. Bhd. Dormant. Malaysia 100% 100%

Subsidiaries of deutsche KNM GmbH

BORSIG Beteiligungs Investment holding. Germany 100% 100% verwaltungsgesellschaft mbH *

Subsidiaries of BoRSIG Beteiligungsverwaltungsgesellschaft mbH

BORSIG GmbH * Advisory and administration Germany 100% 100% services as well as acquisition of and holding shares in other companies on behalf and for its own account, in particular for and to companies of the BORSIG Group.





Subsidiaries of BoRSIG GmbH

BORSIG Process Processing, planning, fabrication Germany 100% 100% Heat Exchanger and distribution of and the trading GmbH * with machines, assets, apparatuses and miscellaneous components, particularly for generating plant , petrochemical and chemical industries.

BORSIG ZM System engineering, industrial Germany 100% 100% Compression GmbH* fabrication, assembly services as well as the sale of machines and constructions of compressors, containers, silo and conveyor technique. BORSIG Membrane Processing, planning, fabrication Germany 100% 100% Technology GmbH* and distribution of and trading with machines and construction of apparatuses and miscellaneous components in the field of membrane technique.

BORSIG Service Provides installation, maintenance Germany 100% 100% GmbH * and other industrial services of machines and construction of apparatuses and other components.

BORSIG Boiler Planning, delivery, installation, Germany 100% 100% Systems GmbH * and, implementation of constructions for generating plants as well as provision of maintenance and other services for such constructions.

Subsidiaries of BoRSIG Membrane technology GmbH

GMT Membrantechnik Development, processing and Germany 51% 51% GmbH * distribution of membranes, membrane modules and membrane components.

Subsidiaries of BoRSIG ZM Compression GmbH

Compart Compressor Development, production and Germany 100% 100% Technology GmbH* distribution of valves, compressor parts, monitoring systems for compressors, provision of maintenance and repair works of compressors and other assets.



(Cont’d)



Subsidiaries of KNM Sistemas de Processamento do Brasil Ltda

KNM Industrial Ltda *@ Design, fabrication, assembly Brazil 100% 80% and erection of tanks, spheres, storage systems, structural systems, piping and ducting systems for oil, gas and industrial plants.

KNM Servicos Ltda *@ Provision of construction, Brazil 100% 80% management services, mechanical assembly and erection works, electrical, instrumentation works and maintenance services for oil, gas and industrial plants.

KNM Equipamentos Design, manufacture and Brazil 100% 80% SA *@ commissioning of process equipment, boilers, transport, and other industrial equipment for oil, gas and industrial plants.

Subsidiaries of KNM International Sdn. Bhd.

KNM Overseas Investment holding. Malaysia 100% 100% (China) Sdn. Bhd.

KNM Global Ltd. Provision of management, British Virgin 100% 100% procurement, business Islands development, technical advisory and marketing services.

KNM Oil & Gas (B) Dormant. Brunei 100% 100% Sdn. Bhd.^ Darussalam

KNM Engineering Design, engineering, technical India 100% 100% Services Private and project management services Limited ^ in relation to process equipment, plant facilities and general facilities for the oil, gas, petrochemicals, minerals processing and general industries. The Company has not commenced operations.





Subsidiaries of KNM International Sdn. Bhd. (Cont’d)

PT KPE Industries ^ An assets holding company Indonesia 100% 100% and shall own the land, manufacturing plant and machinery in relation to the Group’s intended manufacturing facility at the Kabil Industrial Estate in Batam, Indonesia. KNM Saudi Ltd. ^ Production of platforms, Saudi Arabia 51% 51% towers, columns, pressure pipe, large barrels, boilers, thermal transformers, large tanks and cooling fans.

Subsidiary of KNM overseas (China) Sdn. Bhd.

KNM Special Process Design, manufacture, assembly, China 100% 100% Equipment commissioning and maintenance (Changshu) Co. Ltd. ** of process equipment, pressure vessels, heat exchangers, skid mounted assemblies, process pipe systems, storage tanks, specialised structural assemblies and module assemblies for the oil, gas and petrochemical industries within the China market.

Subsidiary of FBM Hudson Italiana SpA and KNM International Sdn. Bhd.

FBM - KNM FZCO * Design and manufacture of United Arab 100% 100% air-cooled heat exchangers, Emirates specialty shell and tube heat exchangers and process gas waste heat boilers for the oil, gas, petrochemical and desalination industries.

Subsidiary of KNM Renewable Energy Sdn. Bhd. KNM-CIW Sdn. Bhd. Dormant. Malaysia 100% 100% * AuditedbyamemberfirmofKPMG.** Auditedbyanotherfirmofaccountants.@ Auditor’sreportincludesanemphasisofmatterthatthefinancialstatementsarepreparedonagoing

concernbasisasitsholdingcompanywillprovidethenecessaryfinancialsupport,ifrequired.^ Consolidatedusingmanagementaccountsasat31December2010.



(Cont’d)

31. SIGNIFICANT EVENTS DURING THE YEAR

31.1 In January 2010, the Group made the following investments:

(i) The Company had subscribed for 100 ordinary shares of HK$1.00 each in KNM China Pte Limited (“KNM China”) for a total cash consideration of HK$100 (RM44), representing 100% equity interest.

(ii) KNM China and BORSIG GmbH, both wholly-owned subsidiaries of the Company have subscribed for the entire equity interest in BORSIG Valves (China) Pte Limited (“BVC”) comprising 100 ordinary shares of HK$1.00 each for a cash consideration of HK$100 (RM44). The equity interest of KNM China and BORSIG GmbH in BVC is 70% and 30% respectively.

(iii) KNM China and BORSIG ZM Compression GmbH (“BORSIG ZM”), both wholly-owned subsidiaries of the Company have subscribed for the entire equity interest of BORSIG Compression (China) Pte Limited (“BCC”) comprising 100 ordinary shares of HK$1.00 each for a total cash consideration of HK$100 (RM44). The equity interest of KNM China and BORSIG ZM in BCC is 70% and 30% respectively.

31.2 On 4 February 2010, the Company announced that it received from BlueFire Capital Group Ltd (“Bidco”), an entity controlled by Ir. Lee Swee Eng, the Group Managing Director and major shareholder of the Company, a proposal to acquire the entire business and undertakings of the Company (“the Proposal”). The proposed price is equivalent to RM0.90 per issued ordinary share of the Company.

The Proposal is subject to, inter alia, satisfactory completion of due diligence, receipt of firm financing commitments, and negotiation and execution of definitive documentation relating to the proposed transaction. Bidco is acting in collaboration with GS Capital Partners VI Fund L.P and Mettiz Capital Limited and the international adviser is Goldman Sachs (Singapore) Pte.

On 14 April 2010, the Company announced that after due deliberation, the Company and Bidco including its

partners GS Capital Partners VI Fund L.P and Mettiz Capital Limited, were unable to reach an agreement on the pricing of the Proposal. Hence, the parties had mutually agreed that the Proposal made by Bidco on 4 February 2010 had lapsed.

31.3 In March 2010, the Company had completed its subscription of 51 ordinary shares of RM1.00 each in

Litwin Asia Pacific Sdn. Bhd. (“LAPSB”) for a total cash consideration of RM51 only. This investment represents 51% equity interest in LAPSB.

31.4 In April 2010, the Company announced that KNM Process Systems Sdn. Bhd. (“KNMPS”), a wholly-owned subsidiary of the Company had received approval for a tax incentive in respect of the acquisition of the entire equity interest in BORSIG Beteiligungsverwaltungsgesellschaft mbH (“BORSIG Acquisition”) amounting to RM1,423,200,000 from the Ministry of Finance vide its letter dated 6 April 2010. The incentive granted is a tax deduction which is claimable over 4 years commencing from the Year of Assessment 2009.

The tax incentive granted is subject to the following conditions:-

(i) At least 50% of the shareholding in the KNMPS must be held by Malaysians during the first year of BORSIG Acquisition and thereafter, to be at least 60% for the following years.

(ii) KNMPS must hold at least 51% of the equity interest in BORSIG GmbH for at least five years from date of the completion of the BORSIG Acquisition.

(iii) If KNMPS disposes any part of its shares held in BORSIG GmbH at anytime within five years from date of completion of the BORSIG Acquisition, the yearly allowance together with the qualifying amounts of claim/relief entitled would be withdrawn for such assessment year(s) in which it was allowed. In any event, should KNMPS’s shareholding in BORSIG GmbH be reduced from 51% at anytime within five years from date of the completion of the BORSIG Acquisition, then, all the yearly allowances allowed will be withdrawn.

(iv) BORSIG GmbH must maintain 100% equity shareholding in all its subsidiaries.



31. SIGNIFICANT EVENTS DURING THE YEAR (CONT’D)

31.5 In August 2010, it was announced that the Company is proposing to undertake the following exercises:-

(i) share consolidation involving the consolidation of every four (4) ordinary shares of RM0.25 each in KNM Group Berhad (“KNM”) into one (1) ordinary share of RM1.00 each in KNM (“Consolidated Shares”); and

(ii) amendments to the Memorandum and Articles of Association of KNM to facilitate the implementation of the abovementioned proposed share consolidation.

Listing and quotation of the Consolidated Shares was duly completed on 8 December 2010.

31.6 In October 2010, the Company announced that Securities Commission vide its letter dated 21 October 2010 has approved the Company’s proposed issue of Sukuk Programmes of up to RM1,500 million comprising of Islamic Commercial Paper Programme of up to RM400 million (“ICP Programme”) and Islamic Medium Term Note Programme of up to RM1,100 million (“IMTN Programmes”).

The ICP Programme shall have a tenure of up to seven (7) years and the IMTN Programme shall have a tenure of up to fifteen (15) years from the date of the first issuance under the Sukuk Programmes. No issuance has been made as of to-date.

31.7 In December 2010, KNM International Sdn. Bhd. (“KNMI”), a wholly-owned subsidiary of the Company had entered into a Shareholders Agreement (“Agreement”) with Aveng (Africa) Limited (“AVENG”) towards, inter-alia, established a joint-venture company known as KNM Grinaker-LTA (Proprietary) Limited on 49.9% (KNMI) : 50.1% (AVENG) basis.

31.8 The Proposal by KNM Capital Sdn. Bhd., a wholly-owned subsidiary of the Company on the issuance of up to United States of America Dollar (“USD”) 350 million (or its Euro Dollar or Malaysia Ringgit equivalent) Bonds, exchangeable into new KNM Shares (“exchangeable bonds”) (“Proposed Exchangeable Bonds Issue”) was granted further validity extension up to 30 May 2011 by Securities Commission on 13 December 2010. The Proposed Exchangeable Bonds Issue remains unissued as of to-date.

31.9 In December 2010, the Company had entered into a joint venture agreement with Petrosab Logistik Sdn. Bhd. (“PETROSAB”) towards inter-alia:-

(a) established of a joint venture company to be known as KNM Petrosab Sdn. Bhd. (“KNMP”) to act as an investment holding company on 51% (KNM) : 49% (PETROSAB) basis, whereby KNM and PETROSAB shall invest in 51,000 and 49,000 ordinary shares of RM1.00 each respectively in KNMP (“Shareholding Structure”);

(b) KNMP in turn, shall form project companies to target oil and gas projects in Sabah:

(i) KNM and PETROSAB had respectively invested in one (1) ordinary share of RM1.00 in KNMP at the end of the reporting period; and

(ii) KNMP had invested in two (2) ordinary shares of RM1.00 each in KNM Petrosab Engineering Sdn. Bhd. as one of the project companies.

32. SUBSEQUENT EVENTS

32.1 In February 2011, KNM Europa BV, a wholly-owned subsidiary of the Company had incorporated and subscribed for 10,000 ordinary shares of GBP1.00 each in KNM Project Services Limited (“KPSL”), representing 100% equity interest in KPSL for a total cash consideration of GBP10,000 (approximately RM49,100 based on the exchange rate of GBP1 : RM4.91).

32.2 In April 2011, KNM Process Systems Sdn. Bhd. (“KNMPS”) had invested and subscribed for 800 ordinary shares of RM1.00 each in KNM Ogpet (Sabah) Sdn. Bhd. (“KNMOS”), representing 80% equity interest in KNMOS for a total cash consideration of RM800.



(Cont’d)

33. SIGNIFICANT CHANGES IN ACCOUNTING POLICIES

33.1 FRS 139, Financial Instruments: Recognition and Measurement

The adoption of FRS 139 has resulted in several changes to accounting policies relating to recognition and measurement of financial instruments. Significant changes in accounting policies are as follows:

derivatives

Prior to the adoption of FRS 139, derivative contracts were recognised in the financial statements on settlement date. With the adoption of FRS 139, derivative contracts are now categorised as fair value through profit or loss and measured at their fair values with the gain or loss recognised in profit or loss other than derivatives designated as hedging instrument which are accounted for in accordance with the hedge accounting requirements as described in the hedge accounting policy (see note 2(c)(v)).

Financial guarantee contracts

Prior to the adoption of FRS 139, financial guarantee contracts were not recognised in the statement of financial position unless it becomes probable that the guarantee may be called upon. With the adoption of FRS 139, financial guarantee contracts are now recognised initially at their fair values and subsequently measured at their initially measured amount less cumulative amortisation. When settlement of a financial guarantee contract becomes probable, an estimate of the obligation is made.

Inter-company loans Prior to the adoption of FRS 139, inter-company loans were recorded at cost. With the adoption of

FRS 139, inter-company loans are now recognised initially at their fair values, which are estimated by discounting the expected cash flows using the current market interest rate of a loan with similar risk and tenure. Finance income and costs are recognised in profit or loss using the effective interest method.

Impairment of trade and other receivables Prior to the adoption of FRS 139, an allowance for doubtful debts was made when a receivable is

considered irrecoverable by the management. With the adoption of FRS 139, an impairment loss is recognised for trade and other receivables and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate.

These changes in accounting policies have been made in accordance with the transitional provisions of FRS 139. In accordance to the transitional provisions of FRS 139 for first-time adoption, adjustments arising from remeasuring the financial instruments at the beginning of the financial year were recognised as adjustments of the opening balance of retained earnings.

Consequently, the adoption of FRS 139 does not affect the basic and diluted earnings per ordinary share for prior periods. It is not practicable to estimate the impact arising from the adoption of FRS 139 to the current year’s basic and diluted earnings per share.

33.2 FRS 8, Operating Segments

As of 1 January 2010, the Group determines and presents operating segments based on the information that internally is provided to the Managing Director, who is the Group’s chief operating decision maker. This change in accounting policy is due to the adoption of FRS 8. Previously operating segments were determined and presented in accordance with FRS 1142004, Segment Reporting.

Since the change in accounting policy only impacts presentation and disclosure aspects, there is no impact on earnings per share.



33. SIGNIFICANT CHANGES IN ACCOUNTING POLICIES (CONT’D)

33.3 FRS 101, Presentation of Financial Statements (revised)

The adoption of FRS 101 (revised) effective for the financial year ended 31 December 2010 resulted in the following:

(i) income statements for the year ended 31 December 2009 have been re-presented as statement of comprehensive income. All non-owner changes in equity that were presented in the statement of changes in equity are now included in the statement of comprehensive income as other comprehensive income. Consequently, components of comprehensive income are not presented in the statement of changes in equity; and

(ii) a statement of financial position at the beginning of the earliest comparative period, i.e. 1 January 2009 have been included following the change in the comparative figures for 31 December 2009 to conform with current year’s presentation.

33.4 FRS 117, Leases

The Group has adopted the amendment to FRS 117. The Group has reassessed and determined that all leasehold land of the Group which are in substance are finance leases and has reclassified the leasehold land to property, plant and equipment. The change in accounting policy has been made retrospectively in accordance with the transitional provisions of the amendment.

The reclassification does not affect the basic and diluted earnings per ordinary share for the current and prior periods.

34. COMPARATIVE FIGURES

The following comparative figures as at 31 December 2009 have been reclassified to conform with current year’s presentation pursuant to the adoption of the FRS 117 Leases.

As As previously restated statedGroup RM’000 RM’000

Statement of financial positionCostProperty, plant and equipment 836,016 810,800Prepaid lease payment – 25,216



(Cont’d)

35. DISCLOSURE OF REALISED AND UNREALISED PROFITS

On 25 March 2010, Bursa Malaysia Securities Berhad (Bursa Malaysia) issued a directive to all listed issuers pursuant to Paragraphs 2.06 and 2.23 of the Bursa Malaysia Main Market Listing Requirements. The directive requires all listed issuers to disclose the breakdown of the unappropriated profits or accumulated losses as at the end of the reporting period, into realised and unrealised profits or losses.

On 20 December 2010, Bursa Malaysia further issued guidance on the disclosure and the format required.

The breakdown of the retained profits of the Group and of the Company as at 31 December 2010, into realised and unrealised profits, pursuant to the directive, is as follows:

Group Company RM’000 RM’000

Total retained profits of KNM Group Bhd and its subsidiaries - Realised 577,871 39,446 - Unrealised (89,639) (127)

488,232 39,319Total share of retained profits from associate - Realised 245 – Total share of retained profits from jointly controlled entities - Realised (579) – - Unrealised 66 –

487,964 39,319Less: Consolidation adjustments 442,864 –

Total retained profits as per statements of financial position 930,828 39,319

The determination of realised and unrealised profits is compiled based on Guidance of Special Matter No.1, DeterminationofRealisedandUnrealisedProfitsorLossesintheContextofDisclosurePursuanttoBursaMalaysiaSecuritiesBerhadListingRequirements, issued by the Malaysian Institute of Accountants on 20 December 2010.

The disclosure of realised and unrealised profits above is solely for complying with the disclosure requirements stipulated in the directive of Bursa Malaysia and should not be applied for any other purposes.


In the opinion of the Directors, the financial statements set out on pages 41 to 114 are drawn up in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company at 31 December 2010 and of their financial performance and cash flows for the financial year then ended.

In the opinion of the Directors, the information set out in Note 35 to the financial statements has been compiled in accordance with the Guidance on Special Matter No.1, DeterminationofRealisedandUnrealisedProfitsorLossesintheContextofDisclosuresPursuanttoBursaMalaysiaSecuritiesBerhadListingRequirements, issued by the Malaysian Institute of Accountants, and presented based on the format prescribed by Bursa Malaysia Securities Berhad.

Signed on behalf of the Board of Directors in accordance with a resolution of the Directors:

…………………………………………………………Dato’ Ab. Halim bin Mohyiddin

…………………………………………………………Lee Swee Eng

Kuala Lumpur,

Date: 29 April 2011

I, Ho Guan Ming, the officer primarily responsible for the financial management of KNM Group Berhad, do solemnly and sincerely declare that the financial statements set out on pages 41 to 115 are, to the best of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the above named in Kuala Lumpur in the Federal Territory on 29 April 2011.

……........……..……………………....Ho Guan Ming

Before me:

Statement by Directorspursuant to Section 169(15) of the Companies Act, 1965

Statements byDirectorspursuant to Section 169(15) of the Companies Act, 1965Statutory Declarationpursuant to Section 169(16) of the Companies Act, 1965


IndependentAuditors’ Report

to the members of KNM Group Berhad

REPORT ON THE FINANCIAL STATEMENTS

We have audited the financial statements of KNM Group Berhad, which comprise the statements of financial position as at 31 December 2010 of the Group and of the Company, and the statements of comprehensive income, changes in equity and cash flows of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 41 to 114.

directors’ Responsibility for the Financial Statements

The Directors of the Company are responsible for the preparation of financial statements that give a true and fair view in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia, and for such internal control as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

opinion

In our opinion, the financial statements have been properly drawn up in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as of 31 December 2010 and of their financial performance and cash flows for the financial year then ended.


IndependentAuditors’ Reportto the members of KNM Group Berhad (Cont’d)

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:

a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act.

b) We have considered the accounts and the auditors’ reports of all the subsidiaries of which we have not acted as auditors, which are indicated in Note 30 to the financial statements.

c) We are satisfied that the accounts of the subsidiaries that have been consolidated with the Company’s financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes.

d) The audit reports on the accounts of the subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act.

OTHER REPORTING RESPONSIBILITIES

Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The information set out in Note 35 to the financial statements has been compiled by the Company as required by the Bursa Malaysia Securities Berhad Listing Requirements and is not required by the Financial Reporting Standards. In our opinion, the information has been properly compiled, in all material respects, in accordance with the Guidance on Special Matter No.1, DeterminationofRealisedandUnrealisedProfitsorLossesintheContextofDisclosuresPursuanttoBursaMalaysiaSecuritiesBerhadListingRequirements, issued by the Malaysian Institute of Accountants and presented based on the format prescribed by Bursa Malaysia Securities Berhad.

OTHER MATTERS

This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

KPMG Chan Kam ChiewFirm Number: AF 0758 Approval Number: 2055/06/12(J)Chartered Accountants Chartered Accountant

Petaling Jaya,

Date: 29 April 2011


Notice of AnnualGeneral Meeting

NOTICE IS HEREBY GIVEN THAT the 9th Annual General Meeting of KNM Group Berhad will be held on Wednesday, 29 June 2011 at 10.00 a.m. at Hang Li Po Room, Level 4, Mines Wellness Hotel, Jalan Dulang, MINES Resort City, 43300 Seri Kembangan, Selangor, Malaysia for the following purposes:

as Ordinary Business:

1. To receive the Audited Financial Statements of the Company for the financial year ended 31 December 2010 and the Reports of the Directors and Auditors [Please refer to note (i)].

2. To re-elect the following Directors who retire pursuant to Article 127 of the Company’s Articles of Association:

(a) Gan Siew Liat

(b) Ng Boon Su

3. To re-elect Datuk Karownakaran @ Karunakaran a/l Ramasamy who retires pursuant to Article 132 of the Company’s Articles of Association.

4. To approve the Directors’ fees of RM687,000 for the financial year ended 31 December 2010.

5. To re-appoint Messrs KPMG as Auditors of the Company and to authorise the Directors to fix their remuneration.

as Special Business:

To consider and if thought fit, to pass with or without modifications, the following Resolutions:

6. Authority to allot shares pursuant to Section 132D of the Companies Act 1965:

“THAT subject to the Companies Act 1965 and the Articles of Association of the Company, the Directors be and are hereby empowered, pursuant to section 132D of the Companies Act 1965, to allot and issue shares in the Company at any time and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion deem fit, provided that the aggregate number of shares to be issued does not exceed ten percent (10%) of the issued and paid-up share capital of the Company for the time being and that the Directors be and are also empowered to obtain the approval for the listing of and quotation for the additional shares so issued on Bursa Malaysia Securities Berhad AND THAT such authority shall continue to be in force until the conclusion of the next Annual General Meeting of the Company.”

ordinary Resolution 1







Notice of AnnualGeneral Meeting(Cont’d)

7. Proposed renewal of shareholders’ mandate for share buy-back:

“THAT subject to the Company’s compliance with all the applicable rules, regulations, orders and guidelines made pursuant to the Companies Act 1965 (“the Act”), the Company’s Memorandum and Articles of Association and Bursa Malaysia Securities Berhad (”Bursa Securities”) Main Market Listing Requirements (“Listing Requirements”), approval be and is hereby given to the Company to purchase at any time such amount of ordinary shares of RM1.00 each in the Company as may be determined by the Directors of the Company from time to time through Bursa Securities upon such terms and conditions as the Directors in their absolute discretion deem fit and expedient in the interest of the Company (“Proposed Share Buy-Back Mandate”) provided that:

(i) the aggregate number of ordinary shares which may be purchased and retained as treasury shares by the Company at any point of time pursuant to the Proposed Share Buy-Back Mandate shall not exceed ten percent (10%) of the total issued and paid-up share capital of the Company;

(ii) the amount of funds to be allocated by the Company pursuant to the Proposed Share Buy-Back Mandate shall not exceed the retained earnings and/or share premium of the Company as at 31 December 2010; and

(iii) the shares so purchased by the Company pursuant to the Proposed Share Buy-Back Mandate may at the discretion of the Directors be:

(a) retained as treasury shares; and/or

(b) cancelled; and/or

(c) resold on the market of Bursa Securities in accordance to Listing Requirements; and/or

(d) distributed as dividends to the shareholders; and /or

(e) in any other manner as prescribed by the applicable rules, regulations and orders made pursuant to the Act, the Listing Requirements and any other relevant authority for the time being in force;

AND THAT such authority conferred by the shareholders of the Company upon passing of this resolution pertaining to the Proposed Share Buy-Back Mandate will continue to be in force until the conclusion of the next Annual General Meeting of the Company, unless by a resolution passed at that meeting, the authority is renewed; or the expiration of the period within which the next Annual General Meeting is required to be held pursuant to section 143(1) of the Act (but must not extend to such extensions as may be allowed pursuant to section 143(2) of the Act); or until the authority is revoked or varied by a resolution passed by the shareholders in a general meeting, whichever occurs first;

AND THAT the Directors of the Company be and are hereby authorised to complete and do all such acts and things as they may consider expedient or necessary to implement and give effect to the Proposed Share Buy-Back Mandate.”



8. Proposed shareholders’ mandate for recurrent related party transactions of a revenue or trading nature:

“THAT approval be and is hereby given to the Company and/or its subsidiaries (“KNM Group”) to enter into all arrangements and/or transactions involving the interests of Directors, major shareholders or persons connected with the Directors and/or major shareholders of KNM Group (“Related Parties”) as specified in section 2.4 of the Circular to Shareholders dated 7 June 2011 provided that such arrangements and/or transactions are:

(i) recurrent transactions of a revenue or trading nature;

(ii) necessary for the day-to-day operations;

(iii) carried out in the ordinary course of business on normal commercial terms which are not more favourable to Related Parties than those generally available to the public; and

(iv) are not to the detriment of minority shareholders,

(“Proposed Recurrent RPT Mandate”);

AND THAT such authority conferred by the shareholders of the Company upon passing of this resolution pertaining to the Proposed Recurrent RPT Mandate will continue to be in force until the conclusion of the next Annual General Meeting of the Company, unless by a resolution passed at that meeting, the authority is renewed; or the expiration of the period within which the next Annual General Meeting is required to be held pursuant to section 143(1) of the Act (but must not extend to such extensions as may be allowed pursuant to section 143(2) of the Act); or until the authority is revoked or varied by a resolution passed by the shareholders in a general meeting, whichever is the earlier;

AND THAT the Directors of the Company be and are hereby empowered to complete and to do all such acts and things including executing all such documents as may be required as they may consider expedient or necessary to give effect to the Proposed Recurrent RPT Mandate.”

9. To transact any other business of which due notice shall have been given.

By Order of the Board

Lau Bee Gee (MAICSA 0817743)Chia Kwok Why (MAICSA 7005833)Company SecretariesSeri Kembangan7 June 2011

Notes:(i) ThisAgendaitemismeantfordiscussiononlyandisnotputforwardforvotingastheprovisionofsection169(1)ofthe

CompaniesAct1965(“theAct”)doesnotrequireaformalapprovaloftheshareholders.

(ii) AproxymaybutneednotbeamemberoftheCompanyandtheprovisionsofsection149(1)(b)oftheActshallnotapplytotheCompany.

(iii) Amembershallbeentitledtoappointuptotwo(2)proxiestoattendandvoteatthesamemeeting.

(iv) Whereamemberappointstwo(2)proxiestoattendandvoteatthesamemeeting,theappointmentshallbeinvalidunlesshe/shespecifiestheproportionsofhis/herholdingstoberepresentedbyeachproxy.

(v) TobevalidtheformofproxydulycompletedmustbedepositedattheregisteredofficeoftheCompanyat15JalanDagangSB4/1,TamanSungaiBesiIndah,43300SeriKembangan,SelangorDarulEhsan,Malaysianotlessthanforty-eight(48)hoursbeforethetimeforholdingthemeetingoranyadjournmentthereof.

(vi) Theinstrumentappointingaproxyshallbeinwritingunderthehandoftheappointerorofhis/herattorneydulyauthorisedinwritingoriftheappointerisacorporation,eitherunderitscommonsealorunderthehandofitsofficerorattorneydulyauthorised.

Notice of AnnualGeneral Meeting

(Cont’d)



Notice of AnnualGeneral Meeting(Cont’d)

EXPLANATORY NOTES ON SPECIAL BUSINESS

1. Authority to allot shares pursuant to Section 132D of the Companies Act 1965

(a) The shareholders’ general mandate sought under the proposed Ordinary Resolution 6 is a renewal of the relevant shareholders’ general mandate obtained in the previous Company’s 8th Annual General Meeting held on 23 June 2010 (“Previous Mandate”) and such authority will lapse at the conclusion of the forthcoming 9th Annual General Meeting to be held on 29 June 2011.

(b) As at the date of this Notice, no new shares in the Company were issued pursuant to the Previous Mandate.

(c) The Board continues to consider any opportunities to broaden the operating base and earnings potential of the Company. If any fundraising or merger and acquisition or expansion or diversification proposals, as the case may be, involve the issuance of new shares, the Directors would have to convene a general meeting to approve the issuance of new shares.

In order to eliminate any delay and costs involved in convening a general meeting to approve such issuance of shares, it is considered appropriate that the Directors be empowered, as proposed in Ordinary Resolution 6, if passed, will give flexibility and expediency to the Company to allot and issue up to ten percent (10%) of the issued share capital of the Company for the time being for such purposes as the Directors deem fit and in the best interest of the Company. This authority, unless revoked at a general meeting, will expire at the conclusion of the next annual general meeting of the Company.

2. Proposed renewal of shareholders’ mandate for share buy-back

The proposed Ordinary Resolution 7, if passed, will renew the shareholders’ mandate for share buy-back obtained at the previous Company’s 8th Annual General Meeting held on 23 June 2010 and empower the Company to purchase the Company’s shares up to ten percent (10%) of the issued and paid-up share capital of the Company.

3. Proposed shareholders’ mandate for recurrent related party transactions of a revenue or trading nature

The proposed Ordinary Resolution 8, if passed, will allow the Group to enter into recurrent transactions involving the interests of Directors, major shareholders or persons connected with the Directors and/or major shareholders of KNM Group, which are of a revenue or trading nature and necessary for the Group’s day-to-day operations.

Further information on the Proposed Share Buy-Back Mandate and the Proposed Recurrent RPT Mandate is set out in the Statement/Circular to Shareholders dated 7 June 2011 which is despatched together with the Company’s Annual Report 2010.

STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING

The particulars of all Directors including those standing for re-election as Directors at the 9th Annual General Meeting (Resolutions 1, 2 and 3) are set out in their respective Profiles of Directors and information relating to the Directors’ interests in shares in the Company and its related corporations is presented in the Analysis of Shareholdings in the Annual Report 2010.

Mr Lim Yu Tey, the Director who is retiring at the conclusion of the 9th Annual General Meeting of the Company pursuant to Section 129(2) of the Companies Act 1965 has notified the Company that he will not be seeking re-appointment as a Director of the Company at this Annual General Meeting. Mr Lim will therefore retire upon the conclusion of the 9th Annual General Meeting of the Company and will accordingly relinquish all his duties and/or positions as Independent Non-Executive Director of the Company and Chairman and/or member of the relevant Board Committees.


✄

KNM GROUP BERHAD(Company No. 521348-H)

FORM OF PROXY

I/We (fullnameandinblockcapitals) _________________________________________________________________

NRIC no. (new)/Company no. ______________________________ CDS account no. ______________________

of (fulladdress) ________________________________________________________________________________

____________________________________________________________________________________________

being a member/members of KNM GROUP BERHAD hereby appoint (fullnameasperNRICandinblockcapitals)

_______________________________________________________ NRIC no. (new): ______________________

of (fulladdress) ________________________________________________________________________________

____________________________________________________________________________________________

or failing him/her, the Chairman of the meeting, as my/our proxy to vote for me/us on my/our behalf at the 9th Annual General Meeting of the Company to be held at Hang Li Po Room, Level 4, Mines Wellness Hotel, Jalan Dulang, MINES Resort City, 43300 Seri Kembangan, Selangor, Malaysia on Wednesday, 29 June 2011 at 10.00 a.m. or at any adjournment thereof, in the manner indicated below:

No. Resolutions For Against1. Re-election of Gan Siew Liat

2. Re-election of Ng Boon Su

3. Re-election of Datuk Karownakaran @ Karunakaran a/l Ramasamy

4. Approval of Directors’ fees

5. Re-appointment of Messrs KPMG as Auditors

6. Authorisation for Directors to issue shares

7. Proposed Renewal of Share Buy-Back Mandate

8. Proposed Shareholders’ Mandate for Recurrent Related Party Transactions

Please indicate with an “x” in the space provided above how you wish to cast your vote. If no specific direction as to voting is given, the proxy will vote or abstain at his/her discretion.

———————————————————— ————————————————————Signature of Shareholder Common Seal to be affixed here if Shareholder is a Corporate Member

Dated this _________ day of ________________ , 2011

Notes:(i) AproxymaybutneednotbeamemberoftheCompanyandtheprovisionsofsection149(1)(b)oftheCompaniesAct1965

shallnotapplytotheCompany.(ii) Amembershallbeentitledtoappointuptotwo(2)proxiestoattendandvoteatthesamemeeting.(iii) Whereamemberappointstwo(2)proxiestoattendandvoteatthesamemeeting,theappointmentshallbeinvalidunless

he/shespecifiestheproportionsofhis/herholdingstoberepresentedbyeachproxy.(iv) TobevalidtheformofproxydulycompletedmustbedepositedattheregisteredofficeoftheCompanyat15JalanDagang

SB4/1,TamanSungaiBesiIndah,43300SeriKembangan,SelangorDarulEhsan,Malaysianotlessthanforty-eight(48)hoursbeforethetimeforholdingthemeetingoranyadjournmentthereof.

(v) Theinstrumentappointingaproxyshallbeinwritingunderthehandoftheappointerorofhis/herattorneydulyauthorisedinwritingoriftheappointerisacorporation,eitherunderitscommonsealorunderthehandofitsofficerorattorneydulyauthorised.

Number of Ordinary Shares held

AFFIXSTAMP

Fold this flap for sealing

Then fold here

1st fold here

THE COMPANY SECRETARYKNM GROUP BERHAD

15 Jalan Dagang SB 4/1Taman Sungai Besi Indah43300 Seri KembanganSelangor Darul Ehsan

Malaysia

(521348-H)

World Class Process Equipment Manufacturer and Turnkey Solutions Provider

KNM Group Berhad (521348-H)

ANNUAL REPORT 2010

KN

M G

RO

UP

BER

HA

D (521348-H

) AN

NU

AL REPO

RT 2010

KNM Process Systems Sdn Bhd15, Jalan Dagang SB 4/1, Taman Sungai Besi Indah43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8943 4781 | E [email protected]

KPN Gas Technology Sdn Bhd27, Jalan Dagang SB 4/1, Taman Sungai Besi Indah43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8942 5418 | E [email protected]

BORSIG Industrial Services Sdn Bhd

KNM Renewable Energy Sdn Bhd

Unit A-26-9, Level 26, Tower A, Menara UOA BangsarNo. 5 Jalan Bangsar Utama 1, 59000 Kuala Lumpur, MalaysiaT +603 2287 3066 | F +603 2287 5066 | E [email protected]

BORSIG Boiler Systems Sdn Bhd15, Jalan Dagang SB 4/1, Taman Sungai Besi Indah43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8943 4781 | E [email protected]

BORSIG Process Heat Exchanger GmbHEgellsstrasse 21, D-13507 Berlin, GermanyT +49 0 30 4301 01 | F +49 0 30 4301 2447 | E [email protected]

BORSIG ZM Compression GmbHSeiferitzer Allee 26, D-08393 Meerane, GermanyT +49 0 3764 5390 0 | F +49 0 3764 5390 5090 | E [email protected]

BORSIG Boiler Systems GmbHSchellerdamm 16, D-21079 Hamburg, GermanyT +49 0 40 303726 0 | F +49 0 40 303726 4050 | E [email protected]

BORSIG Membrane Technology GmbHBottroper Strasse 279, D-45964 Gladbeck, GermanyT +49 0 2043 4006 01 | F +49 0 2043 4006 6299 | E [email protected]

BORSIG Service GmbHEgellsstrasse 21, D-13507 Berlin, GermanyT +49 0 30 4301 01 | F +49 0 30 4301 2771 | E [email protected]

FBM Hudson Italiana SpAVia Valtrighe 5 - 24030 Terno d’Isola (BG), Italy T +39 035 494 1111 | F +39 035 494 1341 | E [email protected]

FBM Icoss SrlVia Valtrighe 5 - 24030 Terno d’Isola (BG), Italy T +39 035 494 1111 | F +39 035 494 1341 | E [email protected]

FBM-KNM FZCOPO Box 17101, Jebel Ali Free Zone, Dubai, United Arab Emirates(Plot 47-R-1, Jebel Ali Free Zone)T +97 1 4 883 5681 | F +97 1 4 883 5860 | E [email protected]

15, Jalan Dagang SB 4/1, Taman Sungai Besi Indah, 43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8943 4781 | E [email protected] | www.knm-group.com

KNM GROUP BERHAD (521348-H)


Verwater KNM Sdn Bhd 15, Jalan Dagang SB 4/1, Taman Sungai Besi Indah43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8943 4781 | E [email protected]

15, Jalan Dagang SB 4/1, Taman Sungai Besi Indah43300 Seri Kembangan, Selangor Darul Ehsan, MalaysiaT +603 8946 3000 | F +603 8943 4781 | E [email protected]

KNM Special Process Equipment (Changshu) Co LtdNo.46 Xinggang Road, Changshu Economic Development Zone Jiangsu Province, 215513 People’s Republic of China T +86 512 5229 1888 | F +86 512 5229 1878 | E [email protected]

KNM Engineering Services Pvt LtdNo. 6, 3rd Floor, Alexandria Road, Cantonment, Tiruchirappalli - 620 001

Box 420, 6204-46 Ave, Tofield, AB TOB 4J0, Canada

Tamil Nadu, IndiaT +91 431 241 7054 | F +91 431 402 3653 | E [email protected]

KNM Process Equipment Inc

T +1 780 662 3181 | F +1 780 662 3184 | E [email protected]

KNM Saudi Ltd PO Box 76089, Al-Khobar 31952, Kingdom of Saudi ArabiaT +966 5 4882 7130 | F +966 3 887 5321 | E [email protected]

KPS Technology & Engineering LLC8500 W 110th Street, Suite 400, Overland Park, Kansas 66210 USAT +1 913 433 2240 | F +1 913 433 2242 | E [email protected]

W.E. Smith Engineering Pty LtdHamilton Drive, Boambee via Coffs Harbour, NSW 2450, AustraliaT +61 2 6650 8888 | F +61 2 6658 3499 | E [email protected]

HEA Australia Pty Ltd17, Casella Place, Kewdale 6105, WA AustraliaT +61 8 9352 2333 | F +61 8 9353 2477 | E [email protected]

PT Heat Exchangers IndonesiaKawasan Industri Terpadu Kabil (KITK), Jl. Hang Kesturi l Kav. A21Kelurahan Batu Besar, Kecamatan Nongsa, Batam 29467 IndonesiaT +62 778 711 610 | F +62 778 711 620 | E [email protected]

KNM Brasil GroupAv. Presidente Castelo Branco, 1577, Carapina Grande CEP 29160-060 Serra, Espirito Santo, BrazilT +55 27 2104 8444 | F +55 27 3228 3832 | E [email protected]

PT KPE IndustriesKawasan Industri Terpadu Kabil (KITK), Jl. Hang Kesturi l Kav. A21 Kelurahan Batu Besar, Kecamatan Nongsa, Batam 29467 IndonesiaT +62 778 711 610 | F +62 778 711 620 | E [email protected]

KNM Projects (Thailand) Co., Ltd825, Phairojkijja Building, 6th Floor Unit B Bangna-Trad Road, Khwaeng Bangna, Khetr Bangna, Bangkok 10260, ThailandT +662 361 4758 / 4759 | F +662 361 4757 | E [email protected]

KNM Project Services LimitedSecond Floor, West Wing, Peterscourt, City RoadPeterborough PE1 2SP, United KingdomT +603 8946 3000 | F +603 8943 4781 | E [email protected]

KNM Petrosab Engineering Sdn BhdNo. KKTS/P1/E/30/5, Block E, Lot 30, 5th Floor KK Times Square, 88100 Kota Kinabalu, Sabah, MalaysiaT +6088 485 358 / 359 | F +6088 485 360 | E [email protected]

KNM Grinaker-LTA (Proprietary) LimitedSuite 1919, 19th Floor, ABSA Centre, 2 Riebeek StreetCape Town, 8001, South AfricaT +021 425 4711 | F +021 425 4718 | E [email protected]


KNM Group Berhad (Co. No. : 521348-H)

15 Jalan Dagang SB 4/1, Taman Sungai Besi Indah43300 Seri Kembangan, Selangor Darul Ehsan, Malaysia.

IITel No. : +603 8946 3000 Fax No. : +603 8943 4781

Email : [email protected] Website : www.knm-group.com

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