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MANAGING DIRECTOR’S STATEMENT
I AM VERY HAPPY TO ANNOUNCE THAT WE HAD ANOTHER GOOD
YEAR IN FY2007. WE AGAIN DELIVERED A SUPERB YEAR-ON-YEAR
GROWTH RATE OF OVER 100%. I AM DELIGHTED TO REPORT THAT WE
HAVE A DOUBLE DIGIT GROWTH IN REVENUE AND 100% GROWTH IN
PROFIT BEFORE TAX THIS FINANCIAL YEAR, THUS, ACCOMPLISHING
OUR COMMITMENT TO YOU, OUR SHAREHOLDERS TO DELIVER
LONG TERM SUSTAINABLE GROWTH.
Tan Kai HeeManaging Director
Dear valued shareholders,
HAI-O ENTERPRISE BERHAD (22544-D)(INCORPORATED IN MALAYSIA)
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MANAGING DIRECTOR’S STATEMENTCONTINUED
ECONOMIC & BUSINESS ENVIRONMENTProspect of the world economy is expected to be moderate as the US subprime mortgage loan crisis had affected the market confidence globally. Malaysia being an extremely open economy and highly export-oriented were not spared, as the world financial system is integrated globally and the likelihood of the US economy slipping into recession will reduce the demand for our export, therefore our economy will be affected somewhat. However, prospect of Malaysia's economy remain resilient in view of the following:
i. Revision of government servants' salary, Visit Malaysia Year 2007 campaign and the expectation that more development projects will be rolled out under the 9th Malaysia Plan.
ii. Interest rates remain low.iii. All these positive factors are expected to boost consumer spending and
domestic consumption.
As for the operating environment for health food & traditional medicine industry, it will remain competitive. According to the Malaysian Organization of Pharmaceutical Industries (MOPI), estimated growth will continue at a rate of 8% to 10%, and market size will be estimated at about RM2.0 billion. Therefore, there will still be a lot of market growth potential in this area.
The primary regulatory authority in Malaysia for this industry is the Drug Control Authority (DCA). Its responsibilities include ensuring the safety, quality and efficacy of pharmaceutical operations in Malaysia, processing and registration application for drugs and cosmetics, licensing importers, manufacturers and wholesalers and market surveillance.
The regulatory environment in Malaysia has marked significant improvement over the last decade with the enforcement of DCA and the alignment of domestic procedures with international norms, such as GMP (Good Manufacturing Practice) Standard, product labeling etc. From October 2003 onwards, all registered pharmaceutical products must be labeled with a Meditag, i.e., a hologram label, failing which the companies involved will be subject to penalties, i.e., fine or imprisonment or both. This move is targeted to stop the “invasion” of potentially hazardous counterfeit drugs and health care products into the domestic pharmaceutical market.
We laud the government's move to implement such regulations as this would ultimately benefit Hai-O which consistently promotes quality and safe traditional medicines and pharmaceutical products.
FINANCIAL OVERVIEWFor the financial year under review, Hai-O Group recorded a thumbs-up financial performance by posting a whopping over 100% growth in profit after tax of RM21.38 million (2006: RM10.18 million), backed by a higher revenue of RM189.35 million (2006: RM146.80 million), an increase of almost 29%. The improvement in revenue was attributable to effective marketing strategies that successfully penetrate into the Malay market for our MLM division. The launching of brand new products such as the Bio Aura water filtration system had received encouraging response from the distributors. Contribution from Pu-Er tea continues to gain prominence, contributions amounting to about RM4.2 million or 14% of the group's Profit Before Tax (PBT) of RM30.61 million (2006 : PBT of RM15.13 million). With such an stellar performance, earnings per share naturally soared 100% to 32.61 sen in FY2007 (2006: 16.39 sen).
The Group's FY2007 financial position remains intact. As 70% of the group business is dealing in cash term, thus it had generated total annual net cash from operations about RM30 million for financial year under review. The Group's net cash position and short term investment soared further to RM39 million as of 30 April 2007 (2006: RM16 million). Shareholders' fund had also increased to RM105.6 million with net asset per share of RM1.57 due to resilient earning growth.
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BUSINESS DIVISION OVERVIEWMULTI-LEVEL MARKETING
A wonderful year for the MLM division (Hai-O Marketing), it is the largest contributor to the Group's sales and profit this time around. This FYE 30 April 2007, the MLM division had contributed a turnover of RM99.7 million and operating profit of RM13.90 million respectively, representing an increase of 85% in sales and more than 120% in profit as compared to the previous financial year. Effective training programs are identified as one of the key contributors of the favorable increase in sales, having cultivated a “sense of belonging” and the “Hai-O, My Choice for Life” culture among Hai-O MLM distributors. Aggressive member recruitment scheme and A&P sponsorships such as “Jom Heboh” TV program on TV3 had created awareness and impact among the MLM industry and had attracted many new members into Hai-O MLM. Currently, we have an average of about 1,000 new members
joining Hai-O MLM on a monthly basis, and year-to-date, we have over 60,000 distributors and of which 20% are actively involved in the business. The effort to put up more corporate billboards along some major highways is also key in creating greater awareness. Continuous launching of new products such as Bio-Aura water purifier and Bamboo Salt have contributed additional sales to the MLM division.
This FY2007, we are also proud to mention that for the MLM travel incentive, we successfully sent 212 Bumiputera distributors on the Umrah trip. According to the Tabung Haji, Hai-O is the first non-Bumiputera company ever to fund an Umrah trip with the highest number of participants. And this is all due to the hard work and commitment of all the 212 qualified Bumiputera distributors. Another 88 distributors successfully qualified for another incentive trip to the Gold Coast, Australia.
There are 66 direct selling companies in Malaysia, which are members of the Direct Selling Association of Malaysia (DSAM) and it had recorded a
combined turnover of RM2.7 billion in 2005, up nearly 4 per cent from 2004's turnover of RM2.6 billion. There was however a slight dip in 2006, which was RM2.58 billion. Nevertheless, the direct selling industry is still important and a growing contribution to Malaysia's economy. It provides entrepreneurial opportunities to Malaysians who want supplemental income or as a full-time business interest, it also enabled some of them to export/expanding their presence and products overseas.
We will also continue improve on the overall MLM business system, namely the On-Line System to fully exploit the infinite possibilities of the World Wide Web.
We believe Hai-O Marketing will continue to grow due largely to the aggressive and entrepreneurial spirit of the distributor force. And last but not least, we are in the midst of exploring the possibility of setting up a MLM operation in regional markets such as Indonesia, this will provide a greater opportunity for new and existing distributors to expand their business network.
MANAGING DIRECTOR’S STATEMENTCONTINUED
HAI-O ENTERPRISE BERHAD (22544-D)(INCORPORATED IN MALAYSIA)
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RETAILING
Revenue from our retailing division (Hai-O Raya) increased marginally to RM37.57 million for FYE 30 April 2007, however the profit increased by almost two fold to RM1.73 million. The divestment of interest in loss making subsidiary, Pasaraya TFHO D'Choice Sdn. Bhd. had substantially improved the performance of retail division for FYE 30 April 2007. For the current FY, we have opened 4 new outlets, which make up to a total of 56 outlets in Malaysia. The new outlets opening during the year are located in 1Utama Shopping Mall, Petaling Jaya; Queensbay Mall, Penang; Pearl Point, Kuala Lumpur; and Sungai Long, Kuala Lumpur. For the new financial year, Hai-O plans to open 3-5 new outlets and will look into strategic locations such as high traffic shopping malls.
Profit margin improved due to new marketing strategy focusing on the sale of house-branded products. There will be more house-branded products launching this year, and will also focus on further developing the house-brand image. The aggressive promotion of the Hai-O Raya Customer Loyalty Program also contributed to the increase in sales. Hai-O Raya Customer Loyalty Program is an in-house "customer membership" program whereby members can enjoy exclusive discounts and privileges. We also organize Member's Privileges Sales event twice a year, and had been receiving very good response from our valued members. Currently, Hai-O Raya has over 120,000 members who provide constant revenue to it, which accounts for almost 40% of sales to the retailing division. This is a record high in 18 years.
WHOLESALE
Our wholesale division is the second largest contributor to the Group this financial year under review. It contributed 25% to Group sales and 35% to Group profit. Pu-Er Tea is one of the top contributing products to the wholesale division. It recorded RM10 million in sales and RM4.2 million in profit before tax, which is a significant improvement over the previous financial year. We are confident that Pu-Er Tea, which has gained a favorable place in the hearts of tea drinking enthusiasts will continue to steer the growth of Hai-O and realize the Group's intention in establishing a Pu-Er trading center in Kuala Lumpur. Pu-Er Tea, widely known for its various health benefits is the star among all tea products in China. Just like wine, its flavor improves with time. Pu-Er is thus the only tea with investment value. It is indeed fortunate that Malaysia's weather is particularly suitable for aging Pu-Er, hence complementing Hai-O's aspiration of promoting Pu-Er as its key growth driver.
Other main products such as medicated wine and health food also registered growth in sales and profit. We have also secured distributorship for more new branded products during the year such as “Mengniu” dairy products. Overall, effective marketing strategies and A&P activities focusing on marketing of branded products with higher profit margin had increased sales for the wholesale division.
BUSINESS DIVISION OVERVIEW (CONTINUED)
MANAGING DIRECTOR’S STATEMENTCONTINUED
MOU signing ceremony between Hai-O and Mengniu.
Hai-O Raya Retail Outlets
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JOINT VENTURE COMPANIES
Peking Tongrentang (M) Sdn. Bhd.
A joint venture company between Hai-O and Beijing Tongrentang Co Ltd, which is the largest producer of traditional Chinese medicine in China. It is also one of the oldest and most respected practitioners in traditional Chinese medicine. It is a well known name widely among Chinese and Asians worldwide. Through the joint venture, Hai-O is able to tap into the wealth of experience and knowledge accumulated by Beijing Tongrentang from its more than 330 years of operation, and deliver to our customers in Malaysia the best available clinical and pharmaceutical services in traditional Chinese medicine.
Peking Tongrentang (M) Sdn. Bhd. celebrated its 5th anniversary this year on 24th August 2007. Currently, it has 2 outlets, with one in Kuala Lumpur and the other in Penang. TRT has identified a new site for its 3rd outlet, located in Petaling Jaya, Selangor and it is slated to commence business in September 2007. A 4th outlet is in planning stages now for 2008, which hopefully will be located in Johor Bahru.
Sanjiu Hai-O TCM (M) Sdn. Bhd.
Sanjiu Hai-O TCM (M) Sdn. Bhd. was formed in 2003 by Hai-O Enterprise Bhd. and CMCI Ltd., a subsidiary of Shenzhen 999 Pharmaceutical Co. Ltd.. Through this joint-venture, Hai-O is able to tap into the modern developments in traditional Chinese medicine, and provide clinical service based on the use of modern herbal extracts. Currently, there are 4 Sanjiu TCM consultation clinics in Malaysia and four of them are set-up at Hai-O Raya Chain Stores to provide “integrated clinical services” to our customers. We are confident that it would contribute positively to the Group's revenue and profit.
MANUFACTURING
Sales contribution from this division is relatively small in relation to the Group's turnover. It had recorded sales of about RM1.0 million and pre-tax profit of RM0.33 million for the year under review. The lower profit was mainly due to high initial cost in setting up of the QIS Research Laboratory Sdn. Bhd. It is a full service analytical laboratory, offering a wide range of testing services in the areas of the microbiology and chemical analysis in traditional medicine and food products. The laboratory is run by a team of qualified chemists, micro-biologists and well experienced supporting staff to meet client requirements. Quality assurance programs are carried out in the laboratory to ensure analytical precision and accuracy, meanwhile complying with the requirements of the Department of Standards Malaysia (DSM). As all the necessary approvals had been granted by the relevant authorities for the laboratory, it is now in full operation. We are expecting the laboratory to be able to contribute positive results for the current FY.
BUSINESS DIVISION OVERVIEW (CONTINUED)
MANAGING DIRECTOR’S STATEMENTCONTINUED
The 5th Anniversary Celebration Banquet of Peking Tongrentang in Kuala Lumpur.
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Corporate DevelopmentTo better refl ect the scale of current operation, the Company had on 22 June 2007 via RHB Investment Bank Berhad announced that the company proposed to undertake the following:
a) A bonus issue on the basis of One (1) new ordinary share for every fi ve (5) existing ordinary shares held. (“Proposed Bonus Issue”); and
b) a transfer of the listing and quotation for the entire issued and paid-up capital of Hai-O from the Second Board to the Main Board of Bursa Malaysian Securities Berhad (Bursa Securities) (“Proposed Transfer Listing”).
The Proposed Bonus Issue and Proposed Transfer Listing are not inter-conditional.
The Securities Commission had vide its letter dated 17 July 2007 approved the Proposed Transfer Listing. The Company had subsequently obtained the approval from Bursa Securities and Shareholders for the proposed Bonus Issue on 15 August 2007 and 23 August 2007 respectively. The Company had completed the proposed bonus issue exercise on 17 Sept 2007 of which 13,412,342 bonus shares were granted listing and quotation on Second Board of Bursa Securities.
With all relevant and necessary approvals being granted by the authorities, the Company is targeting to transfer its listing status from the Second Board to the Main Board of Bursa Securities in early October 2007.
Changes in the Composition of the GroupAs part of the process in streamlining the Group operations and reallocating the resources to more profi table business segment, the Company had disposed off a non-profi table subsidiary company, Teik Seang Wine Merchants (M) Sdn. Bhd. for a total consideration of RM783,780.00 on 29 August 2007.
The Company had on 11 September 2007 announced its proposed acquisition of an investment company incorporated in Hong Kong to tap the business opportunities in China. The acquisition was completed on 25 September 2007. The Company intends to increase the paid-up share capital of Hai-O (Hong Kong) Investment Limited to HK$4,000,000 at a later stage.
MANAGING DIRECTOR’S STATEMENTCONTINUED
Pu-er tea promotional materials.
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Corporate Social ResponsibilityAll these years, corporate social responsibility (CSR) has been one of our core corporate values. As a group with various business activities, we have a diverse audience of stakeholders in the many locations of our operations. Whilst the number of stakeholders may be large and their needs varied, Hai-O can best play its part in CSR by doing business in a responsible way, for our shareholders, staff, business partners and the community around us. This philosophy is central to living up to our name. Each year, Hai-O's group-wide corporate philanthropy and sponsorships are channeled to a mix of organizations, educational & cultural causes and the less-fortunate.
Between 18th December 2006 & 13th January 2007, a series of floods hit Malaysia. The floods were caused by above average rainfall, which was attributed to Typhoon Utor which had hit the Philippines and Vietnam a few days earlier. By the third week of January 2007, Johor was hit by a larger flood. Hai-O responded to this catastrophe by supplying bottled mineral water to the southern state to help in the relief of the flood victims. At the same time, we also provided some relief fund to 6 of our staffs who were affected by the flood in Segamat.
Earlier this year, Hai-O Marketing Sdn. Bhd. sponsored RM15,000 worth of the “Mystical Steppes: Along the Silk Road” show tickets for several Malay shelter homes in the Klang Valley. The four homes are Rumah Anak-Anak Yatim Shifa in Setapak, Rumah Bakti in Hulu Kelang, Rumah Kanak-Kanak Tengku Budriah in Cheras and Pusat Jagaan Kanak-Kanak Nur Hikmah in Kampung Attap. The show was a good way to expose these children to different types of cultures and people, enriching their knowledge and a better understanding of the world that they live in.
Future PlansI have on hand several exciting new potential business ventures that I hope will come into fruition in the near future. We are currently planning to build a “super-warehouse” designed specifically to store Pu-Er tea. This plan came about due to the Malaysian climate being extremely ideal for the storage of the said tea. With this warehouse, we will be able to provide warehousing or storage services to Pu-Er tea makers who wishes to store their products in a facility where their Pu-Er tea will be able to age in an ideal environment. This will be another extra source of revenue for the Company.
We are also planning to tap into the export market. The Middle East in general and UAE in particular are experiencing significant growth in the healthcare sector. The market for healthcare products and services in the Arab region is comparable with that of any developed part of the world. The healthcare market is estimated around US$ 74 billion according to MATRADE. Malaysia's exports in this category currently account for less than 0.06% of UAE's annual imports. Therefore, there is a vast market potential yet to be explored and we are very interested in exporting our Halal-certified products into this market.
Another export market we are looking into is China. China has pledged to globally recognized standards and improve the theoretical basis of its traditional medicine practice. The move is part of the country's efforts to build recognition of its long-standing medical heritage. China is the only country in the world where Western medicine and traditional medicine work alongside each other at every level of the healthcare system. The ambitious plan to develop world class standards for traditional Chinese medicine offers business opportunities for us to export local traditional medicine such as Tongkat Ali, natural Vitamin E (Extracted from palm oil) and other raw material to this immense market.
MANAGING DIRECTOR’S STATEMENTCONTINUED
Mr. Tan Kai Hee & Tan Sri Osman S. Cassim presenting a mock "Mystical Steppes: Along the Silk Road" show ticket to the representative of the orphanages.
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In late 2006, Hai-O Chain Stores initiated a crime prevention awareness campaign by specially producing 20,000 pieces of car stickers with the theme, “Neighborhood Watch Crime Prevention”. The sticker also contained the contact number of RakanCop Hotline and SMS number for the convenience of alerting the authorities should there be any detection of crime in progress. These car stickers were distributed throughout all of our Hai-O chain stores to be given away free to our customers and the public. In the same period, Hai-O Chain Stores also participated in a donation drive organized by the United Chinese School Committees' Association of Malaysia. We managed to accumulate a collection of RM10,155 from our valued customers during the drive and passed it on to the United Chinese School Committees' Association of Malaysia's “Independent Chinese Schools Development Fund”.
Human Resources At Hai-O, we recognize the human capital is our most important asset. Our human resource culture centered on 3 core values: Sense of Belonging, Teamwork and Equal Opportunity. We encourage our staff to excel and value their careers in Hai-O as their own undertaking. In Hai-O, we all work together as a team and strive to inculcate a sense of ownership to our company. We provide equal opportunity to our staff to make contributions and in return to enjoy a rewarding career. With such philosophy in mind, Hai-O is committed to bringing out the best in our staff and to build the success together.
FOR BOARD OF DIRECTORS & TOP MANAGEMENT:
As part of the CEP (Continuous Education Program) for our directors, the training department organized a program "Improving Budgeting Process" with the aim of gaining the insight into the best practices of budgeting processes adopted by prominent Malaysian and world class corporations and how we can adopt these best practices to suit our culture and business nature to ensure the company performance is on the right track.
FOR SALES PERSONNEL AND OTHERS:
We conducted numerous product trainings (by our qualified in-house Chinese physicians) for our wholesale and retail sales team, enabling them to gain better product knowledge and its competitive advantage so that they can serve our customer better. We have conducted "Effective Inventory Management" workshops for warehouse and purchasing staff to get them to participate in group discussions to come out with good measures to improve on inventory management. Apart from those, we had also organized several technical-based trainings such as "Talk on Food Labeling & Nutritional Requirement" to keep abreast of the latest rules and regulations imposed by the Ministry of Health.
AcknowledgmentOn behalf of the Board of Directors, please allow me to express my sincerest gratitude and appreciation to our valued customers, suppliers, shareholders and business associates and bankers for their continued support and trust. A big thank you is also extended to the government and relevant authorities and officers for their assistance.
We are very lucky to be supported by an incredible group of men and women who run our operating units on all levels, without them, we wouldn't have been where we are today. Therefore, from the bottom of my heart, you all have my thanks.
Tan Kai HeeManaging Director28 September 2007
CORPORATE SOCIAL RESPONSIBILITY (CONTINUED)
MANAGING DIRECTOR’S STATEMENTCONTINUED
Hai-O staffs attenting a management training workshop.
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GROUP ACHIEVEMENTS AND AWARDS
1
2
1. “ GOLDEN BULL AWARD” for one of Malaysia’s Top 100 Outstanding SMEs in 2003.
2 . In recognition of 13 years of membership with Direct selling Association, Malaysia in July 2007.
3. Certificate of recognition for outstanding contribution towards developing Bumiputra Entrepreneurs by Ministry of Entrepreneur & Cooperative Development (MECD) on 25 August 2007.
4. Top Malaysian Small Cap Companies (100 Jewels 2007) by OSK Investment Bank Bhd.
3
4
HAI-O ENTERPRISE BERHAD (22544-D)(INCORPORATED IN MALAYSIA)
43HAI-O ENTERPRISE BERHAD (22544-D)(INCORPORATED IN MALAYSIA)
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1
2
3
4
5
6
7
1. Awarded the “Super Brand” status by the Malaysia Super Brand Council for the year 2003/2004.
2. Awarded “ Enterprise 50”, by SMIDEC and Deloitte in 2005.
3, 4 & 5. Awarded Diamond Club for excellent performance for 2002, 2003 &2006.
6. Listed as the Largest Herbs & Healthcare Products Retail Chain by Malaysia Book of Records.
7. ISO 9001 : 2000 Certifi cation for manufacturing of herbal medicine and health food supplement by Lloyd’s Register Quality Assurance Ltd.
AUDIT COMMITTEE REPORT
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COMPOSITION OF AUDIT COMMITTEE
The Audit Committee of Hai-O Enterprise Bhd (“Audit Committee”) presently comprises three (3) Directors of the Board. The details of attendance of each member of the committee for the meetings held during the financial year are as follows:
Name of Member Designation Directorship
Number of Meetings Held
during the financial year ended
30 April 2007
Number of Meetings Attended during the financial
year ended 30 April 2007
Quek Ah Ba Chairman Independent Non-Executive Director
6 6
Dr. M.K. Rajakumar A/L M.R.K. Nayar Member Independent Non-Executive Director
6 3
Lim Chin Luen (Appointed on 21st June 2006)
Member Independent Non-Executive Director
5 5
Agnes Wong Ling Lee (Resigned on 28th July 2006)a
Member Non-Independent Non-Executive
Director
2 1
TERMS OF REFERENCE
The Audit Committee was formed by the Board pursuant to its meeting on 7 September, 1996 and its terms of reference was amended to meet the requirement of Paragraph 15.10 of the Listing Requirements of Bursa Malaysia Securities Bhd.
COMPOSITION OF AUDIT COMMITTEE
The Audit Committee shall be made up of at least three (3) Directors, a majority of whom shall be Independent Directors. No Alternate Director shall be appointed as a member of Audit Committee. At least one member of the Audit Committee: -
1) must be a member of the Malaysian Institute of Accountants; or
2) if he/she is not a member of Malaysian Institute of Accountants, he/she must have at least 3 years’ working experience and: -
(a) he/she must have passed the examinations specified in Part I of the First Schedule of the Accountant Act 1967; or
(b) he/she must be a member of one of the association of accountants specified in Part II of the 1st Schedule of the Accountants Act 1967.
3) fulfills such other requirements as prescribed by Bursa Malaysia Securities Bhd.
Note: The Listing Requirements of Bursa Malaysia Securities Bhd prescribed that the following qualifications are also acceptable: -
(a) a degree/master/doctorate in accounting or finance and at least 3 years’ post qualification experience in accounting or finance; or
(b) at least 7 years’ experience being a chief financial officer of a corporation or having the function of being primarily responsible for the management of the financial affairs of a corporation.
AUDIT COMMITTEE REPORT(CONT’D)
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TERM OF OFFICE
The Board of Directors shall review the term of office and performance of an Audit Committee and each of its members at least once every three (3) years to determine whether such Audit Committee members have carried out their duties in accordance with their terms of reference. In the event of any vacancy in an Audit Committee resulting in non-compliance with requirement 15.10(1) of the Listing Requirements of Bursa Malaysia Securities Bhd, the vacant position will be filled within three (3) months.
CHAIRMAN OF THE AUDIT COMMITTEE
The member of the Audit Committee shall elect a Chairman from among themselves who shall be an Independent Non-Executive Director.
SECRETARY OF THE AUDIT COMMITTEE
The Company Secretary shall be the Secretary of the Audit Committee. The Secretary shall be responsible, in conjunction with the Chairperson, for drawing up the agenda and circulating it prior to each meeting. The Secretary shall also be responsible for keeping the minutes of the meeting and circulating them to the Audit Committee members.
AUTHORITY OF THE AUDIT COMMITTEE
The Audit Committee is authorized by the Board to:
1) have authority to investigate any matter within its terms of reference;
2) have the resources which are required to perform its duties;
3) have full and unrestricted access to any information pertaining to the company;
4) have direct communication channels with the external auditors and person(s) carrying out the internal audit function or activity;
5) be able to obtain independent professional or other advice; and
6) be able to convene meetings with the external auditors, excluding the attendance of the Executive Member of the Committee, whenever deemed necessary.
DUTIES AND RESPONSIBILITIES OF AUDIT COMMITTEE
The Audit Committee shall, amongst others, discharge the following functions: -
1) to review the following and report the same to the Board of Directors of the company:-
(a) review with the external auditors, the audit plan,(b) review with the external auditors, their evaluation of the system of internal controls,(c) review with the external auditors, their audit report,(d) the external auditors’ management letter and management response;(e) the assistance given by employees of the company to the external auditors;(f) the quarterly results and year-end financial statements, prior to the approval by the Board of Directors, focusing
primarily on:-i) changes on or implementation of major accounting policy changes,ii) significant and unusual event, andiii) compliance with accounting standards and other legal requirements.
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DUTIES AND RESPONSIBILITIES OF AUDIT COMMITTEE (CONTINUED)
The Audit Committee shall, amongst others, discharge the following functions: - (Continued)
1) to review the following and report the same to the Board of Directors of the company:- (Continued)
(g) 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,
(h) any letter of resignation from the external auditors of the Company,(i) whether there is reason (supported by grounds) to believe that the company’s external auditors are not suitable for
reappointment,(j) recommend the nomination of a person or persons as external auditors,(k) the internal audit functions:-
i) the adequacy of the scopes, functions and resources of the internal audit functions and that it has the necessary authority to carry out its work,
ii) the internal audit programs, processes, the result of the internal audit programs, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the Group Internal Audit,
iii) review any appraisal or assessment of the performance of the head of the internal audit function,iv) approve any appointment or termination of head of the Group Internal Audit, and
(l) consider the major findings of internal investigations and management’s response.
2) to supervise and direct any special project and investigation.
3) to carry out such other functions as may be agreed to by the Audit Committee and the Board of Directors.
REPORTING OF BREACHES TO THE BURSA MALAYSIA SECURITIES BHD
Where an Audit Committee is of the view that a matter reported by it to the Board of Directors of the company has not been satisfactorily resolved resulting in a breach of the Bursa Malaysia Securities Bhd Listing Requirements, the Audit Committee shall promptly report such matter to the Bursa Malaysia Securities Bhd.
QUORUM OF AUDIT COMMITTEE
In order to form a quorum in respect of a meeting of an Audit Committee, the majority of members present must be Independent Directors.
FREQUENCY AND ATTENDANCE OF MEETINGS
Meetings shall be held at least 4 times a year. Notice of meeting shall be circulated to the members one week in advance. Additional meetings may be called at anytime at the Audit Committee’s discretion. During the financial year ended 30 April 2007, six (6) committee meetings were held.
The Head of Finance, the Group Accountant and the Head of Group Internal Audit, a representative from operations management, and a representative of the external auditors may attend meetings by invitation. Other Board members may attend the meeting only at the Audit Committee’s invitation, specific to the relevant meeting.
The external auditors may request a meeting if they consider necessary. Upon request of auditors, the Chairman of the Audit Committee shall convene a meeting of the Committee to consider any matter the auditors believe should be brought to the attention of the Directors or shareholders.
Minutes of the Committee Meetings were circulated to the Committee members and made available to other members of the Board.
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SUMMARY OF ACTIVITIES
During the financial year ended 30 April 2007, the activities of the Audit Committee included:-
1) reviewed the unaudited quarterly financial results announcements before they were approved by the Board,
2) reviewed the audited financial statements for financial year ended 30 April 2007 before they were approved by the Board,
3) reviewed and discussed with the external auditors on their scope of work, the result of their examination, the auditors’ report and management letters in relation to the audit and accounting issues arising from the audit, as well as new developments on accounting standards and regulatory requirements,
4) evaluated the performance of the external auditors and made recommendations to the Board on their appointment and fees,
5) reviewed and approved annual audit plan of the Group for the financial year ended 30 April 2007,
6) reviewed the audit programs, resource requirements, and staffing requirements for the year and assessed the performance of the Group Internal Audit Division,
7) reviewed the processes undertaken by the internal auditors to ensure all high and critical risk areas are audited annually,
8) reviewed the internal audit report, audit recommendations made and management response to these recommendations and reviewed the follow-up audits to ensure that appropriate actions are taken and recommendations of internal auditors are implemented.
SUMMARY OF INTERNAL AUDIT ACTIVITIES
The Group Internal Audit Division, which reports directly to the Audit Committee, is established to assist the Audit Committee in the discharge of its duties and responsibilities. Its role is to undertake independent regular and systematic reviews of the operation of the companies to ensure proper systems of internal controls is in place. It also evaluates the processes by which significant risks are identified, assessed and managed to ensure instituted controls are appropriate, effectively applied and achieve acceptable risk exposures consistent with the Company’s risk management policy.
Throughout the financial year, audit assignments were carried out on the Group and its subsidiary companies. These assignments were carried out in accordance with the annual audit plan or as special ad-hoc audit at management’s request.
The resulting reports of the audit undertaken were presented to the Audit Committee and forwarded to the management concerned for action.
During the financial year, there was no material internal control failure that was reported that would have resulted in any significant loss to the Group.
EMPLOYEE SHARE OPTION SCHEME
In compliance with the Listing Requirements of Bursa Malaysia Securities Bhd, Appendix 9C, Paragraph 9.25 in furtherance of the Committee’s obligations under Paragraph 8.21A, which come into effect on 10 February 2004, the Audit Committee, through the Group Internal Audit Division, has verified the allocation of options pursuant to the criteria set out in the Employee Share Option Scheme.
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STATEMENT ON CORPORATE GOVERNANCE
HAI-O ENTERPRISE BERHAD (22544-D)(INCORPORATED IN MALAYSIA)
49
The Board of Directors of Hai-O Enterprise Berhad (“The Board”) recognises the importance of the Malaysian Code of Corporate Governance (“The Code”), which sets out the principles and the best practices on corporate governance. In line with this, the Board is committed to ensuring that the principles of Corporate Governance and Best Practices are observed and practiced throughout the Hai-O Group of companies (“The Group”) so that the operations of the Group are conducted with integrity and professionalism to safeguard shareholders’ investment and enhance shareholders’ value.
BOARD OF DIRECTORS
a) Composition of the Board and Board Balance
The Board currently consists of eight (8) members, comprising of three (3) Executive Directors and five (5) Non-Executive Directors, of whom four (4) are Independent Directors. Thus, this complies with Paragraph 15.02 of the Listing Requirements of Bursa Malaysia Securities Bhd (“Bursa Malaysia”) that one-third (1/3) of the Board are Independent Directors. All the Independent Directors are independent of management and majority shareholders and are free from any business or other relationship that could materially interfere with the exercise of their independent judgment.
The functions of Executive and Non-Executive Directors are separate and clearly defined. Generally, the Executive Directors are to manage the Group’s daily operations and to implement the operational and corporate decisions. The Non-Executive Directors are to provide the company with unbiased, independent views and decisions, after taking into consideration the interest of the shareholders, employees and business associates. The expertise of the Independent Non-Executive Directors complements the knowledge and experience of the Executive Directors in the formulation of company strategies and policies. Where a potential conflict of interest may arise, it is a mandatory practice for the director concerned to declare his interest and abstain from the decision making process.
There is also a clear distinction of responsibilities between the Chairman and the Managing Director to maintain a balance of authority and accountability. The Chairman provides overall leadership to the Board, without limiting the principle of collective responsibility for Board’s decisions. The Managing Director, on the other hand, has the principal responsibility to formulate the business strategies and to implement the corporate decisions as well as to manage the overall business operations.
The Board’s composition represents a mix of knowledge, skill and expertise relevant to the activities of the Group. A brief profile of each Director is presented on pages 13 to pages 17.
b) Responsibilities of the Board
The Board retains full and effective control of the Group. This includes the responsibility for determining the Group’s overall strategic directions as well as development and control of the Group. Key matters, such as approval of annual and quarterly financial results, corporate and financial planning, acquisitions and disposals of major capital expenditures, entry into new business ventures, budgets and long term plans are the prerogative of the Board.
c) Board Meetings & Supply of Information
The Board meets at least once every three (3) months. Additional meetings may be convened to resolve any major and ad hoc matters requiring immediate attention. During the financial year ended 30 April 2007, the Board met six (6) times. Senior Management staff may be invited to attend board meetings to provide the Board with detailed explanations and clarifications.
Relevant information and documents are provided to the Board members prior to the Board meetings to enable them to duly discharge their duties.
The Board has unrestricted access to all staff for any information pertaining to the Group’s affairs. In addition, the Board has access to the advice and services of the Company Secretary who is responsible for ensuring that the Board meeting procedures are followed and that applicable rules and regulations are being complied with. The Board may also seek independent advice whenever the need arises.
ANNUAL REPORT 2007
STATEMENT ON CORPORATE GOVERNANCE(CONT’D)
M Y C H O I C E F O R L I F E
50
d) Appointment & Re-election of Directors
The Board has delegated the Nomination Committee the responsibility for considering the appointment of directors, identifying and selecting potential new directors and proposing to the Board the appointment of new Directors.
All of the members of the Nomination Committee are Independent, Non-Executive Directors:
• Dr. M.K. Rajakumar A/L M.R.K. Nayar• Lim Chin Luen• Quek Ah Ba
One third (1/3) of the Directors shall retire from office at each Annual General Meeting (“AGM”) and they can offer themselves for re-election. Directors who are appointed by the Board are subject to election by the shareholders at the next AGM held following their appointments.
Directors over seventy (>70) years of age are required to submit themselves for re-appointment annually in accordance with Section 129(6) of the Companies Act, 1965.
e) Director’s Training
The Board acknowledges that continuous education is critical for its members to gain insight into the state of economy, technological advances, regulatory updates and management strategies. All the Directors of the company have completed the Mandatory Accreditation Programme (“MAP”) in accordance with the Listing Requirements of the Bursa Malaysia Securities Bhd. The Directors will continue to undergo other relevant training programs and the Continuing Education Program (CEP) to further enhance their acknowledge in the latest statutory and regulatory developments as well as to keep abreast with developments in the business environment to enable them to discharge their responsibilities more effectively.
DIRECTORS’ REMUNERATION
a) Level and Make-up of Remuneration
The Board has set up a Remuneration Committee whose members are majority Non-Executive Directors. Members of the Remuneration Committee are: -
• Dr. M.K. Rajakumar A/L M.R.K. Nayar• Lim Chin Luen• Tan Kai Hee
The level of remuneration is structured to attract, retain and motivate the Directors in order to run the company successfully. The remuneration scheme is linked closely with the performance, service seniority, experience, and responsibilities.
b) Procedure
The Remuneration Committee, meets as and when required, has responsibility for determining all aspect of remuneration and terms and conditions of service of the Executive Directors. The Remuneration Committee’s primary responsibility is to ensure that the remuneration package of the Executive Directors are based on the Group’s results and the individual director’s performance.
The determination of the remuneration of Non-Executive Directors is a matter for the Board as a whole.
The Directors’ fees, both Executive and Non-Executive are approved by the shareholders at the Annual General Meeting (“AGM”).
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HAI-O ENTERPRISE BERHAD (22544-D)(INCORPORATED IN MALAYSIA)
51
STATEMENT ON CORPORATE GOVERNANCE(CONT’D)
c) Disclosure
The details of the remuneration of Directors for the year ended 30 April 2007 are as follows:
DirectorsDirectors’ Fees
(RM)Emoluments
(RM)Benefit-In-Kinds
(RM)Total(RM)
Executive Directors 109,800 1,670,962 32,219 1,812,981Non-Executive Directors 80,000 376,551 5,000 461,551Grand Total 189,800 2,047,513 37,219 2,274,532
The aggregate remuneration of Directors fall within the following bands are as follows: -
Range of Remuneration Executive DirectorsNon-Executive
Directors
RM 50,000 and below 2RM 50,001 – RM 100,000 2RM 100,001 – RM 150,000 1RM 150,001 – RM 200,000 1RM 200,001 – RM 250,000 1RM 300,001 – RM 350,000 1RM 1,250,001 – RM 1,300,000 1
SHAREHOLDERS AND INVESTORS
The Board recognises the importance of the right of shareholders, stakeholders and general public to be well informed on the activities and performance of the Group and to make their own evaluation and investment decision.
The Group has maintained an active and constructive communication policy that enables the Board and management to communicate effectively with its shareholders.
The key element of the Company’s dialogue with its shareholders is the opportunity to gather views and answer questions on all issues relevant to the Company at the AGM. The notice of the AGM and related papers are sent to shareholders with adequate time notice before the meeting. All shareholders are invited and encouraged to attend the company’s AGM and to participate in the proceedings. At the AGM, the shareholders are encouraged to ask questions about the resolutions being proposed as well as to seek clarification on the Group’s business and performance. Shareholders are also informed and invited to attend any Extraordinary General Meetings through circulars and notice of meeting, if there is any.
The company has also established a website www.hai-o.com.my to which the shareholders can access for corporate information.
ANNUAL REPORT 2007
STATEMENT ON CORPORATE GOVERNANCE(CONT’D)
M Y C H O I C E F O R L I F E
52
ACCOUNTABILITY AND AUDIT
a) Financial Reporting
The Board aims to provide and present a clear, balanced and comprehensive assessment of the Group’s financial performance and prospects at the end of the financial year, primarily through the annual financial statements, as well as through quarterly and half yearly announcement of results to shareholders. The Board, with the assistance of the Audit Committee, takes due care and reasonable steps to ensure that its quarterly and annual financial statements are presented with accuracy, adequacy and comply with the requirements of approved accounting standards before announcing to shareholders and the general public.
b) Statement of Internal Control
The Board acknowledges that it is responsible for the Group’s system of internal controls covering not only financial controls but also operational and compliance controls as well as risk management. The internal control system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable, and not absolute assurance against material misstatement or loss.
The Statement of Internal Control set out on pages 53 of this Annual Report provides an overview of the state of internal controls within the Group.
c) Relationship with the Auditors
Through the Audit Committee, the Board has established transparent and appropriate relationship with the company’s internal and external auditors.
The company’s independent external auditors fill an essential role for the shareholders by enhancing the reliability of the company’s financial statements and giving assurance of that reliability to users of these financial statements.
A report of the Audit Committee and its terms of reference are provided on pages 45 to 48.
RESPONSIBILITY STATEMENT BY THE BOARD
The Directors are responsible for ensuring that the annual financial statements of the Group are drawn up in accordance with the requirements of the applicable approved accounting standards in Malaysia, the provisions of the Companies Act, 1965 and the Listing Requirements of Bursa Malaysia Securities Bhd.
They are to ensure that the annual financial statements of the Group give a true and fair view in the state of affairs of the Group at the end of the financial year and the results and cash flows for the year then ended.
In preparing the financial statements, the Directors have:
• applied the appropriate and relevant accounting policies on a consistent basis;• made judgments and estimates that are reasonable and prudent;• prepared the financial statements on a going concern basis;• ensured that proper accounting records are kept so as to enable the preparation of the financial statements with
reasonable accuracy; and• adopted approved accounting standards in Malaysia.
The Directors are also making reasonable steps to safeguard the assets of the Group to prevent and detect other irregularities.
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HAI-O ENTERPRISE BERHAD (22544-D)(INCORPORATED IN MALAYSIA)
53
STATEMENT ON INTERNAL CONTROLFOR FINANCIAL YEAR ENDED 30 APRIL 2007
INTRODUCTION
In line with the Malaysian Code on Corporate Governance that requires listed companies to maintain a sound system of internal control to safeguard shareholders’ investments and the Group’s assets, the Board of Directors is pleased to provide this Statement of Internal Control pursuant to the Bursa Malaysia Securities Bhd Listing Requirements.
RESPONSIBILITIES
The Board acknowledges that it is responsible for the Group’s system of internal controls covering not only financial controls but also operational and compliance controls as well as risk management. The internal control system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable, and not absolute assurance against material misstatement or loss.
RISK MANAGEMENT FRAMEWORK
The Group has in place an on-going process for identifying, evaluating, monitoring and managing significant risks that may affect the achievement of business objectives throughout the year under review. This process is reviewed by the Directors via the assistance of the Group’s Internal Audit Division.
In establishing and reviewing the system of internal control, Corporate Risk Scorecard System is adopted. This system takes into consideration of the materiality of relevant risks and the likelihood of a loss being incurred. It also sets out the various key controls and process requirements across all functions. It is updated, whenever needed, taking into consideration the changing risk profiles as dictated by changes in the business environment, strategies and functional activities from time to time.
All business units are required to document the controls and processes for managing the risks in their functional areas and to assess its effectiveness using the system.
KEY ELEMENTS OF INTERNAL CONTROL
Key elements of the Group’s system of internal control include the following: -
1) An on-going process for identifying, evaluating and managing significant risks faced by the Group; which has been in place for the year under review and reviewed by the Directors.
2) A clear documentation of the risk management principles and procedures, which have been disseminated to all key employees. A risk management process is in place to ensure that all key risks within the Group are being clearly identified within the framework of its line of business and key functional activities.
3) A regular review of the performance of the Group by the Directors at its meetings to ensure it is in line with the Group’s overall objectives.
4) A comprehensive annual budget is prepared by each business unit and approved by the Board. Operating results are being closely monitored by management against budget and key performance indicators;
ANNUAL REPORT 2007
STATEMENT ON INTERNAL CONTROL(CONT’D)
M Y C H O I C E F O R L I F E
54
KEY ELEMENTS OF INTERNAL CONTROL (CONTINUED)
5) The implementation of Code of Conducts for the Group and it is agreed and signed by each employee to indicate that he/she understands and will abide by the code. This Code serves to guide all the staff to conduct in the utmost professional manner in dealing with the company matters;
6) A regular review of the high-risk area of business processes by the Group’s Internal Audit Division, which reports directly to the Audit Committee, to assess the effectiveness of internal controls and to high-light any significant risk that may adversely affect the Group.
7) Whenever necessary, the Audit Committee reviews and discusses with key management on the actions taken on issues brought up by the Group’s Internal Audit Division and the external auditors.
The Board takes cognizance of the importance of the system of internal control and the Group is aware that its business operations is being conducted in compliance with the Listing Requirements of the Bursa Malaysia Securities Bhd.
REVIEW OF THE STATEMENT BY THE EXTERNAL AUDITORS
The external auditors have reviewed this Statement of Internal Control for the inclusion in this annual report of the company for the financial year ended 30 April 2007 and had reported to the Board that nothing has come to their attention that causes them to believe that the statement is inconsistent with their understanding of the process adopted by the Board in reviewing the adequacy and integrity of the system of internal control.
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HAI-O ENTERPRISE BERHAD (22544-D)(INCORPORATED IN MALAYSIA)
55
ADDITIONAL CORPORATE DISCLOSURE
SHARE BUY BACK
During the financial year ended 30 April 2007, the details of the shares purchased by the Company were as follows :-
Shares purchased during the financial year.
Price (RM) Average Consideration paidTransaction date Units Lowest Highes RM RM
May 2006June 2006July 2006August 2006September 2006October 2006April 2007
81,600 63,800
110,300 90,300 24,800 42,000
248,500 661,300
1.281.291.39 1.321.31
1.351.99
1.351.371.45 1.411.361.42 2.12
1.331.311.42 1.36 1.341.38 2.07
108,72583,513
156,832122,983 33,281 57,884
514,868 1,078,086
All the shares so purchased during the financial year were retained as treasury shares. As at 30 April 2007, a total of 1,710,186 ordinary shares were held as treasury shares. There has been no cancellation of the treasury shares by the Company during the financial year ended 30 April 2007.
UTILISATION OF PROCEEDS
During the financial year, there were no proceeds raised by the Company from any corporate proposals.
OPTIONS, WARRANTS OR CONVERTIBLE SECURITIES
There were no options, warrant or convertible securities issued to any parties during the financial year.
AMERICAN DEPOSITORY RECEIPT (ADR) GLOBAL DEPOSITORY RECEIPT (GDR)
During the financial year, the Company did not sponsor any ADR or GDR programme.
SANCTIONS AND / OR PENALTIES
There were no sanctions and / or penalties imposed on the Company and its subsidiaries, Directors or Management by the relevant regulatory bodies during the financial year.
NON-AUDIT FEES
There is no non-statutory and professional fees paid to the external auditors, BDO Binder by the Company and its subsidiaries for the financial year ended 30 April 2007. ,
REVALUATION POLICY ON LANDED PROPERTIES
The Group does not adopt a policy on regular revaluation of its landed properties. However, a revaluation will be carried out should the directors are of the opinion that there is a material difference between the book value with the realizable value of the subject property.
ANNUAL REPORT 2007
M Y C H O I C E F O R L I F E
56
ADDITIONAL CORPORATE DISCLOSURE(CONT’D)
VARIATION IN RESULTS
There was no material variance between the results for the financial year and the unaudited results previously announced.
PROFIT GUARANTEE
No profit guarantee was given by the Company in respect of the financial year.
MATERIAL CONTRACTS INVOLVING DIRECTORS AND MAJOR SHAREHOLDERS’ INTEREST
There were no material contracts of the Company and its subsidiaries, involving directors’ and major shareholders’ interests, still subsisting at the end of the financial year.
RECURRENT RELATED PARTY TRANSACTIONS
Details of transactions with related parties undertaken by the Group during the financial year are disclosed in Note 37 of the Financial Statements.
DETAILS OF ATTENDANCE OF DIRECTORS AT BOARD MEETING
There were six (6) Board of Directors Meetings held during the financial year ended 30 April 2007. The detail of attendance of the Board as follows :-
Name of Directors
Number of Board Meetings
Attended by Directors
Y. Bhg. Tan Sri Osman S. CassimDr. M.K. Rajakumar M.R.K. NayarTan Kai HeeTan Keng SongTan Keng KangDato’Abdul Rani bin Mohd RazalliLim Chin LuenQuek Ah BaAgnes Wong Ling Lee^
6/63/66/66/66/66/66/66/61/1
^ Resigned on 28 July 2006
FAMILY RELATIONSHIP OF DIRECTORS AND /OR MAJOR SHAREHOLDERS
There is no family relationship among the directors and / or major shareholders except that :-- Mr. Tan Kai Hee and Madam Tan Siow Eng are husband and wife ;- Ms. Tan Keng Song and Mr. Tan Keng Kang are the daughter and son of Mr. Tan Kai Hee and Madam Tan Siow Eng.
CONFLICT OF INTEREST WITH THE COMPANY
None of the Directors have any conflict of interest with the Company
CONVICTION FOR OFFENCES
None of the Directors have been convicted of any offences within the past 10 years other than traffic offences, if any.
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DIRECTORS’ REPORT 58STATEMENT BY DIRECTORS 64STATUTORY DECLARATION 64REPORT OF THE AUDITORS 65BALANCE SHEETS 66INCOME STATEMENTS 68STATEMENTS OF CHANGES IN EQUITY 69CASH FLOW STATEMENTS 71NOTES TO THE FINANCIAL STATEMENTS 73
StatementsFinancial
M Y C H O I C E F O R L I F E
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)58
The directors have pleasure in submitting their report together with the audited financial statements of the Group and of the Company for the financial year ended 30 April 2007.
PRINCIPAL ACTIVITIES
The Company is principally engaged in the wholesaling and retailing of Chinese and Western wines, herbs and medicine and investment holding. The principal activities of the subsidiary companies are disclosed in Note 10 to the financial statements.
There have been no significant changes in the nature of the activities of the Group and of the Company during the financial year.
RESULTS
GroupRM
CompanyRM
Net profit for the financial year attributable to:-
Equity holders of the parent 21,383,862 15,970,427Minority interests 729,890 -
22,113,752 15,970,427
RESERVES AND PROVISIONS
There were no material transfers to or from reserves or provisions during the financial year other than those as disclosed in the financial statements.
DIVIDENDS
Dividend paid since the end of the previous financial year were as follows:-
(i) final dividend of 8% gross, less tax amounting to RM3,787,972 in respect of the previous financial year as approved by the shareholders at the Annual General Meeting held on 20 October 2006, was paid on 12 December 2006.
The amount paid of RM3,787,972 is in excess of the dividend of RM3,760,135 proposed in last year’s directors’ report. The difference of RM27,837 was in respect of additional shares arising from the exercise of the option under the Employees’ Share Option Scheme (“ESOS”) subsequent to the end of previous financial year, but prior to the closing date of the entitlement to dividend.
(ii) an interim tax exempt of 5% amounting to RM3,332,315 in respect of current financial year was declared on 15 January 2007 and paid on 13 March 2007.
The directors proposed a final dividend of 13% gross, less tax, amounting to RM6,530,449 in respect of the current financial year which is subject to the approval of the shareholders at the forthcoming Annual General Meeting. This dividend, upon approval by the shareholders, will be accounted for as an appropriation of retained earnings in the financial year in which it is declared.
DIRECTORS’ REPORT
ANNUAL REPORT 2007 59
ISSUE OF SHARES AND DEBENTURES
During the financial year, the issued and fully paid-up share capital of the Company was increased from RM66,329,000 to RM68,814,000 by the issuance of 2,485,000 ordinary shares of RM1.00 each pursuant to the exercise of the ESOS. These new ordinary shares rank pari passu in all respects with the then existing shares of the Company.
There were no issues of debentures during the financial year.
EMPLOYEES’ SHARE OPTION SCHEME
The ESOS which became effective on 21 December 1998 is made available to eligible employees of the Group.
At an Extraordinary General Meeting held on 28 February 2003, the Company’s shareholders approved the proposed amendments of the Bye-Laws of its existing ESOS. The main features of the ESOS are as follows:-
(a) The total maximum number of new shares which may be made available under the ESOS (including any shares already allotted pursuant to the exercise of any options) shall not at any time exceed ten percent (10%) of the total number of shares comprised in the issued and paid-up share capital of the Company.
(b) Eligible employees are those full time employees (including executive directors) of the Company within the Group who as at the date of offer are at least eighteen (18) years old; confirmed and is employed by and on the payroll of a company/companies within the Group with at least one (1) year of continuous service in the Group; and any foreign employee who is employed by and on the payroll of a company/companies within the Group and whose contribution is vital to the Company and have completed at least two (2) years of service or if such foreign employee is serving under a limited term contract, the contract should be for a duration of at least three (3) years.
(c) The options holder may, in any year, exercise up to such a maximum number of shares in the Option Certificate as determined by the ESOS Committee and as specified in the Option Certificate and options exercisable in a particular year but not exercised in that year can be carried forward and be exercised in the subsequent years.
(d) The maximum entitlement of an eligible employee under the ESOS shall be determined and subject to the
following:-
(i) not more than fifty percent (50%) of the shares available under the ESOS should be allocated, in aggregate, to executive directors and senior management.
(ii) not more than ten percent (10%) of the shares available under the ESOS should be allocated to any individual eligible employee who, singly or collectively through his/her associates holds twenty percent (20%) or more of the issued and paid-up share capital of the Company.
(e) The option price shall be determined by the ESOS Committee, based on the weighted average market price of the Company’s ordinary shares as shown in the Daily Official List issued by the Bursa Malaysia Securities for the five (5) trading days preceding the respective dates of the offer and may be set at a discount of not more than ten percent (10%).
(f) The duration of the option was extended to another five years from 21 December 2003 to 20 December 2008. The option granted may be exercised on any working day before the expiry of the term on 20 December 2008 upon giving notice in writing to the Company.
(g) The actual number of shares which may be offered to any eligible employee shall be at the discretion of the ESOS Committee. The number of shares to be offered shall be in multiples of one thousand (1,000) new shares and shall not exceed the maximum allowable allotment of such eligible employee.
(h) Employees to whom the options have been granted are not eligible to participate in any other employees’ share option scheme that may be established by the Company or the Group subsequent hereto.
(i) The shares shall on issue and allotment rank pari passu in all respects with the then existing issued shares of the Company.
DIRECTORS’ REPORT(CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)60
EMPLOYEES’ SHARE OPTION SCHEME (CONTINUED)
The Companies Commission of Malaysia had granted an exemption to the Company from having to disclose the name of the eligible employees who have been granted with options during the financial year and the number of options granted to them in accordance with Section 169 (11)(a) of the Companies Act, 1965 except for eligible employees who have been granted with options to purchase 100,000 and more ordinary shares during the financial year. This information has been separately filed with the Companies Commission of Malaysia. None of the eligible employee had been granted with options to purchase 100,000 and more ordinary shares during the financial year.
The movements in the Company’s unissued shares under ESOS during the financial year are as follows:-
-- Options over ordinary shares of RM1.00 each --
Date of offerOption Price
/RMBalance as at
1.5.2006 Forfeited ExercisedBalance as at
30.4.2007
16.12.2003 1.43 # 1,864,000 (105,000) (1,395,000) 364,00009.01.2004 1.00 1,367,000 (247,000) (1,090,000) 30,000
# Price adjusted for the effect of the bonus and right issue
SHARE BUY-BACK
At the Extraordinary General Meeting held on 27 October 2003, the shareholders of the Company by an ordinary resolution authorised the directors of the Company to buy back the Company’s own shares based on the following terms:-
(i) The number of shares to be purchased shall not exceed ten percent (10%) of the issued and paid-up share capital of the Company at any given point in time.
(ii) The share buy-back will be financed through internally generated fund and/or external borrowings. The funds to be allocated by the Company for the share buy-back will be made wholly out of retained profits and/or share premium account. The amount to be utilised shall not exceed the total audited retained profits and share premium account of the Company.
(iii) The Company may retain the shares so purchased as treasury shares, or to cancel the shares purchased or a combination of both as defined under Section 67A of the Companies Act, 1965. The purchased shares held as treasury shares may either be distributed as share dividends, resold on Bursa Malaysia Securities in accordance with the relevant rules of Bursa Malaysia Securities or subsequently cancelled. The distribution of treasury shares as share dividends may be applied as a reduction of retained profits or share premium account of the Company subject to applicable prevailing laws.
During the financial year, the details of shares purchased were as follows:-
No. ofshares
---------------- Unit cost ---------------- Totalconsideration
RMLowest
RMHighest
RMAverage
RM
Share purchased
May 2006June 2006July 2006August 2006September 2006October 2006April 2007
81,600 63,800 110,300 90,300 24,800 42,000 248,500
1.28 1.29 1.39 1.32 1.31 1.35 1.99
1.35 1.37 1.45 1.41 1.36 1.42 2.12
1.33 1.31 1.42 1.36 1.34 1.38 2.07
108,725 83,513 156,832 122,983 33,281 57,884 514,868
661,300 1,078,086
All the shares so purchased during the financial year were retained as treasury shares as defined in the Companies Act, 1965.
DIRECTORS’ REPORT(CONT’D)
ANNUAL REPORT 2007 61
DIRECTORS’ REPORT(CONT’D)
DIRECTORS
The directors who held office since the date of last report are:-
Tan Sri Osman S Cassim (Chairman) Dr. M.K. Rajakumar A/L M.R.K. Nayar (Vice Chairman) Tan Kai Hee (Managing Director) Tan Keng Song Tan Keng Kang Dato’ Abdul Rani Bin Mohd. Razalli Quek Ah Ba Lim Chin Luen
In accordance with Article 102 (1) of the Company’s Articles of Association, Ms.Tan Keng Song, retires from the Board by rotation at the forthcoming Annual General Meeting and, being eligible, offers herself for re-election.
In accordance with Section 129 (2) of the Companies Act, 1965, Tan Sri Osman S Cassim, Mr.Tan Kai Hee, Dato’ Abdul Rani Bin Mohd. Razalli, and Dr. M.K. Rajakumar A/L M.R.K. Nayar retire at the forthcoming Annual General Meeting and the directors recommend their re-appointment under Section 129 (6) of the Act.
DIRECTORS’ INTERESTS
Except as stated below, no other directors holding office at the end of the financial year had any beneficial interests in the ordinary shares of the Company and its related corporations during the financial year ended 30 April 2007 as recorded in the Register of Directors’ Shareholdings kept by the Company under Section 134 of the Companies Act, 1965:-
------ Number of Ordinary Shares of RM1.00 each ------Balance as at
1.5.2006 BoughtTransfer
inTransfer
outBalance as at
30.4.2007
Shares in the Company
Direct interests
Tan Kai HeeDato’ Abdul Rani Bin Mohd. RazalliDr. M.K. Rajakumar A/L M.R.K. NayarLim Chin LuenQuek Ah BaTan Keng SongTan Keng Kang
Indirect interests
Tan Kai HeeTan Keng SongTan Keng Kang
Shares in subsidiary companies
Hai-O Raya Bhd.
Direct interests
Tan Kai HeeTan Keng SongLim Chin LuenQuek Ah BaTan Keng Kang
Indirect interests
Tan Kai HeeTan Keng SongTan Keng Kang
4,561,99347,81233,600
662,9635,565
630,105627,900
9,551,75813,483,64613,485,851
34,0007,0003,0003,0006,000
87,000114,000115,000
2,026,500--
- 22,000
150,000-
653,0002,529,5002,679,500
-----
---
---
--
150,000150,000
400,000250,000250,000
-----
---
(100,000)--
---
(100,000)
(300,000) (400,000) (300,000)
-----
---
6,488,49347,81233,600
662,96327,565
930,105677,900
10,304,75815,863,14616,115,351
34,0007,0003,0003,0006,000
87,000114,000115,000
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)62
DIRECTORS’ INTERESTS (CONTINUED)
----- Options over Ordinary Shares of RM1.00 each -----Balance
As at1.5.2006 Granted Exercised Forfeited
Balanceas at
30.4.2007
Share options in the Company
Tan Kai HeeTan Keng SongTan Keng Kang
403,000100,00050,000
---
(403,000)(100,000)
-
--
(50,000)
---
DIRECTORS’ BENEFITS
Since the end of the previous financial year, none of the directors have received or become entitled to receive a benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by the directors as disclosed in the financial statements) by reason of a contract made by the Company or a related corporation with the director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest, other than any benefit which may be deemed to have arisen by virtue of the remuneration received and receivable by the directors from the subsidiary companies in their capacity as directors of those subsidiary companies.
There were no arrangements during and at the end of the financial year, to which the Company is a party, 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 except for the share options granted to the directors pursuant to the Company’s ESOS as mentioned in Note 19 to the financial statements.
OTHER STATUTORY INFORMATION REGARDING THE GROUP AND THE COMPANY:-
(I) AS AT THE END OF THE FINANCIAL YEAR
(a) Before the income statements and balance sheets of the Group and of the Company were made out, the directors took reasonable steps:-
(i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts and have satisfied themselves that all known bad debts had been written off and that adequate provision had been made for doubtful debts; and
(ii) to ensure that any current assets which were unlikely to realise their book values in the ordinary course of business had been written down to their estimated realisable values.
(b) In the opinion of the directors, the results of the operations of the Group and of the Company during the financial year have not been substantially affected by any item, transaction or event of a material and unusual nature.
(II) FROM THE END OF THE FINANCIAL YEAR TO THE DATE OF THIS REPORT
(c) The directors are not aware of any circumstances:-
(i) which would render the amount written off for bad debts or the amount of the provision for doubtful debts in the financial statements of the Group and of the Company inadequate to any material extent; or
(ii) which would render the values attributed to current assets in the financial statements of the Group and of the Company misleading; and
(iii) which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate.
DIRECTORS’ REPORT(CONT’D)
ANNUAL REPORT 2007 63
DIRECTORS’ REPORT(CONT’D)
OTHER STATUTORY INFORMATION REGARDING THE GROUP AND THE COMPANY:- (CONTINUED)
(II) FROM THE END OF THE FINANCIAL YEAR TO THE DATE OF THIS REPORT (CONTINUED)
(d) In the opinion of the directors:-
(i) there has not arisen any item, transaction or event of a material and unusual nature likely to affect substantially the results of the operations of the Group and of the Company for the financial year in which this report is made; and
(ii) no contingent or other liability has become enforceable, or is likely to become enforceable, within the period of twelve months after the end of the financial year, which will or may affect the ability of the Group or of the Company to meet their obligations as and when they fall due.
(III) AS AT THE DATE OF THIS REPORT
(i) There are no charges on the assets of the Group and of the Company which have arisen since the end of the financial year to secure the liabilities of any other person.
(ii) There are no contingent liabilities in respect of the Group and of the Company which have arisen since the end of the financial year.
(iii) The directors are not aware of any circumstances not otherwise dealt with in the report or financial statements which would render any amount stated in the financial statements of the Group and of the Company misleading.
SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR
The significant events during the financial year are disclosed in Note 41 to the financial statements.
AUDITORS
The auditors, BDO Binder, have expressed their willingness to continue in office.
Signed on behalf of the Board of Directors in accordance with a resolution of the directors.
…………………………………. Tan Kai Hee Director
…………………………………. Tan Keng SongDirector
Kuala Lumpur21 June 2007
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)64
In the opinion of the directors, the financial statements set out on pages 66 to 130 have been drawn up in accordance with applicable approved Financial Reporting Standards in Malaysia so as to give a true and fair view of:-
(i) the state of affairs of the Group and of the Company as at 30 April 2007 and of their results for the financial year then ended; and
(ii) the cash flows of the Group and of the Company for the financial year ended 30 April 2007.
On behalf of the Board,
…………………………………. Tan Kai Hee Director
…………………………………. Tan Keng SongDirector
Kuala Lumpur21 June 2007
STATUTORY DECLARATION
I, Tan Kai Hee, being the director primarily responsible for the financial management of Hai-O Enterprise Berhad, do solemnly and sincerely declare that the financial statements set out on pages 66 to 130 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 abovenamed )at Kuala Lumpur )in the Federal Territory on )21 June 2007 )
Before me:-Kok Poo Him (No. W386)Pesuruhjaya SumpahKuala Lumpur, Malaysia.
STATEMENT BY DIRECTORS
ANNUAL REPORT 2007 65
We have audited the financial statements set out on pages 66 to 130.
These financial statements are the responsibility of the Company’s directors.
It is our responsibility to form an independent opinion, based on our audit, on the financial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility towards any other person for the content of this report.
We conducted our audit in accordance with approved standards on auditing in Malaysia. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion:-
(a) the financial statements have been properly drawn up in accordance with applicable approved Financial Reporting Standards in Malaysia and the provisions of the Companies Act, 1965 so as to give a true and fair view of:-
(i) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements of the Group and of the Company; and
(ii) the state of affairs of the Group and of the Company as at 30 April 2007 and of their results and cash flows for the financial year then ended;
and
(b) the accounting and other records and the registers required by the Act to be kept by the Company and by the subsidiary companies of which we have acted as auditors have been properly kept in accordance with the provisions of the said Act.
We have considered the financial statements and auditors’ reports of the subsidiary companies of which we have not acted as auditors, as indicated in Note 10 to the financial statements, being financial statements that are included in the consolidated financial statements.
We are satisfied that the financial statements of the subsidiary companies that are consolidated with the Company’s financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes.
The auditors’ reports on the financial statements of the subsidiary companies were not subject to any qualification and did not include any comment made under Section 174 (3) of the Act.
BDO BinderAF : 0206Chartered Accountants
Ng Chee Hoong2278/10/08 (J)Partner
Kuala Lumpur21 June 2007
REPORT OF THE AUDITORSTO THE MEMBERS OF HAI-O ENTERPRISE BERHAD
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)66
BALANCE SHEETSAS AT 30 APRIL 2007
ASSETSNOTE
Group Company2007
RM2006
RM(restated)
2007RM
2006RM
(restated)
Non-current assets
Property, plant and equipment 6 22,004,741 22,163,476 11,088,393 11,373,081Plant and equipment on lease 7 - - - -Investment properties 8 21,580,190 22,021,019 23,092,460 23,615,147Prepaid lease payments for land 9 1,784,562 1,818,140 83,200 84,800Investment in subsidiary companies 10 - - 13,724,199 13,994,241Investment in associated companies 11 - - - -Investment in jointly controlled entities 12 - - 1,111,205 1,260,000Other investments 13 5,533,761 5,984,949 3,040,021 3,814,718Trade receivables 14 1,496,531 1,511,414 - -Deferred tax assets 15 1,080,402 301,496 - -Goodwill on consolidation 16 273,833 305,541 - -
Total non-current assets 53,754,020 54,106,035 52,139,478 54,141,987
Current assets
Inventories 17 33,927,296 28,508,015 17,396,430 11,032,794Trade and other receivables 14 14,786,300 22,343,035 23,347,976 21,075,633Tax recoverable 202,046 169,485 - 32,300Short term investments 13 18,621,605 6,925,530 4,426,670 4,000,000Deposits with licensed banks 18 10,792,067 9,210,396 3,450,684 6,746,451Cash and bank balances 16,880,384 4,430,799 6,822,917 743,230
Total current assets 95,209,698 71,587,260 55,444,677 43,630,408
TOTAL ASSETS 148,963,718 125,693,295 107,584,155 97,772,395
EQUITY AND LIABILITIES
Equity attributable to equity holders of the Company
Share capital 19 68,814,000 66,329,000 68,814,000 66,329,000Share premium 599,850 - 599,850 -Reserve on consolidation - 488,905 - -Exchange fluctuation reserve 629,466 628,861 - -Capital reserves 20 669,672 669,672 210 210Retained profits 21 37,195,227 22,442,747 20,059,432 11,209,292Treasury shares (2,242,993) (1,164,907) (2,242,993) (1,164,907)
Total equity attributable to equity holders of the Company 105,665,222 89,394,278 87,230,499 76,373,595
Minority interest 5,214,496 4,618,860 - -
TOTAL EQUITY 110,879,718 94,013,138 87,230,499 76,373,595
ANNUAL REPORT 2007 67
LIABILITIES NOTE
Group Company2007
RM2006
RM(restated)
2007RM
2006RM
(restated)
Non-current liabilities
Borrowings (interest bearing) 22 - 124,828 389,040 343,345Deferred tax liabilities 15 57,623 - 248,724 179,253
Total non-current liabilities 57,623 124,828 637,764 522,598
Current liabilities
Trade and other payables 24 21,603,037 23,072,668 11,842,624 16,727,690Provisions 25 5,821,248 3,225,781 632,593 533,792Borrowings (interest bearing) 22 7,396,275 4,449,093 7,003,159 3,614,720Tax liabilities 3,205,817 807,787 237,516 -
Total current liabilities 38,026,377 31,555,329 19,715,892 20,876,202
TOTAL LIABILITIES 38,084,000 31,680,157 20,353,656 21,398,800
TOTAL EQUITY AND LIABILITIES 148,963,718 125,693,295 107,584,155 97,772,395
The attached notes form an integral part of the financial statements.
BALANCE SHEETS (CONT’D)AS AT 30 APRIL 2007
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)68
Group Company2007 2006 2007 2006
NOTE RM RM RM RM(restated)
Revenue 26 189,346,178 146,798,361 83,476,987 75,481,716
Cost of sales (119,597,737) (95,027,931) (49,281,080) (53,054,678)
Gross profit 69,748,441 51,770,430 34,195,907 22,427,038
Other operating income 3,941,870 3,304,653 2,449,393 1,532,973
Marketing and distribution costs (23,097,789) (16,598,333) (5,776,596) (4,720,420)
Administration expenses (18,471,575) (19,054,182) (9,625,337) (9,404,042)
Other operating expenses (1,185,212) (3,910,569) (461,863) (2,303,609)
Finance cost (328,440) (333,676) (302,980) (293,224)
Share of losses of an associated company - (51,528) - -
Profit before tax 27 30,607,295 15,126,795 20,478,524 7,238,716
Tax expense 28 (8,493,543) (4,349,392) (4,508,097) (2,826,971)
Net profit for the financial year 22,113,752 10,777,403 15,970,427 4,411,745
Attributable to:-
Equity holders of the Company 21,383,862 10,182,874 15,970,427 4,411,745
Minority interest 729,890 594,529 - -
22,113,752 10,777,403 15,970,427 4,411,745
Earnings per share attributable to equity holders of the Company (sen):-
Basic 29 32.61 16.39
Diluted 29 32.41 16.36
Gross dividend per share (sen):- 30 Interim dividend 5.00 5.17 5.00 5.17
Proposed final dividend 13.00 8.00 13.00 8.00
18.00 13.17 18.00 13.17
The attached notes form an integral part of the financial statements.
INCOME STATEMENTSFOR THE FINANCIAL YEAR ENDED 30 APRIL 2007
ANNUAL REPORT 2007 69
----
----
----
----
--
Att
rib
utab
le t
o e
qui
ty h
old
ers
of
the
Co
mp
any
---
----
----
----
---
No
n d
istr
ibut
able
Dis
trib
utab
le
Shar
eca
pita
lR
M
Shar
epr
emiu
mR
M
Res
erve
on
cons
olid
atio
nR
M
Exch
ange
flu
ctua
tion
rese
rve
RM
Cap
ital
rese
rves RM
Ret
aine
dpr
ofits
RM
Trea
sury
sh
ares RM
Tota
lR
M
Min
ority
inte
rest
RM
Tota
leq
uity
RM
Gro
up
Bal
ance
at 3
0 A
pril
2005
65,7
73,0
001,
383,
977
521,
750
628,
861
669,
672
16,7
91,9
83(3
,874
,915
)81
,894
,328
4,61
8,94
686
,513
,274
Exer
cise
of E
SO
S
556,
000
--
--
--
556,
000
-55
6,00
0
Pur
chas
e of
Com
pany
’s o
wn
shar
es-
--
--
-(2
,511
,455
)(2
,511
,455
)-
(2,5
11,4
55)
Res
old
of C
ompa
ny’s
trea
sury
sha
res
-16
,534
--
--
1,97
6,93
31,
993,
467
-1,
993,
467
Am
ortis
atio
n du
ring
the
finan
cial
yea
r-
-(3
2,84
5)-
--
-(3
2,84
5)-
(32,
845)
Net
pro
fit fo
r the
fina
ncia
l yea
r-
--
--
10,1
82,8
74-
10,1
82,8
7459
4,52
910
,777
,403
Tota
l rec
ogni
sed
inco
me
and
expe
nse
for t
he fi
nanc
ial y
ear
-16
,534
(32,
845)
--
10,1
82,8
741,
976,
933
12,1
43,4
9659
4,52
912
,738
,025
Sha
re d
ivid
end
by w
ay o
f tre
asur
y sh
are
(Not
e 30
)-
(1,4
00,5
11)
--
-(1
,844
,019
)3,
244,
530
--
-
Div
iden
d -
--
--
(2,6
88,0
91)
-(2
,688
,091
)-
(2
,688
,091
)
Div
iden
d pa
id to
min
ority
sha
reho
lder
s of
sub
sidi
ary
com
pani
es-
--
--
--
-(1
02,5
67)
(
102,
567)
Min
ority
sha
reho
lder
s of
a w
ound
up
subs
idia
ry c
ompa
ny-
--
--
--
-(4
92,0
48)
(
492,
048)
Bal
ance
at 3
0 A
pril
2006
66,3
29,0
00-
488,
905
628,
861
669,
672
22,4
42,7
47(1
,164
,907
)89
,394
,278
4,61
8,86
094
,013
,138
Effe
cts
of a
dopt
ing
FRS
3 (N
ote
5.2
(b)(i
i))-
-(4
88,9
05)
--
488,
905
--
--
66,3
29,0
00-
-62
8,86
166
9,67
222
,931
,652
(1,1
64,9
07)
89,3
94,2
784,
618,
860
94,0
13,1
38
Exer
cise
of E
SO
S2,
485,
000
599,
850
--
--
-3,
084,
850
-3,
084,
850
Pur
chas
e of
Com
pany
’s o
wn
shar
es-
--
--
-(1
,078
,086
)(1
,078
,086
)-
(1,0
78,0
86)
Rea
lisat
ion
of e
xcha
nge
fluct
uatio
n re
serv
e on
dis
posa
l of
a s
ubsi
diar
y co
mpa
ny, r
epre
sent
ing
inco
me
reco
gnis
ed
dire
ctly
in e
quity
--
-60
5-
--
605
-60
5
Net
pro
fit fo
r the
fina
ncia
l yea
r-
--
--
21,3
83,8
62-
21,3
83,8
6272
9,89
022
,113
,752
Tota
l rec
ogni
sed
inco
me
and
expe
nse
for t
he fi
nanc
ial y
ear
--
-60
5-
21,3
83,8
62-
21,3
84,4
6772
9,89
022
,114
,357
Div
iden
d pa
id to
min
ority
sha
reho
lder
s of
sub
sidi
ary
com
pani
es-
--
--
--
-(1
02,6
35)
(102
,635
)
Min
ority
sha
reho
lder
s of
dis
pose
d su
bsid
iary
com
pany
--
--
--
--
(31,
619)
(31,
619)
Fina
l div
iden
d in
resp
ect o
f las
t fina
ncia
l yea
r (N
ote
30)
--
--
-(3
,787
,972
)
-(3
,787
,972
)-
(3,7
87,9
72)
Inte
rim d
ivid
end
in re
spec
t of c
urre
nt fi
nanc
ial y
ear (
Not
e 30
)-
--
--
(3,3
32,3
15)
-(3
,332
,315
)-
(3,3
32,3
15)
Bal
ance
at
30 A
pril
2007
68,8
14,0
0059
9,85
0-
629,
466
669,
672
37,1
95,2
27(2
,242
,993
)10
5,66
5,22
25,
214,
496
110,
879,
718
The
atta
ched
not
es fo
rm a
n in
tegr
al p
art
of t
he fi
nanc
ial s
tate
men
ts.
STA
TE
ME
NT
S O
F C
HA
NG
ES
IN E
QU
ITY
FOR
TH
E F
INA
NC
IAL
YE
AR
EN
DE
D 3
0 A
PR
IL 2
007
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)70
Nondistributable Distributable
Company
Sharecapital
RM
Sharepremium
RM
Capitalreserve
RM
Retainedprofits
RM
TreasuryShares
RMTotal
RM
Balance at 30 April 2005 65,773,000 1,383,977 210 11,329,657 (3,874,915) 74,611,929
Exercise of ESOS 556,000 - - - - 556,000
Purchase of Company’s own shares - - - - (2,511,455) (2,511,455)
Resold of Company’s treasury shares, representing income recognised directly in equity - 16,534 - - 1,976,933 1,993,467
Net profit for the financial year - - - 4,411,745 - 4,411,745
Total recognised income and expense - 16,534 - 4,411,745 1,976,933 6,405,212for the financial year
Share dividend by way oftreasury share (Note 30) - (1,400,511) - (1,844,019) 3,244,530 -
Dividend - - - (2,688,091) - (2,688,091)
Balance at 30 April 2006 66,329,000 - 210 11,209,292 (1,164,907) 76,373,595
Exercise of ESOS 2,485,000 599,850 - - - 3,084,850
Purchase of Company’s own shares - - - - (1,078,086) (1,078,086)
Net profit for the financial year, representing total recognised income and expense for the financial year - - - 15,970,427 - 15,970,427
Dividend (Note 30) - - - (7,120,287) - (7,120,287)
Balance at 30 April 2007 68,814,000 599,850 210 20,059,432 (2,242,993) 87,230,499
The attached notes form an integral part of the financial statements.
STATEMENTS OF CHANGES IN EQUITY (CONT’D)FOR THE FINANCIAL YEAR ENDED 30 APRIL 2007
ANNUAL REPORT 2007 71
Group Company2007
RM2006
RM(Restated)
2007RM
2006RM
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax 30,607,295 15,126,795 20,478,524 7,238,716
Adjustments for:-
Allowance for doubtful debts 860,023 1,975,032 371,914 602,254 Allowance for doubtful debts no longer required (42,407) (1,000) (33,707) -
Amortisation of goodwill - 23,341 - -Amortisation of reserve on consolidation - (32,845) - -Amortisation of prepaid lease payments for land 33,578 34,061 1,600 1,600Bad debts written off 19,897 156,598 - -Deposits and prepayments written off - 24,674 - -Deposits and prepayments written back - (37,035) - -Depreciation of property, plant and equipment 1,812,930 1,881,550 713,653 681,455Depreciation of investment properties 440,829 443,040 522,687 522,687Dividend income (168,697) (121,738) (8,924,916) (2,549,681)Gain on disposal of subsidiary companies - (797,601) (9,958) (408,503)Gain on disposal of property, plant and equipment (52,349) (28,227) (26,246) -Gain on disposal of other investments (973,234) (349,195) (729,068) (291,868)Gain on winding up of a subsidiary company - (3) - -Impairment loss on property, plant and equipment - 47,003 - -Impairment loss on investment properties - 177,646 - -Impairment losses on investment in subsidiary companies - - - 1,121,246Impairment losses on investment in joint venture entity - - 148,795 -Impairment loss on goodwill - 17,237 - -Interest expense 328,440 333,676 302,980 293,224Interest income (471,298) (438,419) (203,724) (291,065)Inventories written off 306,168 1,136,184 300,000 -Inventories written down - 99,042 - -Loss on disposal of property, plant and equipment - 403,360 - 403,255Loss on disposal of subsidiary companies 190,614 - - -Property, plant and equipment written off 95,720 930,376 15,190 -Provisions 4,507,461 2,546,327 597,413 458,000Overprovision for staff incentives (236,360) (67,279) (52,816) (55,694)Share of losses of associated companies - 51,528 - -Waiver of debts (930,910) - (930,910) -
Operating profit before working capital changes 36,327,700 23,534,128 12,541,411 7,725,626
Increase in inventories (5,725,449) (4,961,607) (6,663,636) (2,579,408)Decrease/(increase) in trade and other receivables 5,578,993 (4,478,657) (2,610,550) (904,231)Increase/(decrease) in trade and other payables 126,915 4,155,953 (3,954,156) 4,779,460
Cash generated/(used in) from operations 36,308,159 18,249,817 (686,931) 9,021,447
Payments for sales campaign, trip and tour incentives and staff incentives (1,675,634) (1,550,684) (445,796) (328,993)
Interest paid (488) (316,612) (488) (245,056)Interest received - 75,148 - -Tax paid (6,829,095) (4,945,921) (2,839,797) (1,435,847)
Net cash from/(used in) operating activities 27,802,942 11,511,748 (3,973,012) 7,011,551
The attached notes form an integral part of the financial statements.
CASH FLOW STATEMENTSFOR THE FINANCIAL YEAR ENDED 30 APRIL 2007
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)72
CASH FLOW STATEMENTS (CONT’D)FOR THE FINANCIAL YEAR ENDED 30 APRIL 2007
Group Company2007
RM2006
RM(Restated)
2007RM
2006RM
CASH FLOWS FROM INVESTING ACTIVITIES
Disposal of jointly controlled entities, net of cash and cash equivalent disposed (957) - - -Disposal of subsidiary companies, net of cash and cash equivalent disposed (Note 31) 300,513 (82,251) - -Dividend received 148,435 84,180 7,595,903 1,811,073Dividend received from a jointly controlled entity - - - 54,720Interest received 471,298 363,271 203,724 291,065Purchase of property, plant and equipment (Note 33) (1,929,451) (1,938,341) (267,119) (921,587)Purchase of other investments (27,599,876) (23,582,990) (8,244,218) (11,797,460)Proceeds from disposal of other investments 17,328,223 13,542,565 9,321,313 6,117,527Proceeds from disposal of subsidiary company - - 280,000 -Proceeds from disposal of property, plant and equipment 231,885 247,667 64,940 125,555Winding up of a subsidiary company, net of cash and cash equivalent not consolidated (Note 32) - (492,045) - 633,672
Net cash (used in)/from investing activities (11,049,930) (11,857,944) 8,954,543 (3,685,435)
CASH FLOWS FROM FINANCING ACTIVITIES
Net of repayment of term loan (165,848) (17,064) - -Net (repayment)/drawdown of bill payables (351,073) 57,364 - -Net drawdown/(repayment) of bankers’ acceptances 3,339,275 (1,229,800) 3,350,275 (797,000)Proceeds from issue of shares 3,084,850 556,000 3,084,850 556,000Purchase of Company’s own shares (1,078,086) (2,511,455) (1,078,086) (2,511,455)Resold of Company’s own shares - 1,993,467 - 1,993,467Net repayment of hire-purchase creditors - - (131,871) (182,088)Interest paid (327,952) - (302,492) (48,168)Dividend paid (7,120,287) (2,688,091) (7,120,287) (2,688,091)Dividend paid to minority shareholders of subsidiary companies (102,635) (102,567) - -
Net cash used in financing activities (2,721,756) (3,942,146) (2,197,611) (3,677,335)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 14,031,256 (4,288,342) 2,783,920 (351,219)
CASH AND CASH EQUIVALENTS AT BEGINNING OF FINANCIAL YEAR 13,641,195 17,929,537 7,489,681 7,840,900
CASH AND CASH EQUIVALENTS AT END OF FINANCIAL YEAR (Note 34) 27,672,451 13,641,195 10,273,601 7,489,681
The attached notes form an integral part of the financial statements.
ANNUAL REPORT 2007 73
1. GENERAL INFORMATION
The Company is a public limited liability company, incorporated and domiciled in Malaysia and listed on the Second Board of Bursa Malaysia Securities.
The registered office of the Company is located at Room 803, 8th Floor, Sun Kompleks, Jalan Bukit Bintang, 55100 Kuala Lumpur.
The principal places of business of the Company are located at Wisma Hai-O, Lot 11995, Batu 2, Jalan Kapar, 41400 Klang, Selangor Darul Ehsan.
The financial statements are presented in Ringgit Malaysia.
2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The operations of the Group are subject to a variety of risks, including market risk, credit risk, foreign currency risk, interest rate risk, liquidity and cash flow risk. The Group has formulated a financial risk management framework to minimise the Group’s exposure to risk and to mitigate these risks.
Market risk
The Group is exposed to price fluctuation as well as goods shortage for its imported goods. To overcome this, the Group has in place policies to secure fixed price contracts for the majority of its imported goods and to seek alternative suppliers for its major products and raw materials.
In addition, the Group has a diversified range of products distributed through various channels such as wholesaling, trading, retail and direct marketing.
Credit risk
The Group is exposed to credit related losses in the event of non-performance by counterparties. However, the Group has in place a policy to mitigate this risk by careful evaluation of customers’ financial condition and credit history.
Foreign currency risk
The Group has significant purchases from overseas, thus exposing it to foreign currency risk.
The Group will monitor changes in the exchange rate and, where appropriate, enter into forward foreign currency exchange contracts to limit its exposure on foreign currency payables.
Interest rate risk
In order to mitigate the risk of interest rate fluctuation, the Group has in place policy to seek funding with relatively fixed interest rate.
Liquidity and cash flow risk
The Group seeks to achieve a balance between certainty of funding and a cost-effective borrowing structure to ensure all projected funding requirements are covered by available cash reserves or committed borrowing facilities, if the need arises.
NOTES TO THE FINANCIAL STATEMENTS30 APRIL 2007
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)74
3. PRINCIPAL ACTIVITIES
The Company is principally engaged in the wholesaling and retailing of Chinese and Western wines, herbs and medicine and investment holding. The principal activities of the subsidiary companies are disclosed in Note 10 to the financial statements.
There have been no significant changes in the nature of the activities of the Group and of the Company during the financial year.
4. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The financial statements of the Group and of the Company have been prepared in accordance with applicable approved Financial Reporting Standards (“FRS”) in Malaysia and the provisions of the Companies Act, 1965.
5. SIGNIFICANT ACCOUNTING POLICIES
5.1 Basis of accounting
The financial statements of the Group and of the Company have been prepared under the historical cost convention unless otherwise indicated in the significant accounting policies.
The preparation of financial statements in conformity with applicable approved Financial Reporting Standards in Malaysia and the provisions of the Companies Act, 1965 requires the directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In addition, the directors are also required to exercise their judgement in the process of applying the Group’s accounting policies. The areas involving such judgements, estimates and assumptions are disclosed in the following notes:-
• Note 5.9 Fair value of investment properties• Note 5.11 Impairment of goodwill on business combinations
Although these estimates and assumptions are based on the directors’ best knowledge of events and actions, actual results could differ from those estimates.
5.2 Changes in accounting policies
The accounting policies have been consistently applied by the Group and the Company and are consistent with those used in the previous financial year, except for the adoption of the following new/revised FRS which are relevant to the Group and the Company, effective for the financial year beginning on 1 January 2006:-
FRS 2 Share-based payment FRS 3 Business combinations FRS 101 Presentation of financial statements FRS 102 Inventories FRS 108 Accounting policies, changes in accounting estimates and errors FRS 110 Events after the balance sheet date FRS 116 Property, plant and equipment FRS 121 The effects of changes in foreign exchange rates FRS 127 Consolidated and separate financial statements FRS 128 Investments in associates FRS 131 Interest in joint ventures FRS 132 Financial instruments: disclosure and presentation FRS 133 Earnings per share FRS 136 Impairment of assets FRS 138 Intangible assets FRS 140 Investment property
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 75
5. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5.2 Changes in accounting policies (Continued)
In addition, the Group has early adopted FRS 117, Leases, which is effective for annual period beginning on or after 1 October 2006, during the financial year. The adoption of the above FRSs has not resulted in significant changes in accounting policies of the Group and the Company except for the following:-
(a) FRS 2: Share-based payment FRS 2 requires the Group and the Company to recognise the fair value of share options granted to
employees as an expense with a corresponding increase in the share option reserve within equity over the vesting period. Prior to the adoption of FRS 2, no compensation expense was recognised in income statements for share options granted. The Group and the Company recognised an increase in share capital and share premium when the options were exercised.
The Group has applied FRS 2 in accordance with its transitional provision which allow this change in accounting policy to be applied to share options that were granted after 31 December 2004 but had not yet vested on 1 January 2006. As all the options under the ESOS of the Company were granted before 31 December 2004, the change in accounting policy has no impact on the results for the current financial year.
(b) FRS 3: Business combinations and FRS 136: Impairment of assets
(i) Goodwill
The adoption of FRS 3 and FRS 136 has resulted in the Group ceasing annual goodwill amortisation. Goodwill is now stated at cost less accumulated impairment losses and the carrying amount is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired. Any impairment loss is recognised in the income statement and subsequent reversal is not allowed.
Prior to 1 May 2006, goodwill was amortised on a straight-line basis over the estimated useful life of 25 years and was tested for impairment only if there was any indication of impairment of the cash-generating unit in which the goodwill is attached to at each balance sheet date. In accordance with the transitional provisions of FRS 3, the Group has applied the revised accounting policy for goodwill prospectively from 1 May 2006. The transitional provisions of FRS 3 also require the Group to eliminate the carrying amount of the accumulated amortisation at 1 May 2006 amounting to RM309,986 against the carrying amount of goodwill. The carrying amount of goodwill as at 1 May 2006 of RM305,541 ceased to be amortised thereafter. This has the effect of reducing the amortisation charge of the Group by RM23,341 for the financial year ended 30 April 2007.
(ii) Excess of Group’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost (previously known as negative goodwill)
Under FRS 3, any excess of the Groups’ interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost of acquisitions, after reassessment, is now recognised immediately in profit or loss. Prior to 1 May 2006, negative goodwill was amortised on a straight-line basis over the estimated useful life of 25 years. In accordance with transitional provisions of FRS 3, the negative goodwill as at 1 May 2006 of RM488,905 was derecognised with a corresponding increase in retained earnings.
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)76
5. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5.2 Changes in accounting policies (Continued)
(c) FRS 101: Presentation of financial statements and FRS 127: Consolidated and separate financial statements
(i) Disclosure and presentation of minority interest
The adoption of the revised FRS 101 and FRS 127 have affected the presentation of minority interest, share of net after-tax results of associates and other disclosures. In the consolidated balance sheets, minority interests are now presented within total equity. In the consolidated income statements, minority interest is presented as an allocation of the total profit or loss for the year. A similar requirement is also applicable to the statement of changes in equity. FRS 101 also requires disclosure, on the face of the statement of changes in equity, total recognised income and expenses for the year, showing separately the amounts attributable to equity holders of the parent and to minority interest.
The current year’s presentation of the Group’s financial statements is based on the revised requirement of FRS 101 and FRS 127, with the comparative restated to conform with the current year’s presentation.
(ii) Disclosure of judgements and estimates
FRS 101 requires disclosures of judgements made by management in the process of applying the Group’s accounting policies that has the most significant effect in the amounts recognised in the financial statements and the key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year. These disclosures are made in Note 5.9 and 5.11.
(d) FRS 117: Leases
The adoption of FRS 117 has resulted in a retrospective change in the accounting policy relating to the classification of long leasehold land. The up-front payment made for the leasehold land represents prepaid lease payments and are amortised on a straight line basis over the lease term. Prior to 1 May 2006, long leasehold land was classified as property, plant and equipment and was stated at cost less accumulated depreciation and impairment losses.
Upon the adoption of the revised FRS 117, the unamortised amount of leasehold land is retained as the surrogate amount of prepaid lease payments as allowed by the transitional provisions of FRS 117. The reclassification of long leasehold land as prepaid lease payments has been accounted for retrospectively and as disclosed in Note 43, certain comparative amount as at 30 April 2006 has been reclassified.
(e) FRS 131: Interest in joint ventures
The Group has recommended a change in accounting policy by adopting the new allowed method, that is to combine share of each of the assets, liabilities, income and expenses of the jointly controlled entities with similar items, line by line, in its financial statements. As disclosed in Note 43, certain comparative amounts as at 30 April 2006 have been restated.
(f) FRS 140: Investment property
In the previous years, all investment properties were included in property, plant and equipment. Upon the adoption of FRS 140, these investment properties are now classified separately on the face of the balance sheet. The reclassification of property, plant and equipment as investment properties has been accounted for retrospectively and corresponding comparative figures have been reclassified.
The Group adopted the cost model to measure all its investment properties. Investment property is measured at cost less accumulated depreciation and accumulated impairment losses.
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 77
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
5. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5.3 Accounting standards that are not yet effective and have not been early adopted by the Group and the Company
The MASB has issued a number of new and revised FRS which are relevant to the Group and the Company are as follows:
FRS 124
FRS 139
Related party disclosure
Financial instruments:Recognition and measurement
Effective for annual period beginning on or after 1 October 2006
Effective date yet to be announced by MASB
By virtue of the exemption in FRS 124 and FRS 139, the impact on its financial statements upon first adoption of these standards as required by paragraph 30(b) of FRS 108 are not disclosed.
5.4 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and all its subsidiary companies made up to the end of the financial year using the acquisition method of accounting.
Under the acquisition method of accounting, the cost of an acquisition is measured as the aggregate of
fair values of assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the business combination. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest.
Any excess of the cost of the business combination over the Group’s interest in the fair value of the identifiable net assets acquired is recorded as goodwill. The goodwill is accounted for in accordance with the accounting policy for goodwill stated in Note 5.10 to the financial statements.
If the cost of acquisition is less than the interest in the net fair value of the identifiable assets, liabilities and contingent liabilities, the Group will:
(a) reassess the identification and measurement of the acquiree’s identifiable assets, liabilities and contingent liabilities and the measurement of the cost of the combination; and
(b) recognised immediately in profit or loss any excess remaining after that reassessment.
Subsidiary companies are consolidated from the acquisition date, which is the date on which the Group effectively obtains control, until the date on which the Group ceases to control the subsidiary companies.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated but only to the extent that there is no evidence of impairment.
Minority interest is measured at the minorities’ share of the part acquisition fair values of the identifiable assets and liabilities of the acquiree.
5.5 Investments
(i) Subsidiary companies
A subsidiary company is a company in which the Group has power to exercise control over the financial and operating policies so as to obtain benefits from its activities.
Investments in subsidiary companies, which are eliminated on consolidation, are stated at cost less impairment losses, if any.
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)78
5. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5.5 Investments (continued)
(ii) Associated companies
An associated company is a company in which the Group and the Company have a long term equity interest and where the Group and the Company is in a position to exercise significant influence over the financial and operating policies of the investee company.
The Company’s investment in associated companies is stated at cost less impairment losses, if any.
Investments in associated companies are accounted for in the consolidated financial statements using the equity method of accounting except when investment is classified as held for sale, in which case it is accounted for under FRS 5 Non-current assets held for sale and discontinued operations. The Group’s interests in associated companies is stated at cost plus adjustments to reflect changes in the Group’s share of net assets of the associated companies.
Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable net assets of the associated companies is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of investment. Any excess of the Group’s share of the net fair value of the identifiable net assets of the associated companies over the cost of acquisition is recognised immediately as income in the determination of the Group’s share of the associated company’s profit or loss in the period in which the investment is acquired.
The Group’s share of results and reserves of the associated companies acquired or disposed of is included in the consolidated financial statements from the effective date of acquisition or up to the effective date of disposal.
(iii) Jointly controlled entities
A jointly controlled entity is a company over which there is contractually agreed sharing of control by the Group with one or more parties.
The Company’s investment in jointly controlled entities are stated at cost less impairment losses, if any.
Investments in jointly controlled entities are accounted for in the consolidated financial statements by proportionate consolidation. The Group combine its share of the joint ventures’ individual assets and liabilities, income and expenses and cash flows with the similar items, line by line, in the Group’s financial statements.
(iv) Other investments
Investments held as long term investments are stated at cost unless in the opinion of the directors there is a decline other than temporary in the value of the such investment. Such decline is recognised as an expense in the period in which the decline is identified.
Short term investments are stated at the lower of cost and market value.
Prior to financial year 2000, gain on disposal of investments was credited to shareholders’ equity as capital reserve and any subsequent deficit or losses on disposal of investments were recognised against such reserve to the extent of the gain credited from previous disposal with the excess of the deficit or losses charged to the income statement. From financial year 2000 onwards, all gain or loss on disposal of investments are taken up in income statement.
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 79
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
5. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5.6 Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any.
Freehold land is not depreciated. The buildings of the Company are depreciated over their useful lives ranging from 32 to 50 years.
Depreciation on other property, plant and equipment is calculated to write off the cost of the assets on a straight line basis over their estimated useful lives. The principal annual depreciation rates are as follows:-
Motor vehicles 20%Furniture and office equipment 10% - 20%Electrical fittings 10%Renovation 10%Plant and machinery 20%Laboratory equipment 10%Fire-fighting system 10%Warehouse fittings 10%Kitchen equipment 10%
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the assets’ carrying amount is greater than its estimated recoverable amount.
The residual values, useful life and depreciation method are reviewed at each balance sheet date to ensure that the residual values, period of depreciation and depreciation method are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the income statement in the year the asset is derecognised. When revalued assets are sold, the amounts included in revaluation reserves are transferred to retained earnings.
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)80
5. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5.7 Assets acquired under lease and hire-purchase agreements
(a) Finance lease and hire-purchase
Assets financed under finance leases and hire-purchase arrangements which transfer substantially all the risks and rewards of ownership to the Group and the Company are capitalised as property, plant and equipment.
These assets are stated at an amount equal to the lower of their fair values and the present value of the minimum lease payments at the inception of the leases, less accumulated depreciation and impairment losses. The corresponding liability is included in the balance sheet as borrowings. In calculating the present value of the minimum lease payments, the discount factor used is the interest rate implicit in the lease, when it is practicable to determine; otherwise, the Company’s incremental borrowing rate is used. Any initial direct costs are also added to the carrying amount of such assets.
Finance charges are allocated to the income statement over the period of the agreements to give a constant periodic rate of charge on the remaining lease and hire-purchase liabilities.
(b) Prepaid lease payments for land
Leasehold land that normally has an indefinite economic life and when the title is not expected to pass to the lessee lease by the end of the lease term is treated as an operating lease. The payment made on entering into or acquiring a leasehold land is accounted for as prepaid lease payments that are amortised over the lease term in accordance with the pattern of benefits provided.
The Group had previously classified certain leases of land as finance lease and had recognised the amount of prepaid lease payments as property within its property, plant and equipment. On early adoption of FRS 117 Leases, the Company treats such leases as operating leases, with the unamortised carrying amount classified as prepaid lease payments in accordance with the transitional provision in FRS 117. Such prepaid lease payment are amortised over the period of the lease ranging from 50 to 99 years.
5.8 Assets leased out under lease and hire-purchase agreements
(i) Finance leases and hire-purchase
Assets leased out under finance leases and hire-purchase arrangements which transfer substantially all the risks and rewards of ownership to customers are stated in the balance sheet as finance lease and hire-purchase receivables after deducting unearned finance income.
Finance income is credited to the income statement over the period of the agreements to give a constant periodic rate of return on the remaining finance lease and hire-purchase receivables.
(ii) Operating lease
Leases other than a finance lease are classified as operating leases. Assets leased out under operating lease are included in plant and equipment on lease in the balance sheet and outstanding amounts owing by customers are stated in the balance sheet as lease rental receivables. Depreciation of plant and equipment on lease is calculated to write off the cost of each asset on a straight line basis over the period of the respective lease.
Lease rental income is recognised on a straight line basis over the respective lease term.
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 81
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
5. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5.9 Investment property
Investment properties are properties which are held or owned to earn rental income or for capital appreciation or for both. Properties that are occupied by the companies in the Group are accounted for as owner-occupied rather than as investment properties. Investment properties are stated at cost less accumulated depreciation and impairment losses.
Depreciation is charged to the income statement on a straight lien basis over the estimated useful lives of the investment properties. The estimated useful lives of the buildings are between 32 to 50 years.
Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in income statement in the year in which they arise.
5.10 Goodwill
Goodwill represents excess of the cost of business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Gain and loss on disposal of an entity include the carrying amount of goodwill relating to the entity sold.
5.11 Impairment of assets
The carrying amounts of the Group’s and Company’s assets, other than financial assets (excluding investment in subsidiary and associated companies and jointly controlled entities), inventories and deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated and an impairment loss is recognised whenever the recoverable amount is less than the carrying amount of the asset.
An impairment loss is recognised in the income statement if the carrying amount of an asset or its cash-generating unit (“CGU”) exceeds its recoverable amount. A CGU is the smallest identifiable assets group that generates cash flows that largely are independent from other assets and groups. Impairment losses recognised in respect of CGU 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.
The recoverable amount of an asset or CGU 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. Estimating the value in use requires the Group to make an estimate of, gross profits margin, growth rate, the expected future cash flows from the CGU, to choose a suitable discount rate in order to calculate the present value of those cash flows and etc. The key assumptions have been made after taken into consideration of the historical trend, current market conditions and the effects of future business plans and strategies. Details of the value in use calculations are provided in Note 16 to the financial statements.
An impairment loss in respect of goodwill shall not be reversed in a subsequent period. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date 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. 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 the income statement in the year in which the reversals are recognised, unless it reverses an impairment loss on a revalued asset, in which case it is credited directly to revaluation surplus. Where an impairment loss on the same revalued assets was previously recognised in the income statement, a reversal of that impairment loss is also recognised in the income statement.
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)82
5. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5.12 Inventories
Inventories are valued at the lower of cost and net realisable value. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution.
Cost of trading goods, raw materials and packaging materials are determined on the first-in, first-out basis and weighted average basis and comprise the original cost of purchase plus the cost of bringing the inventories to their present location and condition.
The cost of finished goods and work-in-progress includes the cost of raw materials, direct labour and direct overheads.
5.13 Receivables
Receivables are carried at anticipated realisable value. Known bad debts are written off and allowance is made for debts considered to be doubtful of collection.
5.14 Provisions
Provisions are recognised when there is a present obligation, legal or constructive, as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
5.15 Payables
Payables are stated at cost which is the fair value of the consideration to be paid in the future for goods and services received.
5.16 Employee benefits
5.16.1 Short term employee benefits
Wages, salaries, social security contributions, paid annual leave, paid sick leave, bonuses and non-monetary benefits are recognised as an expense in the financial year when employees have rendered their services to the Group.
Short-term non-accumulating compensated absences such as sick leave are recognised when the absences occur.
Bonuses are recognised as an expense when there is a present, legal or constructive obligation to make such payments, as a result of past events and when a reliable estimate can be made of the amount of the obligation.
5.16.2 Defined contribution plans
The Company and subsidiary companies incorporated in Malaysia make contributions to a statutory provident fund and recognise the contribution payable:-
(i) after deducting contributions already paid as a liability; and
(ii) as an expense in the financial year in which the employees render their services.
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 83
5. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5.16 Employee benefits (Continued)
5.16.3 Share-based payments
The Group operates an equity-settled share-based compensation plan, allowing the employees of the Group to acquire ordinary shares of the Company at predetermined prices. The total fair value of share options granted to employees is recognised as an expense with a corresponding increase in the share option reserve within equity over the vesting period and taking into account the probability that the options will vest.
The fair value of share options is measured at grant date, taking into account, if any, the market vesting conditions upon which the options were granted but excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable on vesting date.
At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable on vesting date. It recognises the impact of the revision of original estimates, if any, in the profit or loss, and a corresponding adjustment to equity over the remaining vesting period. The equity amount is recognised in the share option reserve until the option is exercised, upon which it will be transferred to share premium, or until the option expires, upon which it will be transferred directly to retained earnings.
The proceeds received net of any directly attributable transaction costs are credited to equity when the options are exercised.
5.17 Income taxes
Income taxes include all domestic and foreign taxes on taxable profit. Income taxes also include other taxes, such as withholding taxes, which are payable by a foreign subsidiary, associate or jointly controlled entities on distributions to the Group and Company, and real property gains taxes payable on disposal of properties.
Taxes in the income statement comprises current tax and deferred tax.
5.17.1 Current tax
Current tax is the amount of income taxes payable or receivable in respect of the taxable profit or loss for a period.
Current tax for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that have been enacted or substantially enacted by the balance sheet date.
5.17.2 Deferred tax
Deferred tax is recognised in full using the liability method on temporary differences arising between the carrying amount of an asset or liability in the balance sheet and its tax base.
Deferred tax is recognised for all temporary differences, unless the deferred tax arises from goodwill or the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of transaction, affects neither accounting profit nor taxable profit.
A deferred tax asset is recognised only to the extent that is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. The carrying amount of a deferred tax asset is reviewed at each balance sheet date. If it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilised, the carrying amount of the deferred tax asset will be reduced accordingly. When it becomes probable that sufficient taxable profit will be available, such reductions will be reversed to the extent of the taxable profit.
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)84
5. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5.17 Income taxes (Continued)
5.17.2 Deferred tax (Continued)
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred tax assets and the deferred tax liabilities relate to the same taxation authority.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantially enacted by the balance sheet date.
5.18 Foreign currency transactions and translations
(i) Transactions and balances in foreign currencies
Transactions in foreign currencies are converted into Ringgit Malaysia at the rates of exchange ruling on transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Ringgit Malaysia at the approximate rates of exchange at the balance sheet date except where there are related or matching forward contracts in respect of trading transactions, in which case, the rates of exchange specified in those contracts are used.
All gains or losses arising from the settlement of currency transactions and from translating foreign monetary assets and liabilities are taken up in the income statement.
(ii) Translation of foreign currency financial statements
For consolidation purposes, the assets and liabilities of foreign entities are translated into Ringgit Malaysia at the rates ruling at the balance sheet date. Income statement items are translated at exchange rates at the dates of transactions. The translation differences arising therefrom are taken up and reflected in the exchange fluctuation reserve.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation before 1 January 2006 are treated as assets and liabilities of the parent company and are translated at the exchange rate at the date of transaction. Goodwill and fair value adjustments arising on the acquisition of foreign operations on or after 1 January 2006 as treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated at the rates ruling at the balance sheet date.
(iii) Principal closing rates
The principal closing rates used in the translation of foreign currency amounts are:-
2007RM
2006RM
1 Euro100 Philippines Peso100 Thai Baht100 Chinese Renminbi1 US Dollar100 Hong Kong Dollar1 Sterling Pound
4.677.209.850.443.42
43.766.83
4.507.009.660.453.62
47.306.59
5.19 Revenue recognition
Revenue from sale of goods is recognised in the income statement upon delivery of goods and customers’ acceptance.
Revenue from rendering of services is recognised in the income statement upon performance of services.
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 85
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
5. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5.19 Revenue recognition (Continued)
Finance income from hire-purchase and finance leases is recognised upon commencement of the hire-purchase agreement or the lease agreement, on the sum of digit method over the period of the agreement. Lease rental income from operating leases is recognised on a straight line basis over the lease term.
Interest income is recognised on an accrual basis.
Dividend from subsidiary companies, associated companies and other investments are recognised in the income statement when the shareholder’s right to receive payment is established.
Rental income is recognised on accrual basis unless the collectibility is in doubt.
5.20 Cash and cash equivalents
Cash and cash equivalents include cash and bank balances, bank overdrafts, deposits and other short-term, highly liquid investments which are readily convertible to cash and which are subject to insignificant risk of changes in value.
5.21 Segment information
Segment information is presented in respect of the Group’s business and geographical segments. The primary reporting segment information is in respect of business segments as the Group risk and rates of return are affected predominantly by differences in the products it produces, while the secondary information is reported geographically.
A segment with a majority of operating income earned from providing product or services to external clients and whose operating income, results or assets are 10 percent or more of all the segments is reported separately. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are to be used for more than one period.
5.22 Financial instruments
(a) Ordinary shares
Ordinary shares are recorded at the nominal value and proceeds in excess of the nominal value of share issued, if any, are accounted for as share premium. Both ordinary shares and share premium are classified as equity. Cost incurred directly attributable to the issuance of shares are accounted for as a deduction from share premium. Otherwise, they are charged to the income statement.
Dividends to shareholders are recognised in equity in the period in which they are declared.
Where the Company purchases its equity share capital, the consideration paid, including any attributable transaction costs is deducted from shareholders’ equity as treasury shares until they are cancelled. Where such shares are reissued by resale, the difference between the sales consideration and the carrying amount is shown as a movement in equity.
When the treasury shares are distributed as share dividend, the cost of the treasury shares will be reduced against the share premium account or the distributable reserves, or both.
(b) Other borrowings
Other interest bearing borrowings are recorded at the amount of proceeds received, net of transaction cost.
(c) Other financial instruments
The accounting policies for other financial instruments recognised on the balance sheet are disclosed in the individual policy associated with each item.
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)86
6. PROPERTY, PLANT AND EQUIPMENT
Group
2007
Balanceas at
1.5.2006RM
AdditionsRM
DisposalsRM
Written offRM
Balanceas at
30.4.2007RM
Cost
Freehold land 2,170,747 - - - 2,170,747Buildings 16,812,578 - - - 16,812,578Motor vehicles 2,051,531 395,740 (290,097) (1,170) 2,156,004Furniture and office equipment 8,895,223 678,025 (85,062) (354,235) 9,133,951Electrical fittings 1,422,158 39,072 (79,035) (340,078) 1,042,117Renovation 3,163,895 285,608 (125,763) (195,722) 3,128,018Plant and machinery 1,427,689 245,959 - (10,530) 1,663,118Laboratory equipment 128,533 277,547 (7,617) (3,930) 394,533Fire-fighting system 10,000 - - - 10,000Warehouse fittings 52,616 7,500 - - 60,116Kitchen equipment - - - - -
36,134,970 1,929,451 (587,574) (905,665) 36,571,182
Balanceas at
1.5.2006RM
Charge for the
financial yearRM
DisposalsRM
Written offRM
BalanceAs at
30.4.2007RM
Accumulated depreciation
Freehold land - - - - -Buildings 1,851,555 374,309 - - 2,225,864Motor vehicles 1,367,744 288,875 (290,092) - 1,366,527Furniture and office equipment 6,427,622 662,032 (30,897) (334,010) 6,724,747Electrical fittings 1,185,550 51,623 (31,619) (319,896) 885,658Renovation 2,050,870 224,867 (33,640) (140,843) 2,101,254Plant and machinery 879,432 173,094 (14,479) (11,266) 1,026,781Laboratory equipment 109,437 29,110 (7,311) (3,930) 127,306Fire-fighting system 10,000 - - - 10,000Warehouse fittings 42,281 9,020 - - 51,301Kitchen equipment - - - - -
13,924,491 1,812,930 (408,038) (809,945) 14,519,438
Balanceas at
1.5.2006RM
Impairment loss
for thefinancial
yearRM
Balanceas at
30.4.2007RM
Impairment loss
Buildings 47,003 - 47,003
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 87
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
6. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Group
2006
Balanceas at
1.5.2005RM
AdditionsRM
DisposalsRM
Disposalof a
subsidiarycompany
RMWritten off
RM
Balanceas at
30.4.2006RM
Cost
Freehold land 2,170,747 - - - - 2,170,747Buildings 16,812,578 - - - - 16,812,578Motor vehicles 2,011,110 162,862 (67,348) - (55,093) 2,051,531Furniture and office equipment
9,493,392 1,276,408 (706,644) (814,576) (353,357) 8,895,223
Electrical fittings 2,168,735 31,910 (1,000) (76,854) (700,633) 1,422,158Renovation 3,978,618 338,664 - (43,855) (1,109,532) 3,163,895Plant and machinery 1,311,125 121,384 - - (4,820) 1,427,689Laboratory equipment 121,420 7,113 - - - 128,533Fire-fighting system 10,000 - - - - 10,000Warehouse fittings 52,616 - - - - 52,616Kitchen equipment 469,500 - - (469,500) - -
38,599,841 1,938,341 (774,992) (1,404,785) (2,223,435) 36,134,970
Balanceas at
1.5.2005RM
Chargefor the
financialyearRM
DisposalsRM
Disposalof a
subsidiarycompany
RMWritten off
RM
Balanceas at
30.4.2006RM
Accumulated depreciation Freehold land - - - - - -Buildings 1,475,244 376,311 - - - 1,851,555Motor vehicles 1,235,078 245,940 (58,181) - (55,093) 1,367,744Furniture and office equipment
6,197,659 698,147 (93,411) (156,940) (217,833) 6,427,622
Electrical fittings 1,248,752 142,325 (600) (9,974) (194,953) 1,185,550Renovation 2,629,537 249,083 - (7,309) (820,441) 2,050,870Plant and machinery 738,235 145,936 - - (4,739) 879,432Laboratory equipment 104,359 5,078 - - - 109,437Fire-fighting system 10,000 - - - - 10,000Warehouse fittings 35,289 6,992 - - - 42,281Kitchen equipment 66,512 11,738 - (78,250) - -
13,740,665 1,881,550 (152,192) (252,473) (1,293,059) 13,924,491
Balanceas at
1.5.2005RM
Impairment loss for the
financial yearRM
Balanceas at
30.4.2006RM
Impairment loss
Buildings - 47,003 47,003
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)88
6. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Company
2007
Balanceas at
1.5.2006RM
AdditionsRM
DisposalsRM
Written offRM
Balanceas at
30.4.2007RM
Cost
Freehold land 1,257,372 - - - 1,257,372Buildings 9,577,098 - - - 9,577,098Motor vehicles 510,557 - (234,954) - 275,603Motor vehicles under hire-purchase 1,062,266 333,741 - - 1,396,007Furniture and office equipment 2,326,972 149,108 (6,800) (3,087) 2,466,193Electrical fittings 183,767 - - - 183,767Renovation 711,350 - (47,500) (21,300) 642,550Plant and machinery 72,900 - - - 72,900
15,702,282 482,849 (289,254) (24,387) 15,871,490
Balanceas at
1.5.2006RM
Chargefor the
financialyearRM
DisposalsRM
Reclassi-fication
RMWritten off
RM
Balanceas at
30.4.2007RM
Accumulated depreciation
Freehold land - - - - - -Buildings 1,082,562 216,514 - - - 1,299,076Motor vehicles 508,549 - (234,950) 2,000 - 275,599Motor vehicles under hire-purchase 577,829 237,848 - (2,000) - 813,677Furniture and office equipment
1,579,422 195,205 (1,360) - (2,807) 1,770,460
Electrical fittings 168,247 7,416 - - - 175,663Renovation 344,172 52,190 (14,250) - (6,390) 375,722Plant and machinery 68,420 4,480 - - - 72,900
4,329,201 713,653 (250,560) - (9,197) 4,783,097
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 89
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
6. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Company
2006
Balanceas at
1.5.2005RM
AdditionsRM
DisposalsRM
Balanceas at
30.4.2006RM
Cost
Freehold land 1,257,372 - - 1,257,372Buildings 9,577,098 - - 9,577,098Motor vehicles 510,557 - - 510,557Motor vehicles under hire-purchase 1,062,266 - - 1,062,266Furniture and office equipment 2,115,190 760,793 (549,011) 2,326,972Electrical fittings 183,767 - - 183,767Renovation 550,556 160,794 - 711,350Plant and machinery 72,900 - - 72,900
15,329,706 921,587 (549,011) 15,702,282
Balanceas at
1.5.2005RM
Chargefor the
financialyearRM
DisposalsRM
Balanceas at
30.4.2006RM
Accumulated depreciation
Freehold land - - - -Buildings 866,049 216,513 - 1,082,562Motor vehicles 502,535 6,014 - 508,549Motor vehicles under hire-purchase 365,376 212,453 - 577,829Furniture and office equipment 1,413,086 186,537 (20,201) 1,579,422Electrical fittings 160,915 7,332 - 168,247Renovation 296,046 48,126 - 344,172Plant and machinery 63,940 4,480 - 68,420
3,667,947 681,455 (20,201) 4,329,201
Group Company2007
RM2006
RM2007
RM2006
RM
Net book value
Freehold land 2,170,747 2,170,747 1,257,372 1,257,372Buildings 14,539,711 14,914,020 8,278,022 8,494,536Motor vehicles 789,477 683,787 4 2,008Motor vehicles under hire purchase - - 582,330 484,437Furniture and office equipment 2,409,204 2,467,601 695,733 747,550Electrical fittings 156,459 236,608 8,104 15,520Renovation 1,026,764 1,113,025 266,828 367,178Plant and machinery 636,337 548,257 - 4,480Laboratory equipment 267,227 19,096 - -Warehouse fittings 8,815 10,335 - -Kitchen equipment - - - -
22,004,741 22,163,476 11,088,393
11,373,081
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)90
7. PLANT AND EQUIPMENT ON LEASE
Group
2007
Balanceas at
1.5.2006RM
AdditionRM
Balanceas at
30.4.2007RM
Cost
Plant and machinery 449,300 - 449,300Lift system 750,000 - 750,000Computer 1,003,480 - 1,003,480Office equipment 196,408 - 196,408Furniture and fittings 63,066 - 63,066
2,462,254 - 2,462,254
Balanceas at
1.5.2006RM
ChargeFor the
financialyearRM
Balanceas at
30.4.2007RM
Accumulated depreciation
Plant and machinery 449,300 - 449,300Lift system 750,000 - 750,000Computer 1,003,480 - 1,003,480Office equipment 196,408 - 196,408Furniture and fittings 63,066 - 63,066
2,462,254 - 2,462,254
Group
2006
Balanceas at
1.5.2005RM
AdditionRM
Balanceas at
30.4.2006RM
Cost
Plant and machinery 449,300 - 449,300Lift system 750,000 - 750,000Computer 1,003,480 - 1,003,480Office equipment 196,408 - 196,408Furniture and fittings 63,066 - 63,066
2,462,254 - 2,462,254
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 91
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
7. PLANT AND EQUIPMENT ON LEASE (CONTINUED)
Group
2006
Balanceas at
1.5.2005RM
Charge for the
financial yearRM
Balanceas at
30.4.2006RM
Accumulated depreciation
Plant and machineryLift systemComputerOffice equipmentFurniture and fittings
449,300750,000
1,003,480196,408
63,066
2,462,254
-----
-
449,300750,000
1,003,480196,40863,066
2,462,254
2007RM
2006RM
Net book value
Plant and machineryLift systemComputerOffice equipmentFurniture and fittings
-----
-
- - - -
-
-
8. INVESTMENT PROPERTIES
Group
2007
Balanceas at
1.5.2006RM
AdditionRM
Balanceas at
30.4.2007RM
Cost
Freehold landBuildings
2,300,87822,466,060
24,766,938
--
-
2,300,87822,466,060
24,766,938
Balanceas at
1.5.2006RM
Charge forthe
financialyearRM
Balanceas at
30.4.2007RM
Accumulated depreciation
Freehold landBuildings
-2,568,273
2,568,273
-440,829
440,829
-3,009,102
3,009,102
Balanceas at
1.5.2006RM
Impairment loss for the
financial yearRM
Balanceas at
30.4.2007RM
Impairment loss
Buildings 177,646 - 177,646
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)92
8. INVESTMENT PROPERTIES (CONTINUED)
Group
2006
Balanceas at
1.5.2005RM
AdditionRM
Balanceas at
30.4.2006RM
Cost
Freehold land 2,300,878 - 2,300,878Buildings 22,466,060 - 22,466,060
24,766,938 - 24,766,938
Balanceas at
1.5.2005RM
Chargefor the
financialyearRM
Balanceas at
30.4.2006RM
Accumulated depreciation
Freehold land - - -Buildings 2,125,233 443,040 2,568,273
2,125,233 443,040 2,568,273
Balanceas at
1.5.2005RM
Impairment loss for the
financialyearRM
Balanceas at
30.4.2006RM
Impairment loss
Buildings - 177,646 177,646
Company
2007
Balanceas at
1.5.2006RM
AdditionRM
Balanceas at
30.4.2007RM
Cost
Freehold land 2,784,777 - 2,784,777Buildings 23,443,808 - 23,443,808
26,228,585 - 26,228,585
Balanceas at
1.5.2006RM
Chargefor the
financialyearRM
Balanceas at
30.4.2007RM
Accumulated depreciation
Freehold land - - -Buildings 2,613,438 522,687 3,136,125
2,613,438 522,687 3,136,125
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 93
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
8. INVESTMENT PROPERTIES (CONTINUED)
Company
2006
Balanceas at
1.5.2005RM
AdditionRM
Balanceas at
30.4.2006RM
Cost
Freehold land 2,784,777 - 2,784,777Buildings 23,443,808 - 23,443,808
26,228,585 - 26,228,585
Balanceas at
1.5.2005RM
Chargefor the
financialyearRM
Balanceas at
30.4.2006RM
Accumulated depreciation
Freehold land - - -Buildings 2,090,751 522,687 2,613,438
2,090,751 522,687 2,613,438
Group Company2007
RM2006
RM2007
RM2006
RM
Carrying amount
Freehold land 2,300,878 2,300,878 2,784,777 2,784,777Buildings 19,279,312 19,720,141 20,307,683 20,830,370
21,580,190 22,021,019 23,092,460 23,615,147
The fair values for the investment properties as at 30 April 2007 was estimated at RM29,634,632 by a professional
valuer based on current price in an active market.
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)94
9. PREPAID LEASE PAYMENTS FOR LAND
Group 2007
RM2006
RM
Cost
Balance as at 1 May 2006/2005 2,107,440 2,107,440
Additions during the financial year - -Balance as at 30 April
2,107,440 2,107,440
Group 2007
RM2006
RM
Accumulated amortisation
Balance as at 1 May 2006/2005 289,300 255,239
Charge for the financial year 33,578 34,061
Balance as at 30 April 322,878 289,300
Carrying amount 1,784,562 1,818,140
Company2007
RM2006
RM
Cost
Balance as at 1 May 2006/2005
Additions during the financial year
Balance as at 30 April
Accumulated amortisation
Balance as at 1 May 2006/2005
Charge for the financial year
Balance as at 30 April
Carrying amount
96,000
-
96,000
11,200
1,600
12,800
83,200
96,000
-
96,000
9,600
1,600
11,200
84,800
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 95
10. INVESTMENT IN SUBSIDIARY COMPANIES
Company2007
RM2006
RM
Unquoted shares - at costLess: Impairment losses
15,150,859(1,426,660)
13,724,199
17,150,859(3,156,618)
13,994,241
The subsidiary companies are as follows:-
Interest inequity held by
Name of companyCountry of
incorporationCompany
Subsidiarycompanies
2007 2006 2007 2006 Principal activities% % % %
Adil Mewah Sdn. Bhd.* Malaysia 100.00 100.00 - - Dormant
Dawin Trading Sdn. Bhd.* Malaysia 92.50 92.50 - - Dormant Grand Brands (M) Sdn. Bhd. Malaysia 100.00 100.00 - - General importer, exporter
and commission agent
Hai-O Medicine Sdn. Bhd. Malaysia 100.00 100.00 - - Dealing in Chinese herbs and medicines
Hai-O Properties Sdn. Bhd.* Malaysia 100.00 100.00 - - Investment holding
Hai-O Raya Bhd. Malaysia 56.60 56.60 - - Operating of emporiums, supermarkets and retail chain stores
Hai-O (PG) Sdn. Bhd.* Malaysia 95.29 95.29 - - Dormant
Hai-O Credit & Leasing Sdn. Bhd. Malaysia 100.00 100.00 - - Leasing of machinery and equipment and investment holding
Hai-O Informtech Sdn. Bhd. Malaysia - 100.00 - - Investment holding
Hai-O Marketing Sdn. Bhd. Malaysia 100.00 100.00 - - Multi level direct marketing
SG Global Biotech Sdn Bhd (formerly known as Hai-O Pharmaceutical (M) Sdn. Bhd.)
Malaysia 100.00 100.00 - - Manufacturing of pharmaceutical products
Kinds Resource Sdn. Bhd. Malaysia 100.00 100.00 - - Trading in Chinese herbs
MCC City Sdn. Bhd. Malaysia 100.00 100.00 - - Dormant
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)96
10. INVESTMENT IN SUBSIDIARY COMPANIES (CONTINUED)
Interest inequity held by
Name of companyCountry of
incorporationCompany
Subsidiarycompanies
2007 2006 2007 2006 Principal activities% % % %
Sea Gull Advertising Malaysia 100.00 100.00 - - Advertising services Sdn. Bhd.
Teik Seang Wine Merchants Sdn. Bhd.
Malaysia 100.00 100.00 - - Production and distribution of alcoholic and non - alcoholic drinks
Ten Plus Three Trade Centre Sdn. Bhd.*
Malaysia 100.00 100.00 - - Dormant
Vintage Wine Sdn. Bhd.* Malaysia 100.00 100.00 - - Dormant
Samariatan Sdn. Bhd. Malaysia 66.40 66.40 - - Investment holding
Hai-O Polaris (M) Sdn. Bhd. Malaysia 55.00 55.00 - - Trading of time piece
Subsidiary companies of Hai-O Properties Sdn. Bhd.
Anekajaya Sdn. Bhd.* Malaysia - - 100.00 100.00 Dormant
Hai-O Development Sdn. Bhd.* Malaysia - - 100.00 100.00 Dormant
Subsidiary company of Hai-O Informtech Sdn. Bhd.
Lian Ying (China) Computer Software Development Co. Ltd.*
China - - - 90.00 Dormant
Subsidiary company of Samariatan Sdn. Bhd.
Chop Aik Seng Sdn. Bhd. Malaysia - - 100.00 100.00 Dealing in tea and other beverages
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 97
10. INVESTMENT IN SUBSIDIARY COMPANIES (CONTINUED)
Interest inequity held by
Name of companyCountry of
incorporationCompany
Subsidiarycompanies
2007 2006 2007 2006 Principal activities% % % %
Subsidiary company of Chop Aik Seng Sdn. Bhd.
Chop Aik Seng Trading Sdn. Bhd. Malaysia - - 100.00 100.00 Dormant
Subsidiary company of Hai-O Credit & Leasing Sdn. Bhd.
Sri Pangkor Credit & Leasing Sdn. Bhd. Malaysia - - 100.00 100.00 Licensed money lender and insurance agent
Subsidiary company of Hai-O Marketing Sdn. Bhd.
Hai-O Marketing (Philippines) Inc.* Philippines - - 100.00 100.00 Dormant
Subsidiary company of Sea Gull Advertising Sdn. Bhd.
Add One Promotion Sdn. Bhd. Malaysia - - - 62.00 Events promoter Subsidiary company of SG Global Biotech Sdn. Bhd. (formerly known as Hai-O Pharmaceutical (M) Sdn. Bhd.)
QIS Research Laboratory Sdn. Bhd. Malaysia - - 100.00 - Research and laboratory services
* Subsidiary companies not audited by BDO Binder
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)98
10. INVESTMENT IN SUBSIDIARY COMPANIES (CONTINUED)
10.1 Acquisition of a subsidiary company
On 16 May 2006, the Group subscribed 2 ordinary shares of RM1.00 each via its wholly owned subsidiary company, SG Global Biotech Sdn. Bhd. (formerly known as Hai-O Pharmaceutical (M) Sdn. Bhd.) in the share capital of QIS Research Laboratory Sdn. Bhd. for a cash consideration of RM2.
Subsequently on 16 June 2006 and 21 November 2006, the Group subscribed for additional 349,998 and 150,000 new ordinary shares of RM1.00 each respectively in the share capital of QIS Research Laboaratory Sdn. Bhd. for a cash consideration of RM349,998 and RM150,000 respectively.
The effect of the acquisition of QIS Research Laboratory Sdn. Bhd. on the financial results of the Group for the financial year ended 30 April 2007 is as follows:-
RMRevenueOperating incomeOperating costs
Decrease in Group net assets
13,75015,286
(252,238)
(223,202)
The acquisition has no financial effect on the cash flows of the Group for the financial year ended 30 April 2007.
There was no acquisition of subsidiary company in previous financial year.
10.2 Disposal of subsidiary companies
During the year, the Group disposed of the following subsidiary companies:-
(a) Disposal of its entire 62.00% equity interest in Add One Promotions Sdn. Bhd. (“Add One”), via its wholly-owned subsidiary company, Sea Gull Advertising Sdn. Bhd. for a total consideration of RM31,000.
(b) Disposal of its entire 100.00% equity interest in Hai-O Informtech Sdn. Bhd. (“Informtech”) for a total consideration of RM280,000.
The effect of the above disposal of Add One and Informtech on the financial results of the Group for the financial year ended 30 April 2007 are as follows:-
Up to the dateof disposals
2007RM
Revenue 10,633Other operating income 843Operating costs (9,773)
Profit before tax 1,703Tax expense (451)
Net profit for the financial year 1,252Loss on disposal of subsidiary companies (190,614)
Decrease in Group profit (189,362)
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 99
10. INVESTMENT IN SUBSIDIARY COMPANIES (CONTINUED)
10.2 Disposal of subsidiary companies (Continued)
The effect of disposal of Add One and Informtech on the financial position of the Group are as follows:-
At date of disposals
2007RM
Trade receivables 12,540Other receivables, deposits and prepayments 1,142,572Cash and bank balances 10,487Trade payables (274)Other payables and accruals (664,261)Goodwill on consolidation 31,564Exchange fluctuation reserve 605Minority interest (31,619)
Net assets disposed 501,614 The effect of the disposals of Add One and Informtech on the cash flows of the Group are disclosed in Note
31 to the financial statements.
In the previous financial year, the Group disposed of the following subsidiary companies:-
(a) Disposal of its entire 60.00% equity interest in Pasaraya TFHO d’Choice Sdn. Bhd. (“Pasaraya d’Choice”) for a total consideration of RM1.00.
(b) Disposal of its entire 70.60% equity interest in Beijing Hope Computer (M) Sdn. Bhd. (“Beijing Hope”) via its 56.60% owned subsidiary company, Hai-O Raya Berhad for a total consideration of RM1.00.
The effect of the above disposal of Pasaraya d’Choice and Beijing Hope on the financial results of the Group for the financial year ended 30 April 2006 are as follows:-
Up to the dateof disposals
2006RM
Revenue 761,328Other operating income 9,908Operating costs (1,115,630)
Loss for the financial year (344,394)Gain on disposal of subsidiary companies 797,601
Increase in Group profit 453,207
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)100
10. INVESTMENT IN SUBSIDIARY COMPANIES (CONTINUED)
10.2 Disposal of subsidiary companies (Continued)
The effect of disposal of Pasaraya d’Choice and Beijing Hope on the financial position of the Group are as follows:-
At date of disposals
2006RM
Property, plant and equipment 1,152,312Inventories 782,087Trade receivables 72,403Other receivables, deposits and prepayments 52,024Cash and bank balances 82,253Trade payables (1,258,602)Other payables and accruals (1,699,403)
Net liabilities disposed (816,926) The effect of the disposals of Pasaraya d’Choice and Beijing Hope on the cash flows of the Group are
disclosed in Note 31 to the financial statements.
10.3 Winding up of a subsidiary company
In the previous financial year, You How Trading Sdn. Bhd. (“You How”), a 56.29% owned subsidiary company of the Group, has completed its members’ voluntary winding up, pursuant to Section 254(1)(b) of the Companies Act, 1965.
The effect of the above winding up of You How on the financial results of the Group for the financial year ended 30 April 2006 is as follows:-
Up to the dateof winding up
2006RM
Revenue -Operating costs (40)
Loss from operations (40)Gain on winding up 3
Decrease in Group profit (37)
The effect of winding up of You How on the financial position of the Group is as follows:-
At date of winding up
2006RM
Cash and bank balances 1,125,717Minority interest (492,048)
Net assets not consolidated 633,669 The effect of the winding up of Yow How on the cash flows of the Group is disclosed in Note 32 to the
financial statements.
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 101
11. INVESTMENT IN ASSOCIATED COMPANIES
Group Company2007
RM2006
RM2007
RM2006
RM
Unquoted shares-at cost 1,165,528 1,165,528 - -Less: Impairment losses (143,636) (143,636) - -
1,021,892 1,021,892 - -Group’s share of post acquisition losses (1,021,892) (1,021,892) - -
- - - -
The associated companies are as follows:-
EffectiveCountry of equity interest
Name of company Incorporation 2007 2006 Principal activities% %
Indirect
Hai-O Enterprise(Thailand) Co. Ltd.* Thailand 49.00 49.00 Dormant
Hai-O Enterprise (C.M.) Sdn. Bhd. Malaysia 48.00 48.00 Investment holding
The unrecognised amounts of share of losses of associated companies are as follows:-
Group Company2007
RM2006
RM2007
RM2006
RM
Balance as at 1 May 2006/2005 585,534 321,658 - -Loss during the financial year 309,295 263,876 - -
Balance as at 30 April 2007/2006 894,829 585,534 - -
* Associated company not audited by BDO Binder
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)102
12. INVESTMENT IN JOINTLY CONTROLLED ENTITIES
Group Company2007
RM2006
RM2007
RM2006
RM
Unquoted shares, at cost - - 1,260,000 1,260,000Les: impairment loss - - (148,795) -
- - 1,111,205 1,260,000
(a) The Group’s share of the assets and liabilities of the jointly controlled entities which are included in the consolidated balance sheets are as follows:-
Group2007
RM2006
RM
Property, plant and equipment 926,037 1,047,327Goodwill - 144Non-current liabilities (13,200) (150,028)Current assets 1,263,937 1,040,407Current liabilities (458,041) (432,007)
Net assets 1,718,733 1,505,843
(b) The Group’s share of the revenue and expenses of the jointly controlled entities which are included in the consolidated income statements are as follows:-
Group2007
RM2006
RM
Revenue 2,634,089 2,521,539Cost of sales (1,328,405) (1,236,249)
Gross profit 1,305,684 1,285,290Other operating income 17,461 25,084Operating expenses (1,027,479) (1,097,124)
Profit before tax 295,666 213,250Tax expense (80,776) (72,348)
Profit after tax 214,890 140,902
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 103
12. INVESTMENT IN JOINTLY CONTROLLED ENTITIES
(c) The details of the jointly controlled entities are as follows:-
Name of companyCountry of
incorporation
Effective
Principal activitiesequity interest2007 2006
% %
Peking Tongrentang (M) Sdn. Bhd. Malaysia 40.00 40.00 Providing traditional Chinese physician services and retail of traditional Chinese medicine
Sanjiu Hai-O TCM (M) Sdn. Bhd. Malaysia 50.00 50.00 Providing traditional Chinese physician services and retail of traditional Chinese medicine
MCC Arts Garden Sdn. Bhd. Malaysia - 50.00 Dormant
The decisions on all major matters of the jointly controlled entities are made by the board of directors of the entities, which comprises representatives from both joint venturers. Decisions on major matters shall be taken only after unanimity is reached among the directors.
13. OTHER INVESTMENTS
Group Company2007 2006 2007 2006
RM RM RM RM(a) Long term investments
Shares quoted in Malaysia - at cost 4,032,481 2,984,134 3,065,702 1,840,399
Less: Allowance for diminution in value of investment (225,099) (820,623) (25,681) (25,681)
3,807,382 2,163,511 3,040,021 1,814,718
Unquoted shares - at cost 717,779 812,838 - - Less: Allowance for diminution in value of investment (491,400) (491,400) - -
226,379 321,438 - -
KLIBOR 1,500,000 3,500,000 - 2,000,000
5,533,761 5,984,949 3,040,021 3,814,718
Market value of shares quoted in Malaysia 5,147,210 2,535,915 3,866,090 1,883,322
(b) Short term investments
Quoted unit trusts in Malaysia 17,733,605 6,925,530 3,538,670 4,000,000 Unquoted unit trust in overseas 888,000 - 888,000 -
18,621,605 6,925,530 4,426,670 4,000,000
Market value of quoted unit trusts 18,062,768 6,994,664 3,644,524 4,068,774
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)104
14. TRADE AND OTHER RECEIVABLES
Group Company2007
RM2006
RM2007
RM2006
RM
Trade receivables
Trade receivables 13,076,684 15,713,665 8,024,901 9,181,827
Hire-purchase receivables- not later than one year 496,906 432,630 - -- later than one year and not later than two years 395,520 401,867 - -- later than two years and not later than three years 343,024 288,448 - -- later than three years and not later than four years 288,808 232,348 - -- later than four years and not later than five years 244,447 179,287 - -- later than five years 134,100 214,156 - -
1,902,805 1,748,736 - -Less: Unearned interest charges (241,553) (227,578) - -
Present value of hire-purchase receivables 1,661,252 1,521,158 - -
Finance lease receivables- not later than one year 137,628 498,050 - -- later than one year and not later than two years 120,828 134,028 - -- later than two years and not later than three years 119,628 120,828 - -- later than three years and not later than four years 99,690 119,628 - -- later than four years and not later than five years - 99,690 - -
477,774 972,224 - -Less: Unearned interest charges (133,631) (170,213) - -
Present value of finance lease receivables 344,143 802,011 - -
Loan receivables 368,440 964,497 - -
15,450,519 19,001,331 8,024,901 9,181,827
Less: Allowance for doubtful debts, net of bad debts written off of RM1,165,581 (2006: RM36,175) for the Group and RM395,189 (2006: RM12,969) for the Company (1,152,419) (1,964,292) (1,062,082) (1,119,064)
Trade receivables , net 14,298,100 17,037,039 6,962,819 8,062,763
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 105
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
14. TRADE AND OTHER RECEIVABLES (continued)
Group Company2007
RM2006
RM2007
RM2006
RM
Other receivables
Amounts owing by related parties: - Subsidiary companies - - 15,609,967 8,287,148 - Associated companies 3,257,923 3,551,423 - -
3,257,923 3,551,423 15,609,967 8,287,148
Other receivables 452,926 4,273,976 183,147 3,732,527Deposits 1,186,174 1,153,219 407,277 384,378Prepayments 486,038 990,545 315,766 739,817
2,125,138 6,417,740 906,190 4,856,722
5,383,061 9,969,163 16,516,157 13,143,870Less: Allowance for doubtful debts, net of bad debts of RM217,333 (2006: RM1,650) for the Group (3,398,330) (3,151,753)
(131,000) (131,000)
Other receivables, net 1,984,731 6,817,410 16,385,157 13,012,870
16,282,831 23,854,449 23,347,976 21,075,633
Current:-
Trade receivables 13,076,684 15,713,665 8,024,901 9,181,827Less: Allowance for doubtful debts (1,152,419) (1,409,673) (1,062,082) (1,119,064)
11,924,265 14,303,992 6,962,819 8,062,763Present value of hire- purchase receivables not later than one year 407,818 350,087 - -
Present value of finance lease receivables not later than one year 101,046 461,668 - -Less: Allowance for doubtful debts - (354,053) - -
101,046 107,615 - -
Loan receivables 368,440 964,497 - -Less: Allowance for doubtful debts - (200,566) - -
368,440 763,931 - -
Trade receivables, net 12,801,569 15,525,625 6,962,819 8,062,763
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)106
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
14. TRADE AND OTHER RECEIVABLES (CONTINUED)
Group Company2007
RM2006
RM2007
RM2006
RM
Other receivables
Amounts owing by related parties Subsidiary companies - - 15,579,025 8,221,615 Associated companies 3,257,923 3,551,423 1,003,423 1,003,423 Less: Allowance for doubtful debts net of bad debts written off of RM NIL (2006: RM48,338) for the Group (3,257,923) (2,803,423) (1,003,423) (1,003,423)
- 748,000 - - Jointly controlled entities - - 30,942 65,333
- 748,000 15,609,967 8,287,148
Other receivables 452,926 4,273,976 183,147 3,732,527Less: Allowance for doubtful debts, net of bad debts written off of RM217,333 (2006: RM1,650) for the Group (140,407) (348,330) (131,000) (131,000)
312,519 3,925,646 52,147 3,601,527
Deposits 1,186,174 1,153,219 407,277 384,378Prepayments 486,038 990,545 315,766 739,817
Other receivables, net 1,984,731 6,817,410 16,385,157 13,012,870
14,786,300 22,343,035 23,347,976 21,075,633
Non current:-
Present value of hire- purchase receivables:-- later than one year and not later than two years 331,063 343,943 - -- later than two years and not later than three years 298,759 249,268 - -- later than three years and not later than four years 261,550 207,010 - -- later than four years and not later than five years 231,024 164,580 - -- later than five years 131,038 206,270 - -
1,253,434 1,171,071 - -
ANNUAL REPORT 2007 107
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
14. TRADE AND OTHER RECEIVABLES (CONTINUED)
Group Company2007
RM2006
RM2007
RM2006
RM
Present value of finance lease receivables:-- later than one year and not later than two years 86,446 97,246 - -- later than two years and not later than three years 85,446 86,446 - -- later than three years and not later than four years 71,205 85,446 - -- later than four years and not later than five years - 71,205 - -
243,097 340,343 - -
1,496,531 1,511,414 - -
16,282,831 23,854,449 23,347,976 21,075,633
(a) The credit terms of trade receivables range from 7 days to 120 days.
(b) Amounts owing by subsidiary companies
Amounts owing by subsidiary companies represent balances arising from normal trade transactions, advances and payments made on behalf of the subsidiary companies which are unsecured, have no fixed terms of repayment and are interest-free except for advances of RM100,000 to subsidiary companies in 2006 which bear interest at 2.5% per annum and balances arising from normal trade transactions which are subject to a credit term of 90 days from date of invoice.
(c) Amounts owing by associated companies
Amounts owing by associated companies represent balances arising from normal trade transactions and advances which are unsecured, interest-free and have no fixed terms of repayment except for normal trade transactions which are subject to a credit term of 90 days from date of invoice.
(d) Amounts owing by jointly controlled entities
Company
The amounts owing by jointly controlled entities represent balances arising from normal trade transactions, advances and payments made on behalf of the jointly controlled entities which are unsecured, interest-free and have no fixed terms of repayment except for normal trade transactions which is subject to a credit term of 90 days from date of invoice.
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)108
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
15. DEFERRED TAX
(a) The deferred tax (assets)/liabilities are made up of the following:-
Group Company2007
RM2006
RM2007
RM2006
RM
Balance as at 1 May 2006/2005 (301,496) 234,785 179,253 156,053
Transfer (to)/from income statements - current year (Note 28) (864,405) (668,159) (5,256) (62,681)- under provision in prior years (Note 28) 143,122 131,878 74,727 85,881
(721,283) (536,281) 69,741 23,200
Balance as at 30 April (1,022,779) (301,496) 248,724 179,253
Presented after appropriate offsetting:-
Deferred tax assets, net (1,080,402) (518,245) - -Deferred tax liabilities, net 57,623 216,749 248,724 179,253
(1,022,779) (301,496) 248,724 179,253
(b) The movements of deferred tax assets and liabilities during the financial year prior to offsetting are as follows:-
Group Company2007
RM2006
RM2007
RM2006
RM
Deferred tax assets
Balance as at 1 May 2006/2005 1,050,836 414,625 240,475 219,204
Recognised in the income statement
Provisions 715,861 628,090 10,522 9,682Unrealised profit in inventories 114,757 (3,468) - -Allowance for doubtful debts (57,815) 11,589 (59,115) 11,589Change in tax rate (82,225) - (11,427) -Unabsorbed industrial buildingallowances (41,175) - (41,981) -
649,403 636,211 (102,001) 21,271
Balance as at 30 April 1,700,239 1,050,836 138,474 240,475
ANNUAL REPORT 2007 109
15. DEFERRED TAX (CONTINUED)
(b) The movements of deferred tax assets and liabilities during the financial year prior to offsetting are as follows:- (Continued)
Group Company2007
RM2006
RM2007
RM2006
RM
Deferred tax liabilities Balance as at 1 May 2006/2005 749,340 649,410 419,728 375,257Recognised in the income statementExcess of capital allowanceover corresponding depreciations depreciation (45,447) 99,930 (2,466) 44,471
Change in tax rate (26,433) - (30,064) -(71,880) 99,930 (32,530) 44,471
Balance as at 30 April 677,460 749,340 387,198 419,728
(c) The components of deferred tax assets and liabilities as at the end of the financial year comprise the tax effects of:-
Group Company2007RM
2006RM
2007RM
2006RM
Deferred tax assets
Unrealised profit in inventories 305,685 190,928 - -Unabsorbed industrial building allowances 1,569 42,744 - 42,744Provisions 1,391,685 758,049 138,474 138,616Allowance for doubtful debts 1,300 59,115 - 59,115
1,700,239 1,050,836 138,474 240,475
Deferred tax liabilities
Excess of capital allowance over corresponding depreciation 677,460 749,340 387,198 419,728
(d) The amount of temporary differences for which no deferred tax assets have been recognised in the balance sheet are as follows:-
Group2007
RM2006
RM
Provisions 234,364 -Unutilised tax losses 711,415 986,300Unabsorbed capital allowances 373,128 99,000
1,318,907 1,085,300 Deferred tax assets have not been recognised in respect of these items as it is not probable that taxable
profit of certain subsidiary companies will be available against which the deductible temporary differences can be utilised.
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)110
16. GOODWILL ON CONSOLIDATION
Group2007
RM2006
RM
Balance as at 1 May 2006/2005 781,381 1,013,974Less: Disposal of subsidiary companies (197,418) (232,593) Disposal of a jointly controlled entity (144) - Effect of adopting FRS 3 (309,986) -
Balance as at 30 April 273,833 781,381
Accumulated amortization
Balance as at 1 May 2006/2005 309,986 286,645Less: Amortisation during the financial year - 23,341 Effect of adopting FRS 3 (309,986) - Balance as at 30 April - (309,986)Less: Impairment losses - (165,854)
Carrying value as at 30 April 273,833 305,541
The recoverable amount was determined based on a value in use calculation using cash flow projections based on financial budgets prepared by the management covering a five-year period. The discount rate applied to the cash flow projections were 11.35% based on the weighted average cost of capital of the Group.
17. INVENTORIES
Group Company2007 2006 2007 2006
RM RM RM RM
Raw materials 292,265 394,969 - -Work-in-progress 16,840 20,054 - -Packaging materials 292,974 216,896 - -Finished goods and trading goods 33,325,217 27,876,096 17,396,430 11,032,794
33,927,296 28,508,015 17,396,430 11,032,794
18. DEPOSITS WITH LICENSED BANKS
Group and Company2007
%2006
%
Effective annual interest rate 2.5 – 3.3 2.5 – 3.0
The deposits of the Group and Company have a range of maturity of 7 to 365 days (2006: 7 to 365 days).
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 111
19. SHARE CAPITAL
Group and Company2007 2006
Numberof shares RM
Numberof shares RM
Ordinary shares of RM1.00 each:-
Authorised 100,000,000 100,000,000 100,000,000 100,000,000
Issued and fully paid:-
Balance as at 1 May 2006/2005 66,329,000 66,329,000 65,773,000 65,773,000Exercise of ESOS 2,485,000 2,485,000 556,000 556,000
Balance as at 30 April 2007/2006 68,814,000 68,814,000 66,329,000 66,329,000
Employees’ Share Option Scheme
The ESOS which became effective on 21 December 1998 is made available to eligible employees of the Group.
At an Extraordinary General Meeting held on 28 February 2003, the Company’s shareholders approved the proposed amendments of the By-Laws of its existing ESOS. The main features of the ESOS are as follows:-
(a) The total maximum number of new shares which may be made available under the ESOS (including any shares already allotted pursuant to the exercise of any options) shall not at any time exceed ten percent (10%) of the total number of shares comprised in the issued and paid-up share capital of the Company.
(b) Eligible employees are those full time employees (including executive directors) of the Company within the Group who as at the date of offer are at least eighteen (18) years old; confirmed and is employed by and on the payroll of a company/companies within the Group with at least one (1) year of continuous service in the Group; and any foreign employee who is employed by and on the payroll of a company/companies within the Group and whose contribution is vital to the Company and have completed at least two (2) years of service or if such foreign employee is serving under a limited term contract, the contract should be for a duration of at least three (3) years.
(c) The options holder may, in any year, exercise up to such a maximum number of shares in the Option Certificate as determined by the ESOS Committee and as specified in the Option Certificate and options exercisable in a particular year but not exercised in that year can be carried forward and be exercised in the subsequent years.
(d) The maximum entitlement of an eligible employee under the ESOS shall be determined and subject to the following:-
(i) not more than fifty percent (50%) of the shares available under the ESOS should be allocated, in aggregate, to executive directors and senior management.
(ii) not more than ten percent (10%) of the shares available under the ESOS should be allocated to any individual eligible employee who, singly or collectively through his/her associates holds twenty percent (20%) or more of the issued and paid-up share capital of the Company.
(e) The option price shall be determined by the ESOS Committee, based on the weighted average market price of the Company’s ordinary shares as shown in the Daily Official List issued by the Bursa Malaysia Securities for the five (5) trading days preceeding the respective dates of the offer and may be set at a discount of not more than ten percent (10%).
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)112
19. SHARE CAPITAL (CONTINUED)
(f) The duration of the option was extended to another five years from 21 December 2003 to 20 December 2008. The option granted may be exercised on any working day before the expiry of the term on 20 December 2008 upon giving notice in writing to the Company.
(g) The actual number of shares which may be offered to any eligible employee shall be at the discretion of the ESOS Committee. The number of shares to be offered shall be in multiples of one thousand (1,000) new shares and shall not exceed the maximum allowable allotment of such eligible employee.
(h) Employees to whom the options have been granted are not eligible to participate in any other employees’ share option scheme that may be established by the Company or the Group subsequent hereto.
(i) The shares shall on issue and allotment rank pari passu in all respects with the then existing issued shares of the Company.
The movements in the Company’s unissued shares under ESOS during the financial year are as follows:-
Date of offer
----------- Option over Ordinary Shares of RM1.00 each -----------Exercise
priceRM/Share
Balanceas at
1 May (Forfeited)
(Exercised)
Balanceas at
30 April
2007
16 December 2003 1.43* 1,864,000 (105,000) (1,395,000) 364,0009 January 2004 1.00 1,367,000 (247,000) (1,090,000) 30,000
2006
16 December 2003 1.43* 1,864,000 - - 1,864,0009 January 2004 1.00 1,923,000 - (556,000) 1,367,000
* Price adjusted for the effect of the bonus and right issue.
During the financial year, the Company issued 2,485,000 ordinary shares of RM1.00 each pursuant to the shares exercised under the ESOS and the fair value of shares issued at the exercise date are follows:-
Numberof shares
issued
Optionexercise
priceRM
ConsiderationRM
Fair value of<----- share issued ----->
Per shareRM
TotalRM
2007
May 2006 152,000 1.00 152,000 1.34 203,680June 2006 197,000 1.00 197,000 1.42 279,740July 2006 65,000 1.00-1.43 73,170 1.41 91,650August 2006 24,000 1.00 24,000 1.33 31,920September 2006 24,000 1.00 24,000 1.31 31,440October 2006 144,000 1.00 144,000 1.39 200,160November 2006 290,000 1.00 290,000 1.52 440,800December 2006 17,000 1.00-1.43 18,290 1.64 27,880January 2007 470,000 1.00-1.43 634,260 1.87 878,900February 2007 399,000 1.00-1.43 530,580 1.96 782,040
March 2007 32,000 1.00-1.43 38,880 1.86 59,520April 2007 671,000 1.00-1.43 958,670 2.05 1,375,550
2,485,000 3,084,850 4,403,280
Ordinary share capital - at par 2,485,000
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 113
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
19. SHARE CAPITAL (CONTINUED)
Share Buy-Back
The shareholders of the Company, by an ordinary resolution passed in an Extraordinary General Meeting held on 20 October 2006, authorised the directors to buy back the Company’s own shares. This will enable the Company to utilise its surplus financial resources to purchase its own shares and to stabilise the supply and demand and market prices of the Company’s shares.
All the shares so purchased during the financial year were retained as treasury shares as defined in the Companies Act, 1965.
Of the total 68,814,000 (2006: 66,329,000) issued and fully paid ordinary shares of RM1.00 each as at 30 April 2007, 1,710,186 (2006: 1,048,886) ordinary shares of RM1.00 each amounting to RM2,242,993 (2006: RM1,164,907) are held as treasury shares by the Company. The number of outstanding shares in issue after the share buy-back is 67,103,814 (2006: 65,280,114) ordinary shares of RM1.00 each as at 30 April 2007.
20. CAPITAL RESERVES - DISTRIBUTABLE
The capital reserves represent gain arising from disposal of property, plant and equipment and quoted investment.
Subject to the agreement of the Inland Revenue Board, the Company has sufficient tax credit under Section 108 of the Income Tax Act, 1967 and tax exempt income to frank and distribute the payment of net dividends out of its entire capital reserves as at 30 April 2007 without incurring additional tax liability.
21. RETAINED PROFITS
Subject to the agreement of the Inland Revenue Board:-
(i) the Company has approximately RM1,472,000 (2006: RM4,984,000) in its tax exempt account available for distribution of tax exempt dividend; and
(ii) the Company has sufficient tax credit under Section 108 of the Income Tax Act, 1967 and tax exempt income to frank and distribute the payment of net dividends out of its entire retained profits as at 30 April 2007 without incurring additional tax liability.
22. BORROWINGS (INTEREST BEARING)
Group Company2007
RM2006
RM2007
RM2006
RM
Current liabilities
Term loan – secured - 41,020 - -Bills payable- unsecured - 351,073 - -Bankers’ acceptances- unsecured 7,396,275 4,057,000 6,769,275 3,419,000Hire-purchase creditors (Note 23) - - 233,884 195,720
7,396,275 4,449,093 7,003,159 3,614,720
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)114
22. BORROWINGS (INTEREST BEARING) (CONTINUED)
Group Company2007
RM2006
RM2007
RM2006
RM
Non-current liabilities
Term loan - secured - 124,828 - -Hire-purchase creditors (Note 23) - - 389,040 343,345
- 124,828 389,040 343,345
Total borrowings
Term loan - secured - 165,848 - -Bills payable - unsecured - 351,073 - -Bankers’ acceptances - unsecured 7,396,275 4,057,000 6,769,275 3,419,000Hire-purchase creditors(Note 23) - - 622,924 539,065
7,396,275 4,573,921 7,392,199 3,958,065
Group Company2007
%2006
%2007
%2006
%
Weighted average effective annual interest rate:-
Term loan - 6.65 - -Bills payable - 3.30 - -Bankers’ acceptances 3.76 4.03 3.67 3.57
The term loan of a jointly controlled entity is secured by its freehold land and buildings and repayable by 96 equal monthly instalment of RM10,760 commencing 1 May 2005.
The bills payable and bankers’ acceptances of the subsidiary companies are guaranteed by the Company.
23. HIRE-PURCHASE CREDITORS
Company2007
RM2006
RM
Minimum hire-purchase payments:-- not later than one year- later than one year but not later than two years- later than two years but not later than three years- later than three years but not later than four years- later than four years but not later than five years
272,505188,724120,79271,65250,546
228,394202,715117,07249,140
-
704,219 597,321Less: Future interest charges (81,295) (58,256)
Present value of hire-purchase liabilities 622,924 539,065
Current:-- not later than one year 233,884 195,720
Non-current:-- later than one year but not later than two years- later than two years but not later than three years- later than three years but not later than four years- later than four years but not later than five years
165,824108,77665,48548,955
184,988110,15748,200
-
389,040 343,345
622,924 539,065
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 115
24. TRADE AND OTHER PAYABLES
Group Company2007
RM2006
RM2007
RM2006
RM
Trade payables 9,473,021 6,013,050 5,233,873 2,714,268Other payablesAmounts owing to subsidiary companies - - 2,905,256 3,403,455Other payables 1,998,829 9,041,223 894,416 7,861,905Deposits 2,909,647 3,675,568 804,276 1,426,010Accruals 7,221,540 4,342,827 2,004,803 1,322,052
12,130,016 17,059,618 6,608,751 14,013,422
21,603,037 23,072,668 11,842,624 16,727,690
(a) Trade payables
The credit terms of trade payables of the Group and the Company range from 30 to 150 days from date of invoice. The foreign currency exposure of trade payables of the Group and of the Company are as follows:-
Group Company2007
RM2006
RM2007
RM2006
RM
Euro - 10,678 - -US Dollar 1,426,913 714,451 374,489 362,658
(b) Amounts owing to subsidiary companies
Amounts owing to subsidiary companies represent balances arising from normal trade transactions, advances and payments made on behalf which are unsecured, interest-free and have no fixed terms of repayment except for normal trade transactions which is subject to a credit term of 90 days from date of invoice.
(c) Included in the other payables of the Group and of the Company is rental payable of RM794,741 (2006: RM7,785,695).
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)116
25. PROVISIONS
Group Company2007 2006 2007 2006
RM RM RM RM
Commission 119,452 119,452 - -Development fund 271,767 271,767 - -Trip and tour incentives 695,131 396,149 - -Sales campaign 2,800,000 876,861 - -Staff incentives 1,934,898 1,561,552 632,593 533,792
5,821,248 3,225,781 632,593 533,792
<-------------------------------------- Group --------------------------------------> CompanyStaff
incentivesTotal
RMCommission
RM
DevelopmentfundRM
Trip and tour
incentivesRM
Salescampaign
RM
Staffincentives
RMTotal
RM
Balance as at 1 May 2006 119,452 271,767 396,149 876,861 1,561,552 3,225,781 533,792Current year provision - - 310,592 2,306,947 1,889,922 4,507,461 597,413 Over provision in prior year - - - - (236,360) (236,360) (52,816)Payment made during the financial year - - (11,610) (383,808) (1,280,216) (1,675,634) (445,796)
Balance as at 30 April 2007 119,452 271,767 695,131 2,800,000 1,934,898 5,821,248 632,593
26. REVENUE
Group Company2007
RM2006
RM2007
RM2006
RM
Sale of goods 187,129,138 139,779,690 71,964,202 66,596,467Rendering of services 271,926 762,638 2,638 98,921Hire-purchase and lease rental income 124,519 93,554 - -Interest income - 54,521 - -Dividends 162,539 111,738 8,924,916 2,549,681Rental income 1,637,134 5,593,793 2,584,189 6,212,350Others 20,922 402,427 1,042 24,297
189,346,178 146,798,361 83,476,987 75,481,716
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 117
27. PROFIT BEFORE TAX
Group Company2007 2006 2007 2006
RM RM RM RM
Profit before tax is arrived at after charging:-
Allowance for doubtful debts 860,023 1,975,032 371,914 602,254Amortisation of goodwill - 23,341 - -Amortisation of prepaid lease payments for land 33,578 34,061 1,600 1,600Auditors’ remuneration:- Statutory:- - current year 137,180 122,630 30,000 30,000 - under provision in prior years 20 650 - - Non-statutory - 7,000 - 7,000Bad debts written off 19,897 156,598 - -Depreciation of:- - property, plant and equipment 1,812,930 1,881,550 713,653 681,455- investment properties 440,829 443,040 522,687 522,687Deposit and prepayments written off - 24,674 - -Directors’ remuneration payable to :-- directors of the Company:- - fees 189,800 174,800 120,000 117,000 - emoluments other than fee 2,047,513 2,067,089 1,148,372 1,140,026- directors of the subsidiary companies:- - fees 111,665 99,335 - - - emoluments other than fee 1,101,876 1,102,201 - -- directors of a jointly controlled entity:- - fees 15,200 14,840 - -Impairment loss on:- - property, plant and equipment - 47,003 - -- investment properties - 177,646 - -Impairment loss on goodwill - 17,237 - -Impairment loss on investment in subsidiary companies - - - 1,121,246Impairment loss on investment in jointly controlled entities - - 148,795 -Interest expense:-- bank overdrafts 488 108 488 -- bankers’ acceptances and trust receipts 321,838 301,193 263,146 245,056- hire-purchase - - 39,346 48,168- term loans 6,114 17,064 - -- others - 15,311 - -Inventories written off 306,168 1,136,184 300,000 -Inventories written down - 99,042 - -Loss on disposal of:-- subsidiary companies 190,614 - - -- property, plant and equipment - 403,360 - 403,255Property, plant and equipment written off 95,720 930,376 15,190 -Provision for:-- trip and tour incentives 310,592 166,975 - -- sales campaign 2,306,947 1,022,101 - -- staff incentives 1,889,922 1,357,251 597,413 458,000Realised loss on foreign exchange 7,653 256 7,652 166Rental of premises 2,353,220 7,204,638 410,893 5,464,133
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)118
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
27. PROFIT BEFORE TAX (CONTINUED)
Group Company2007
RM2006
RM2007
RM2006
RM
And crediting:-
Allowance for doubtful debts no longer required 42,407 1,000 33,707 -Amortisation of reserve on consolidation - 32,845 - -Bad debts recovered 128,218 11,065 - 1,102Deposits and prepayment written back - 37,035 - -Gain on disposal of other investments 973,234 349,195 729,068 291,868Gain on disposal of property, plant and equipment 52,349 28,227 26,246 -Gain on disposal of subsidiary companies - 797,601 9,958 408,503Gain on winding up of a subsidiary company - 3 - -Gross dividend income from:-- quoted shares in Malaysia 168,697 121,738 107,470 63,278- unquoted subsidiary companies - - 8,817,446 2,410,403- a jointly controlled entity - - - 76,000Interest income 471,298 438,419 203,724 291,065Management fees received from subsidiary companies - - 454,914 425,400Overprovision for staff incentive in prior year 236,360 67,279 52,816 55,694Rental income 1,975,726 5,938,333 2,584,189 6,212,350Realised gain on foreign exchange 15,730 11,931 - 679Waiver of debts 930,910 - 930,910 -
The estimated monetary value of benefits-in-kind received by the directors otherwise than in cash from the Group and the Company amounted to RM37,219 (2006: RM35,450).
28. TAX EXPENSE
Group Company2007
RM2006
RM2007
RM2006
RM
Current year’s provision 9,406,625 5,377,099 4,650,000 2,900,000
Deferred tax assets (Note 15) (664,367) (629,698) - -Deferred tax liabilities (Note 15) (200,038) (38,461) (5,256) (62,681)
(864,405) (668,159) (5,256) (62,681)
8,542,220 4,708,940 4,644,744 2,837,319(Over)/Under provision in prior years
- Income tax (191,799) (491,426) (211,374) (96,229)
- Deferred tax assets (Note 15) 102,210 35,958 - -- Deferred tax liabilities (Note 15) 40,912 95,920 74,727 85,881
143,122 131,878 74,727 85,881
(48,677) (359,548) (136,647) (10,348)
8,493,543 4,349,392 4,508,097 2,826,971
ANNUAL REPORT 2007 119
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
28. TAX EXPENSE (CONTINUED)
Current income tax is calculated at the statutory tax rate of 27% (2006: 28%) of the estimated assessable profit for the year. The statutory tax rate will be reduced to 26% from the current year’s rate of 27% effective year of assessment 2008. The computation of deferred tax as at 30 April 2007 has reflected these changes.
The numerical reconciliation between the average effective tax rate and the applicable tax rate of the Group and of the Company are as follows:-
Group Company2007
%2006
%2007
%2006
%
Applicable tax rate 27.0 28.0 27.0 28.0
Tax effects in respect of:-
Non-allowable expenses 6.4 6.1 2.2 13.4Utilisation of previously unrecognised tax losses and capital allowances - (0.4) - -Effect of changes in tax rates on deferred tax (0.2) - (0.1) -Unutilised tax losses and capital allowances not recognised as deferred tax assets - (0.8) - -Income not subject to tax (4.6) (0.2) (6.4) (2.2)Reduction in statutory tax rate on first RM500,000 chargeable income (0.6) (1.5) - -
28.0 31.2 22.7 39.2Over provision in prior years (0.2) (2.4) (0.7) (0.1)
Effective tax rate 27.8 28.8 22.0 39.1
Tax savings of the Group is as follows:-
Group2007
RM2006
RM
Arising from utilisation of previously unrecognised tax losses and capital allowances - 43,377
Subject to the agreement of the Inland Revenue Board, the Group has unabsorbed tax losses and unutilised capital allowances of approximately RM711,000 (2006: RM986,300) and RM372,000 (2006: RM99,000) respectively which are available for set off against future taxable income.
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)120
29. EARNINGS PER SHARE
The basic earnings per share is calculated by dividing the consolidated net profit for the financial year of RM21,383,862 (2006: RM10,182,874) by the weighted average number of ordinary shares in issue during the financial year of 65,574,685 (2006: 62,128,860).
The diluted earnings per ordinary share for the current financial year was calculated based on the consolidated net profit for the financial year of RM21,383,862 (2006: RM10,182,874) and on the adjusted weighted average number of ordinary shares issued and issuable of 65,977,405 (2006: 62,239,075). The adjusted weighted average number of ordinary shares issued and issuable had been arrived at based on the assumption that all shares options under the ESOS were exercised at the beginning of the financial year or at the grant date of ESOS and that the difference between the number of ordinary shares to be issued under ESOS and the number of ordinary shares that would have been issued at fair value was deemed to have been issued for no consideration.
The weighted average number of ordinary shares in issue plus the weighted average number of ordinary shares deemed to have been issued for no consideration upon exercise of ESOS was calculated as follows:-
2007
Weighted average number of ordinary shares in issue 65,574,685
Weighted average number of ordinary shares deemed to have been issued for no consideration upon exercise of ESOS 402,720
Weighted average number of ordinary shares for diluted earnings per share 65,977,405
30. DIVIDENDS
Group/Company2007RM
2006RM
Final dividend of 13% (2006: 8%) per share gross, less tax 6,530,449 3,787,972Interim dividend:-- tax exempt dividend of 5% (2006: Nil) per share 3,332,315 -- share dividend of Nil (2006: one (1) treasury share for every twenty (20) ordinary shares) - 3,244,530
9,862,764 7,032,502
As approved by the shareholders at the Annual General Meeting held on 20 October 2006, a first and final dividend of 8% gross, less tax, amounting to RM3,787,972 in respect of previous financial year was paid on 12 December 2006.
The amount paid of RM3,787,972 is in excess of the dividend of RM3,760,135 proposed in last year’s directors’ report. The difference of RM27,837 was in respect of additional shares arising from the exercise of the option under the ESOS subsequent to the end of previous financial year, but prior to the closing date of the entitlement to dividend.
An interim tax exempt of 5% amounting to RM3,332,315 in respect of current financial year was declared on 15 January 2007 and paid on 13 March 2007.
The proposed final dividend of 13% gross, less tax, amounting to RM6,530,449 in respect of the current financial year has yet to be approved by the shareholders. This dividend, upon approval by the shareholders, will be accounted for as an appropriation of retained earnings in the financial year ending 30 April 2008.
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 121
31. DISPOSALS OF SUBSIDIARY COMPANIES
The effect of disposals of Add One and Informtech on the cash flow of the Group is as follows:-
2007RM
Goodwill on consolidationCash and cash equivalentsTrade receivablesOther receivables, deposits and prepaymentsTrade payablesOther payables and accrued liabilitiesExchange fluctuation reserveMinority interest
Net assets disposed
Loss on disposals of subsidiary companies
Net proceeds receivedLess: Cash and cash equivalents of subsidiary companies disposed
Cash flow on disposal, net of cash and cash equivalents disposed
31,56410,48712,540
1,142,572(274)
(664,261)605
(31,619)
501,614
(190,614)
311,000(10,487)
300,513
In the previous financial year, the effect of disposals of Pasaraya d’Choice and Beijing Hope on the cash flow of
the Group is as follows:-
2006RM
Property, plant and equipmentGoodwill on consolidationCash and cash equivalentsInventoriesTrade receivablesOther receivables, deposits and prepaymentsTrade payablesOther payables and accrued liabilities
Net liabilities disposed
Gain on disposals of subsidiary companies
Net proceeds receivedLess: Cash and cash equivalents of subsidiary companies disposed
Cash flow on disposal, net of cash and cash equivalents disposed
1,152,31219,32782,253
782,08772,40352,024
(1,258,602)(1,699,403)
(797,599)
797,601
2(82,253)
(82,251)
32. WINDING UP OF A SUBSIDIARY COMPANY
In the previous financial year, the effect of winding up of You How on the cash flow of the Group is as follows:-
2006RM
Cash and cash equivalentsMinority interests
Net liabilities disposed
Gain on winding up of a subsidiary company
Net proceeds received
Less: Cash and cash equivalents of subsidiary company not consolidated
Cash flow on winding up, net of cash and cash equivalents not consolidated
1,125,717(492,048)
633,669
3
633,672
(1,125,717)
(492,045)
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)122
33. PURCHASE OF PROPERTY, PLANT AND EQUIPMENT
During the financial year, the Group and the Company made the following cash payments to purchase property, plant and equipment:-
Group Company2007 2006 2007 2006
RM RM RM RM
Purchase of property, plant and equipment (Note 6) 1,929,451 1,938,341 482,849 921,587
Financed by hire-purchase arrangements - -
( 215,730) -
Cash payments on purchase of property, plant and equipment 1,929,451 1,938,341 267,119 921,587
34. CASH AND CASH EQUIVALENTS
Cash and cash equivalents included in the cash flow statements comprise the following balance sheet amounts:-
Group Company2007 2006 2007 2006
RM RM RM RM
Deposits with licensed banks 10,792,067 9,210,396 3,450,684 6,746,451Cash and bank balances 16,880,384 4,430,799 6,822,917 743,230
27,672,451 13,641,195 10,273,601 7,489,681
35. SEGMENT REPORTING OF THE GROUP
(i) Business segments
The Group’s operations comprise the following business segments:-
Wholesale : Wholesaling and trading in Chinese and Western wines, herbs, medicines and tea.
Multi level marketing : Operating multi level direct marketing of healthcare and beauty products.
Retail : Retail chain stores.
Manufacturing : Manufacturing, producing and distributing pharmaceutical products, alcoholic and non-alcoholic drinks.
Others : Businesses involving leasing of machinery and equipment, licensed money lender, insurance agent, advertising services, rental income, organising promotion events, trading of clocks, shopping complex management and investment holding.
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 123
35. SEGMENT REPORTING OF THE GROUP (CONTINUED)
2007 WholesaleRM’000
Multilevelmarketing
RM’000Retail
RM’000Manufacturing
RM’000Others
RM’000Elimination
RM’000Consolidated
RM’000
Revenue
External salesInter-segment sales
Total revenue
48,473
57,805
106,278
99,685
8
99,693
37,571
104
37,675
1,055
2,442
3,497
2,562
5,039
7,601
-
(65,398)
(65,398)
189,346
-
189,346
RESULT
Segment resultInterest incomeInterest expenseShare of results of associated companiesShare of results of jointly controlled entitiesProfit before taxTax expenseProfit after taxMinority interestNet profit for the financial year
21,581204(321)
-
-
13,870100
-
-
-
1,64791(6)
-
-
330-
(2)
-
-
2,18714
-
-
-
(9,088)--
-
-
30,527409(329)
-
-30,607(8,493)
22,114(730)
21,384
Other information
Segment assetsUnallocated corporate assets
Total assets
Segment liabilitiesUnallocated corporate liabilities
Total liabilities
Capital expenditureAmortisation of prepaid lease payments for landDepreciation of:- property, plant and equipment- investment propertiesNon-cash expenses other than depreciation and amortisation
123,788
17,884
562
2
878
380
1,370
33,919
20,904
188
32
239
62
3,860
19,260
8,945
530
-
437
-
279
3,461
346
639
-
221
-
6
8,719
4,390
11
-
38
-
182
(41,466)
(25,045)
-
-
-
(1)
(93)
147,681
1,282
148,963
27,424
10,660
38,084
1,930
34
1,813
441
5,789
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)124
35. SEGMENT REPORTING OF THE GROUP (CONTINUED)
2006 WholesaleRM’000
Multilevelmarketing
RM’000Retail
RM’000Manufacturing
RM’000Others
RM’000Elimination
RM’000Consolidated
RM’000
Revenue
External salesInter-segment sales
Total revenue
48,490
46,418
94,908
54,162
-
54,162
36,076
31
36,107
1,087
2,266
3,353
6,983
6,877
13,860
-
(55,592)
(55,592)
146,798
-
146,798
RESULT
Segment resultInterest incomeInterest expenseShare of results of associated companiesProfit before taxTax expenseProfit after taxMinority interestNet profit for the financial year
9,996274(365)
6,27255
-
85972(17)
523--
(1,125)38
-
(1,451)-
48
15,074439(334)
(52)15,127(4,349)
10,778(595)
10,183
Other information
Segment assetsUnallocated corporate assets
Total assets
Segment liabilitiesUnallocated corporate liabilities
Total liabilities
Capital expenditureDepreciation of:-- property, plant and equipment- investment propertiesAmortisation of prepaid lease payments for landAmortisation of goodwill and reserves on consolidationNon-cash expenses other than depreciation and amortisation
110,313
21,849
934
841
380
2
(7)
2,885
19,218
11,014
295
265
62
32
-
3,072
15,239
5,848
508
456
-
-
-
250
3,306
426
196
149
-
-
-
164
9,905
4,738
6
172
-
-
(3)
1,794
(32,760)
(17,577)
-
-
(1)
-
-
(761)
125,221
471
125,692
26,298
5,382
31,680
1,939
1,882
443
34
(10)
7,404
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 125
35. SEGMENT REPORTING OF THE GROUP (CONTINUED)
(ii) Geographical segments
As the Group’s operation is predominantly in Malaysia, no segment information is presented on geographical segments.
Inter-segment pricing is not materially different from those obtainable in transactions with unrelated parties.
36. FINANCIAL INSTRUMENTS
(a) Credit risk
The Group has no significant concentration of credit risk. The maximum exposures to credit risk are represented by the carrying amounts of the financial assets in the balance sheets.
(b) Fair values
The carrying amounts of the financial instruments of the Group and of the Company as at balance sheet date approximate their fair values except as set out below:-
Group CompanyCarryingamount
RM
Fair value
RM
Carryingamount
RM
Fairvalue
RM
As at 30 April 2007
Quoted investments 21,540,987 23,209,978 6,578,691 7,510,614Unquoted investments 2,614,379 # 888,000 #
As at 30 April 2006
Quoted investments 9,089,041 9,530,579 5,814,718 5,952,096Unquoted investments 3,821,438 # 2,000,000 #
# It is not practical to estimate the fair value of the long term unquoted investments because of the lack of quoted market prices and the inability to estimate fair value without incurring excessive costs. The directors believe that the carrying amount represents the recoverable value.
The following methods and assumptions are used to determine the fair values of financial instruments:-
(i) The carrying values of the financial assets and liabilities maturing within 12 months are stated at approximately their fair values due to the relatively short term maturity of these financial instruments.
(ii) The fair values of quoted investments are based on quoted market prices at the balance sheet date.
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)126
37. SIGNIFICANT RELATED PARTY TRANSACTIONS
Group Company2007
RM2006
RM2007
RM2006
RM
Sales to:-- Peking Tongrentang (M) Sdn. Bhd.- Sanjiu Hai-O TCM (M) Sdn. Bhd.
Purchases from Peking Tongrentang (M) Sdn. Bhd.
Rental received from:-- Peking Tongrentang (M) Sdn. Bhd.- Sanjiu Hai-O TCM (M) Sdn. Bhd.
Management fees received from Peking Tongrentang (M) Sdn. Bhd.
Professional fees received from- Sanjiu Hai-O TCM (M) Sdn. Bhd.
Commission received from- Sanjiu Hai-O TCM (M) Sdn. Bhd.
Accounting fees received from- Sanjiu Hai-O TCM (M) Sdn. Bhd.
Disposal of property, plant and equipment to Peking Tongrentang (M) Sdn Bhd
Directors’ fees:-
Executive directorsNon-executive directors
Directors’ emoluments other than fees:-
Executive directorsNon-executive directors
881,18810,927
527,849
138,0009,928
36,000
24,000
54,455
20,000
-
217,20099,465
2,741,854407,535
848,18839,990
17,790
138,00067,014
36,000
-
-
-
1,300,000
178,200110,775
2,705,476463,814
194,198-
-
138,0009,928
36,000
-
-
-
-
45,00075,000
771,804376,551
233,045100
2,240
138,00067,014
36,000
-
-
-
1,300,000
39,00078,000
746,788393,238
Identities of related parties Relationship with the Group
Peking Tongrentang (M) Sdn. Bhd. } Jointly controlled entities of the GroupSanjiu Hai-O TCM (M) Sdn. Bhd. }
The above transactions are entered into in the ordinary course of business and is based on negotiated and mutually agreed terms.
Executive directors of the Company have been granted option under the ESOS on the same terms and conditions as those offered to other employees of the Group (Note 19) as follows:-
----- Option over Ordinary Shares of RM1.00 each ------
Date of offer
Exerciseprice
RM/share
Balanceas at
1 May
(Exercised) (Forfeited) Balanceas at
30 April
200716 December 2003 1.43* 403,000 (403,000) - -9 January 2004 1.00 150,000 (100,000) (50,000) -
200616 December 2003 1.43* 403,000 - - 403,0009 January 2004 1.00 380,000 (230,000) - 150,000
* Price adjusted for the effect of the bonus and rights issue.
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 127
38. CAPITAL COMMITMENTS
Group and Company2007
RM2006
RM
Approved but not contracted for in respect of capital expenditure - 1,335,000
39. CONTINGENT LIABILITIES - UNSECURED
Company2007
RM2006
RM
Corporate guarantee in respect of banking facilities granted to subsidiary companies 627,000 989,073
40. MATERIAL LITIGATION
By a Writ of Summon and Statement of Claim dated 13 January 1995 (“Suit 34”), Nguang Chan Liquor Trade and Nguang Chan (M) Sdn Bhd (Collectively known as “ the Nguang Chan Group”) instituted an action and sought an injunction against the Company to restrain publication of alleged defamatory statements made against the Nguang Chan Group as well as against slander of a product named Zhan Qiao Pai Ling Zhi (“the Product”). The High Court has dismissed the Nguang Chan Group’s application for injunction with cost on 19 December 1995.
The directors of the Company are of the opinion that, based on legal advise, the Company has a good case to establish that the Nguang Chan Group’s present claim is without merit. The Company is entitled to protect its Product and that its actions against what appear to be clear counterfeits cannot be the subject matter of complaint by the Nguang Chan Group.
By a Writ of Summon and Statement of Claim dated 23 May 1997 (“Suit 400”), the Company and Shandong Medicine & Health Products Import & Export Corp., Changyu Pioneer Wine Co. and Yantai Native Product Import & Export Corp. (“the Chinese Parties”) has filed an action against the Nguang Chan Group and Golden Spring Spirits Agency claiming for damages for infringement of the Product.
On 5 August 1997, the High Court has ordered to hear both Suits 34 and 400 together and further ordered that the outcome of the Suit 400 shall bind Suit 34.
The Company has made several applications seeking for further discovery, production and inspection of documents against the Nguang Chan Group. Order in terms of the these applications were given by the High Court on 23 April 2001. However, the Nguang Chan Group had thereafter appealed to the Court of Appeal against this decision.
The Court of Appeal heard the appeal on 14 March 2006 wherein Nguang Chan Group’s appeal was allowed. The Company has appealed against the Court of Appeal’s decision to the Federal Court. The application for leave to appeal was fixed for hearing on 22 August 2006.
The application was heard as scheduled. The Federal Court has adjourned the application to a date to be fixed
with directions to the Court of Appeal to deliver its written decisions to the Federal Court.
On Suit 34 and Suit 400, the High Court has fixed the date for case management on 18 September 2006. The High Court has fixed for trial on 11 June 2007, 12 June 2007, 16 July 2007 and 17 July 2007. The High Court has vacated the Trial Dates to 3 October 2007 and 4 October 2007 with a mention date fixed on 17 September 2007.
Based on legal advice, the Board of Directors of the Company is of the opinion that the Company and the Chinese Parties have a good case in claiming common law proprietary rights if the Company and the Chinese Parties can successfully show that the Chinese Parties are instrumental in the manufacture, production and export to the Company of the Infringing Product.
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)128
41. SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR
(a) On 30 November 2006, the Group disposed of its entire 50.00% equity interest in its subsidiary company, MCC Arts Garden Sdn. Bhd, comprising 80,000 ordinary shares of RM1.00 each for a total consideration of RM1.00.
(b) On 16 May 2006, the Group subscribed 2 ordinary shares of RM1.00 each via its wholly owned subsidiary company, SG Global Biotech Sdn. Bhd. (formerly known as Hai-O Pharmaceutical (M) Sdn. Bhd.) in the share capital of QIS Research Laboratory Sdn. Bhd. for a cash consideration of RM2.
Subsequently on 16 June 2006 and 21 November 2006, the Group subscribed for additional 349,998 and 150,000 new ordinary shares of RM1.00 each respectively in the share capital of QIS Research Laboaratory Sdn. Bhd. for a cash consideration of RM349,998 and RM150,000 respectively.
(c) On 30 March 2007, the Group disposed of its entire 62.00% equity interest in its subsidiary company, Add One Promotions Sdn. Bhd., comprising 124,000 ordinary shares of RM1.00 each for a total consideration of RM31,000.
(d) On 18 April 2007, the Group disposed of its entire 100% equity interest in its subsidiary company, Hai-O Informtech Sdn. Bhd., comprising 2,000,000 ordinary shares of RM1.00 each for a total consideration of RM280,000.
42. NUMBER OF EMPLOYEES AND STAFF COSTS
Group Company2007 2006 2007 2006
The number of employees, including executive directors, at the end of the financial year 501 485 98 98
The total staff costs recognised in the income statements are as follows:-
Group Company2007
RM2006
RM2007
RM2006
RM
Salaries, wages, overtime and allowance 12,152,021 12,419,891 3,794,891 3,667,250Bonus 1,701,495 1,618,092 637,626 607,531Defined contribution plan 1,360,705 1,434,733 388,606 413,061Other employee benefits 1,122,609 757,678 417,110 229,352Staff incentive 1,843,562 1,289,972 580,633 402,306
18,180,392 17,520,366 5,818,867 5,319,500
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 129
43. COMPARATIVE FIGURES
The following comparative amounts have been restated or reclassified as a result of adopting the new and revised FRSs:
(i) Effects on consolidated balance sheet as at 30 April 2006
Aspreviously
reportedRM
Increase/ (Decrease)As
restatedRM
FRS 117Note 5.2(d)
RM
FRS 131Note 5.2(e)
RM
FRS 140Note 5.2(f)
RM
Property, plant and equipment 44,955,308 (1,818,140) 1,047,327 (22,021,019) 22,163,476
Investment properties - - - 22,021,019 22,021,019
Prepaid lease payments for land - 1,818,140 - - 1,818,140
Investment in jointly controlled entities 1,505,843 - (1,505,843) - -
Inventories 28,118,811 - 389,204 - 28,508,015
Trade and other receivablesTrade receivables 15,464,484 - 63,141 - 15,527,625Other receivables, deposits and prepayments 5,966,624 - 100,786 - 6,067,410Amounts owing by associated companies 748,000 - - - 748,000Amounts owing by jointly controlled entities 65,533 - (65,533) - -
22,244,641 22,343,035
Deposits with licensed banks 8,896,451 - 313,945 - 9,210,396
Cash and bank balances 4,218,658 - 212,141 - 4,430,799
Trade and other payablesTrade payables 5,780,427 - 232,623 - 6,013,050 Other payables, deposits and accruals 16,946,577 - 113,041 - 17,059,618
22,727,004 23,072,668
Borrowings 4,408,073 - 165,848 - 4,573,921
Tax liabilities 789,187 - 18,600 - 807,787
(ii) Effects on the Company balance sheet as at 30 April 2006
Aspreviously
reportedRM
Increase/ (Decrease)FRS 117
Note 5.2(d)RM
FRS 140Note 5.2(f)
RM
Asrestated
RM
Property, plant and equipment 35,073,028 (84,800) (23,615,147) 11,373,081
Investment properties - - 23,615,147 23,615,147
Prepaid lease payments for land - 84,800 - 84,800
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)130
43. COMPARATIVE FIGURES (CONTINUED)
(iii) Effects on consolidated income statement for the financial year ended 30 April 2006
Aspreviously
reportedRM
Increase/ (Decrease)
FRS 131Note 5.2(e)
RM
Asrestated
RM
Revenue 144,276,822 2,521,539 146,798,361
Cost of sales (93,791,682) 1,236,249 (95,027,931)
Gross profit 50,485,140 1,285,290 51,770,430
Other operating income 3,279,569 25,084 3,304,653
Marketing and distribution costs (16,086,046) 512,287 (16,598,333)
Administration expenses (18,486,408) 567,774 (19,054,182)
Finance costs (316,612) 17,064 (333,676)
Share of profit of jointly controlled entities 213,250 (213,250) -
(iv) Effects on consolidated cash flow statement for the financial year ended 30 April 2006
Aspreviously
reported RM
Increase/ (Decrease)
FRS 131Note 5. 2(e)
RM
Asrestated
RM
Operating profit before working capital changes 23,191,414 342,715 23,534,129
Cash generated from operations 17,797,498 452,319 18,249,817
Net cash from operating activities 11,150,711 361,037 11,511,748
Net cash used in investing activities 11,701,888 156,056 11,857,944
Net cash used in financing activities 3,770,930 171,216 3,942,146
Net decrease in cash and cash equivalents 4,322,107 (33,765) 4,288,342
Cash and cash equivalents at beginning of financial year 17,437,216 492,321 17,929,537
Cash and cash equivalents at end of the financial year 13,115,109 526,086 13,641,195
44. AUTHORISATION FOR ISSUE OF FINANCIAL STATEMENTS
These financial statements were authorised for issue by the Board of Directors on 21 June 2007.
NOTES TO THE FINANCIAL STATEMENTS (CONT’D)
ANNUAL REPORT 2007 131
ANALYSIS OF SHAREHOLDINGSAS AT 14 SEPTEMBER 2007
Authorised Share Capital : RM100,000,000 Paid-up & Issued Share Capital : RM 82,589,342 Class of Share : Ordinary shares of RM 1.00 each Voting Right : 1 Vote per share
DISTRIBUTION OF SHAREHOLDERS AS AT 14 SEPTEMBER 2007
Size of HoldingsNo. Of
Shareholders% Of
ShareholdersNo. Of
Shares% Of
Shares
Less than 100100 - 1,0001,001 - 10,00010,001 - 100,000100,001 and less than 5% of issued shares5% and above of issued shares
Total Shares Issued Excludes Treasury Shares
441 249
1,904 659 102
2
3,357
13.13 7.42
56.72 19.63 3.04 0.06
100.00
17,450 75,846
7,304,076 17,297,207 43,840,326 11,939,151
80,474,056
0.02 0.09 9.08
21.49 54.48 14.84
100.00
Note:Treasury SharesName/QualifierHAI-O ENTERPRISE BHD
No. Of Shares BoughtAs at 14-09-2007
2,115,286
THIRTY LARGEST SHAREHOLDERS AS AT 14 SEPTEMBER 2007
NameNo. Of
Shares% Of
Shares
1. Tan Kai Hee 2. Excellant Communication Sdn Bhd 3. Kenanga Nominees (Tempatan) Sdn Bhd Pledged Securities Account For Chia Kee Siong 4. Akintan Sdn Bhd 5. Malaysia Nominees (Tempatan) Sendirian Berhad Pledged Securities Account For Tan Siow Eng (02-00208-000) 6. Malaysia Nominees (Tempatan) Sendirian Berhad Great Eastern Life Assurance (Malaysia) Berhad (LPF) 7. Malaysia Nominees (Tempatan) Sendirian Berhad Pledged Securities Account For Akintan Sdn Bhd (02-00210-001) 8. Daritan Sdn Bhd 9. Chin Chin Sing @ Tan Cheng Beng 10. Tan Keng Song 11. Png Tee Jue @ Fang Shye Yong 12. Huang, Chin-Chueh 13. Lim Chin Luen 14. Tan Keng Kang
7,786,191
4,152,960
3,063,570
2,842,801
2,842,136
2,271,240
2,016,000
1,285,113
1,214,300
936,126
934,920
926,982
855,555
813,480
9.68
5.16
3.81
3.53
3.53
2.82
2.51
1.60
1.51
1.16
1.16
1.15
1.06
1.01
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)132
THIRTY LARGEST SHAREHOLDERS AS AT 14 SEPTEMBER 2007 (CONTINUED)
NameNo. Of
Shares% Of
Shares
15. Malaysia Nominees (Tempatan) Sendirian Berhad Pledged Securities Account For Akintan Sdn Bhd (02-00210-000) 16. Citigroup Nominees (Asing) Sdn Bhd Exempt An For Merrill Lynch Pierce Fenner & Smith Incorporated (Foreign) 17. Ang Khoon San 18. Tan Kee Hock 19. Huang Shunyao 20. Tan Puah Khin @ Tan Puan Hee 21. Malaysia Nominees (Tempatan) Sendirian Berhad Great Eastern Life Assurance (Malaysia) Berhad (LSF) 22. Ea Nio @ Yee Soh Yeow 23. Mayban Nominees (Tempatan) Sdn Bhd Mayban Trustees Berhad For MAAKL Value Fund (950290) 24. Chen Tam Chai 25. Mayban Nominees (Tempatan) Sdn Bhd Malaysian Trustees Berhad For AMB Smallcap Trust Fund (240165) 26. Er Yock Kee 27. Lien Siao-Yen 28. Kenanga Nominees (Tempatan) Sdn Bhd Pledged Securities Account For Lee Yoke Fong 29. Soh Choo @ Soh Ai Choo 30. Tan Siow Eng TOTAL
806,400
744,000
741,496
725,268
720,000
625,806
600,000
558,600
552,480
534,000
496,878
477,504
457,320
450,960
426,764
426,600
41,285,450
1.00
0.92
0.92
0.90
0.89
0.78
0.75
0.69
0.69
0.66
0.62
0.59
0.57
0.56
0.53
0.53
51.29
ANALYSIS OF SHAREHOLDINGS (CONT’D)
ANNUAL REPORT 2007 133
SUBSTANTIAL SHAREHOLDERS AS AT 14 SEPTEMBER 2007
Direct Holdings Indirect Holdings
Name No. of Shares % of Shares No. of Shares % of Shares
1. Tan Kai Hee2. Akintan Sdn Bhd3. Excellant Communication Sdn Bhd4. Tan Siow Eng5. Tan Keng Song6. Tan Keng Kang7. Phan Van Denh
7,786,191 5,665,201 4,152,960
3,365,788 1,116,126
813,480 120,000
9.68%7.04%5.16%
4.18%1.39%1.01%0.15%
12,365,708 (note a)--
16,786,111 (note b) 19,035,773 (note c) 19,338,419 (note d) 20,031,899 (note e)
15.36% - -
20.86%23.65%24.03%24.89%
DIRECTORS’ INTEREST AS AT 14 SEPTEMBER 2007
Direct Holdings Indirect Holdings
Name No. of Shares % of Shares No. of Shares % of Shares
1. Tan Sri Osman S Cassim2. Tan Kai Hee3. Dato’ Abdul Rani Bin Mohd Razalli4. Dr. MK Rajakumar MRK Nayar5. Lim Chin Luen6. Quek Ah Ba7. Tan Keng Song8. Tan Keng Kang
- 7,786,191
57,374
40,320 855,555 33,078
1,116,126 813,480
- 9.68%0.07%
0.05%1.06%0.04%1.39%1.01%
- 12,365,708 (note a)
-
---
19,035,773 (note c) 19,338,419 (note d)
- 15.36%
-
- - -
23.65%24.03%
NOTEa) Deemed interested by virtue of his substantial interest in Akintan Sdn Bhd and Daritan Sdn Bhd, and through the direct
and indirect interest of his family members in Hai-O respectively.
b) Deemed interested by virtue of her substantial interest in Akintan Sdn Bhd and Daritan Sdn Bhd, and through the direct and indirect interest of her family members in Hai-O respectively.
c) Deemed interested through the direct and indirect interest of her family members in Hai-O respectively.
d) Deemed interested through the direct and indirect interest of his family members in Hai-O respectively.
e) Deemed interested through the direct and indirect interest of her husband, Tan Keng Kang.
ANALYSIS OF SHAREHOLDINGS (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)134
Location DescriptionDate of
acquisitionLand
(Sq Ft)TenureArea
ExistingUse Age
ExpireDate
Net BookValue As At
30/4/2007RM
HS (M) 9019Lot P.T. 11995Mukim of Kapar,1 1/2 Miles,41400 Klang,Selangor.
Lot 409 Geran 19663Section 21 District ofKlang (78 Jalan Nanas,41400 Klang, Selangor)
Lot 410 Geran 19664Section 21 District ofKlang (80 Jalan Nanas,41400 Klang, Selangor)
Lot 411 Geran 19665Section 21 District ofKlang (82 Jalan Nanas,41400 Klang, Selangor)
GM 2645 Lot No 4953Mukim Kapar,Sungai Binjai Road,Batu 5, Meru Klang
HSD 6516No Lot PT 15308K,Kaw. PerindustrianBatu Rakit,Kuala Terengganu,Terengganu
Geran 7155/M1/12/1Lot 1101, 11th Floor,Sun Complex,Jalan Bukit Bintang,55100 Kuala Lumpur
Geran 7155/M1/12/11Lot 1111, 11th Floor,Sun Complex,Jalan Bukit Bintang,55100 Kuala Lumpur
Geran 7155/M1/12/3Lot 1103, 11th Floor,Sun Complex,Jalan Bukit Bintang,55100 Kuala Lumpur
Factory/warehouse& 6 storeybuilding
4 storeyterraceshophouses
4 storeyterraceshophouses
4 storeyterraceshophouses
Industrial land
Industrial land
Apartment
Apartment
Apartment
05 June 1982 &
20 Sept 1997
06 Mar 1984
06 Mar 1984
06 Mar 1984
17 Mar 1995
07 Aug 2000
29 Dec 1997
29 Dec 1997
05 Feb 2001
100,796
1,799
1,799
1,600
3 acres
86,111
1,074
1,078
990
Freehold
Freehold
Freehold
Freehold
Freehold
Leaseholdfor 60 years
Freehold
Freehold
Freehold
Office &Warehouse
Shops
Shops
Shops
Vacant
Vacant
Residential
Residential
Residential
24 years & 10 years
24 years
24 years
24 years
12 years
8 years
29 years
29 years
29 years
-
-
-
-
-
6 Aug 2060
-
-
-
12,067,771
618,115
618,115
502,490
1,588,775
83,200
147,826
147,826
123,200
LIST OF PROPERTIESFOR THE FINANCIAL YEAR ENDED 30 APRIL 2007
ANNUAL REPORT 2007 135
Location DescriptionDate of
acquisitionLand
(Sq Ft)TenureArea
ExistingUse Age
ExpireDate
Net BookValue As At
30/4/2007RM
Geran 7155/M1/17/2Lot 1602, 16th Floor,Sun Complex,Jalan Bukit Bintang,55100 Kuala Lumpur
Geran 7155/M1,Sun Complex,Jalan Bukit Bintang,55100 Kuala Lumpur
No.5, Lorong Nagasari 11Taman Nagasari,13700 Prai H.S. (D) 487,Lot 2964 & HS (M) 768,Lot No. 002919,Mukim 6 DaerahSeberang Perai Tengah,Pulau Pinang.
PT 515 HS (D) 25666Prime Square 2,Taman Melaka Raya,75000 Melaka
PT 516 HS (D) 25667Prime Square 2,Taman Melaka Raya,75000 Melaka
Garden CityBusiness CentrePT 15752Unit No. C01/2-C12/2Phase 2B Taman Dagang,Jalan Ampang,Kuala Lumpur
Apartment
Shoplots/office lots - ground floor,1st Flr, 6th, 8th, 9th Flr & 241 number of car park bays at 2nd, 3rd,4th, 5th & 6th Flr.
1 unit of2 storeywarehousecum office
1 unit of3 storeyshop office
1 unit of3 storeyshop office
12 units ofoffice lots(2nd Floor)
01 May 1999
22 Aug 1995
03 Jan 2000
15 Jan 1996
15 Sept 1995
20 Oct 1995
990
60,210
2,519
3,388
3,388
18,708
Freehold
Freehold
Freehold
Leaseholdfor99 years
Leaseholdfor99 years
Leaseholdfor99 years
Residential
Shop,offices& car park
Office& factory
Shops
Shops
Offices
29 years
29 years
17 years
13 years
13 years
12 years
-
-
-
7 Jul 2093
07 Jul 2093
20 Oct 2084
122,500
16,691,236
252,882
272,994
319,997
3,142,915
LIST OF PROPERTIES (CONT’D)
HAI-O ENTERPRISE BERHAD (22544-D) • (INCORPORATED IN MALAYSIA)136
Location DescriptionDate of
acquisitionLand
(Sq Ft)TenureArea
ExistingUse Age
ExpireDate
Net BookValue As At
30/4/2007RM
Garden CityBusiness CentrePT 15752Unit No. C01/3-C03/3Mukim Ampang,District Ulu Langat,Selangor
Lot 501 Geran31945 Section 4Town of Air Itam,North-East District(608-1, Jalan PayaTerubong Penang)
Lot 2708 & 2709Centre ParkJalan Tun AhmadZaidi Adruce,Kuching
Lot 2411 Block 5,Miri Concession,Miri-Pujut Road,Miri, Sarawak.
3 units ofoffice lots(3rd Floor)
Intermediate2-storeyshophouses
2 units of4 storeyshop-lot
3 storeyterracedshop house
26 Oct 1998
14 April 1979
04 April 1997
15 Nov 1999
4,677
1,233
12,160
1,690
Leaseholdfor 99 years
Freehold
Leaseholdfor 60 years
Leaseholdfor 50 years
Offices
Shops
Office &warehouse
Shops
12 years
Pre-warbuilding
10 years
8 years
20 Oct 2084
-
23 Jul 2057
21 Jan 2050
834,012
29,210
1,416,667
546,000
No.72 & 74, Lebuh Campbell, Georgetown, 10100 Penang.
2 units of 3 storey shophouse
27 Feb 2004 4,510 Freehold Shops 3 years - *549,479
* Based on 40% equity interest share by Hai-O in a joint venture company.
LIST OF PROPERTIES (CONT’D)
Form of Proxy
HAI-O ENTERPRISE BERHAD(22544-D)
Number of shares held
I/We, ______________________________________________________________________________________________________
of _________________________________________________________________________________________________________
being a member of HAI-O ENTERPRISE BERHAD (22544-D), hereby appoint ____________________________________________
of _________________________________________________________________________________________________________
or failing him/her ______________________________________________________________________________________________
of _________________________________________________________________________________________________________
as my/our proxy, to vote on my/our behalf at the 32nd Annual General Meeting of the Company to be held at Ballroom 1, Level 2, The Royale Bintang Kuala Lumpur Hotel, No. 17-21, Jalan Bukit Bintang 55100, Kuala Lumpur on Tuesday, 30 October 2007 at 11.30 a.m. and at any adjournment thereof in the manner indicated below in respect of the following Resolutions:-
Resolutions For AgainstResolution 1 Adoption of Reports and Accounts.
Resolution 2 Re-election of Ms. Tan Keng Song as Director.
Resolution 3 Re-appointment of Tan Sri Osman S. Cassim as Director pursuant to Section 129 of the Companies Act 1965.
Resolution 4 Re-appointment of Mr. Tan Kai Hee as Director pursuant to Section 129 of the Companies Act 1965.
Resolution 5 Re-appointment of Dato’ Abdul Rani Bin Mohd. Razalli as Director pursuant to Section 129 of the Companies Act 1965.
Resolution 6 Re-appointment of Dr. M.K. Rajakumar A/L M.R.K. Nayar as Director pursuant to Section 129 of the Companies Act 1965.
Resolution 7 Approval of Directors’ fees.
Resolution 8 Declaration of final dividend of 13% less 27% tax.
Resolution 9 Re-appointment of Messrs, BDO Binder as Auditors of the Company and to authorise Directors to fix their remuneration.
Resolution 10 Authority to allot and issue shares pursuant to Section 132D of the Companies Act 1965.
Resolution 11 Authority to allot and issue shares pursuant to the Employees’ Share Option Scheme.
Resolution 12 Proposed Share Buy-Back by the Company.
Resolution 13 Proposed Amendments to the Articles of Association of the Company Please indicate with an “X” in the appropriate spaces how you wish your votes to be cast. If you do not indicate how you wish your proxy to vote on any Resolution, the proxy will vote or abstain from voting at his/her discretion.
Dated : Signature of Shareholder (s)
Notes:1. A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote in his stead. A proxy need
not be a member of the Company.
2. The instrument appointing proxy shall be in writing under the hand of the appointor or his attorney duly authorised in writing or if the appointor is a corporation, either under its Common Seal or attorney duly authorised in writing.
3. The Form of Proxy must be deposited at the Company’s Registered Office, Room 803, 8th Floor, Sun Kompleks, Jalan Bukit Bintang, 55100 Kuala Lumpur not less than forty-eight (48) hours before the meeting.
HAI-O ENTERPRISE BERHAD (22544-D)(Incorporated in Malaysia under the Companies Act, 1965)
The Company Secretary
Registered Office
Room 803, 8th Floor,Sun Kompleks,
Jalan Bukit Bintang, 55100,Kuala Lumpur.
please fold along this line (1)
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Stamp
HAI-O ENTERPRISE BERHAD (22544-D)(Incorporated in Malaysia under the Companies Act, 1965)
The Company Secretary
Registered Office
Room 803, 8th Floor,Sun Kompleks,
Jalan Bukit Bintang, 55100,Kuala Lumpur.
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Stamp