notes to the financial statements

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notes to the financial statements
Annual Report
2006
Southern Steel
Contents
02
Corporate Information
03
Corporate Structure
04
Directors’ Profile
08
Corporate Governance Statement
11
Statement On Internal Control
12
Audit Committee Report
15
Group Financial Highlights
16
Chairman’s Statament
21
Reports and Financial Statements
80
Other Information
91
Notice of Annual General Meeting
Corporate Information
Directors
Kwek Leng San
Chairman
Y Bhg Dato’ Dr Tan Tat Wai
Group Managing Director
YA Bhg Tun Dato’ Seri Dr Lim Chong Eu
YM Raja Dato’ Seri Abdul Aziz bin Raja Salim
Yap Peng Leong
Koushik Chatterjee
Oo Soon Hee
(Alternate to Koushik Chatterjee)
Registered Office
Level 3, 2723 Lorong Perusahaan 12
Prai Industrial Estate
13600 Prai, Penang
Telephone : 04 390 6540
Facsimile : 04 390 8060
Principal Place of Business
2435 Lorong Perusahaan 12
Prai Industrial Estate
13600 Prai, Penang
Telephone : 04 390 6540
Facsimile : 04 390 8060
Auditors
PricewaterhouseCoopers
Chartered Accountants
4th Floor, Wisma Penang Garden
42 Jalan Sultan Ahmad Shah
10050 Penang
Registrar
AGRITEUM Share Registration Services Sdn Bhd
2nd Floor, Wisma Penang Garden
42 Jalan Sultan Ahmad Shah
10050 Penang
Telephone : 04 228 2321
Facsimile : 04 227 2391
Secretary
Lim Gim Siok
Southern Steel Berhad 5283-X
Annual Report 2006
02
Corporate Structure
Southern Steel Berhad
Subsidiary Companies
100% Southern PC Steel Sdn Bhd
100% Cempaka Raya Sdn Bhd
100%
Southern Wire Industries (Malaysia) Sdn Bhd
100% Trend Staples Industry Sdn Bhd
100%
Southern Steel Holdings Sdn Bhd
100% Southern Steel Industries Sdn Bhd
100%
Southern Steel Trading Sdn Bhd
100%
Southern Galvanised Wire Sdn Bhd
100%
Southern Coated Wire Sdn Bhd
100%
Southern Steel Mesh Sdn Bhd
100% Southern Mesh Sdn Bhd
100%
Southern Steel Properties Sdn Bhd
100% E-Tatt Steel Wires Sdn Bhd
100%
Danstil Sdn Bhd
100%
Southern Steel Solutions Sdn Bhd
(formerly known as Southern Precision
Casting Sdn Bhd)
100%
Southern Steel Management Sdn Bhd
83.7% Southern Pipe Industry (Malaysia) Sdn Bhd
75%
100% Southern Steel Bar Sdn Bhd
100% Asia Seamless Pipes Sdn Bhd
Southern Speciality Wire Sdn Bhd
Associated Companies
Southern NatSteel (Xiamen) Limited*
40%
NatSteel Trade International Pte Ltd*
22.6% NatSteelVina Company Limited*
50%
Southern Oriental Sdn Bhd
27.5% Steel Industries (Sabah) Sdn Bhd
Subsidiary Companies
Associated Companies
* These associated companies have been disposed of. The disposal was completed on 24 January 2007 subsequent to the balance sheet
date as disclosed in note 33 of the Notes to the Financial Statements.
Southern Steel Berhad 5283-X
50%
Annual Report 2006
03
Directors’ Profiles
Kwek Leng San
Chairman, Non-Executive Director/Non-Independent
Mr Kwek Leng San, aged 51, a Singaporean, obtained a Bachelor of Science (Engineering) degree from University
of London and a Master of Science (Finance) degree from City University, London. He has extensive business
experience in various business sectors, including financial services and manufacturing.
Presently, he is the Executive Chairman of Malaysian Pacific Industries Berhad, President & Chief Executive Officer
of Hong Leong Industries Berhad and Hume Industries (Malaysia) Berhad, Managing Director of Narra Industries
Berhad and a Director of Hong Leong Company (Malaysia) Berhad.
Mr Kwek was appointed to the Board of the Company on 27 October 1992 and subsequently as the Chairman
of the Company on 18 June 2003. He is also a member of the Remuneration Committee of the Company.
Mr Kwek attended all the Board meetings held during the financial year ended 31 December 2006.
Mr Kwek is a brother of Y Bhg Tan Sri Quek Leng Chan and Mr Quek Leng Chye, both deemed major shareholders
of the Company. Mr Kwek has no conflict of interest with the Company and has no conviction for offences
within the past ten years.
Y Bhg Dato’ Dr Tan Tat Wai
Group Managing Director/Non-Independent
Y Bhg Dato’ Dr Tan Tat Wai, aged 60, a Malaysian, holds a Bachelor of Science degree in Electrical Engineering
and Economics from the Massachusetts Institute of Technology and a PhD in Economics from Harvard University.
He started his career with Bank Negara Malaysia in 1978 undertaking research in economic policies and subsequently
as consultant to Bank Negara, World Bank and the United Nations University for several years. He served as the
Secretary and a member on the Council of Malaysian Invisible Trade set up to formulate policies to reduce
Malaysia’s deficit in service trade. He was a member of the Government appointed Malaysian Business Council
and a member of Corporate Malaysia Roundtable. Currently, he is a member of the Penang Industrial Council,
the Industrial Co-ordination Council (ICC) and the National Committee on Business Competitiveness (NCBC) set
up by the Ministry of International Trade and Industry. He represents Malaysia as a member of the APEC Business
Advisory Council (ABAC).
Y Bhg Dato’ Dr Tan was appointed to the Board of the Company on 18 May 1984 and assumed the position of
Managing Director in September 1990. He is also a member of the Remuneration Committee of the Company.
Southern Steel Berhad 5283-X
Annual Report 2006
04
His other directorships in public companies are as follows:
• Director of Shangri-La Hotels (Malaysia) Berhad, a public listed company on Bursa Malaysia Securities Berhad.
• Director of Titan Chemicals Corp Berhad, a public listed company on Bursa Malaysia Securities Berhad.
• Director of NatSteel Ltd, a public listed company in Singapore.
Y Bhg Dato’ Dr Tan attended all the Board meetings held during the financial year ended 31 December 2006.
He has a direct shareholding of 14,854 ordinary shares and indirect shareholding of 32,980,223 ordinary shares
in the Company.
Y Bhg Dato’ Dr Tan has no family relationship with any other Directors of the Company, has no conflict of interest
with the Company and has no convictions for offences within the past ten years.
Directors’ Profiles (cont’d)
YA Bhg Tun Dato’ Seri Dr Lim Chong Eu
Non-Executive Director/Independent
YA Bhg Tun Dato’ Seri Dr Lim Chong Eu, aged 87, a Malaysian, is renowned as a leading statesman and holds
the distinction of being the former Chief Minister of Penang. He has had a long and illustrious record as a political
leader and representative of the people in many fields of national interests. He graduated with a Bachelor of
Medicine and Bachelor of Surgery (M.B. Ch B.) from Edinburgh University of Scotland in 1944.
YA Bhg Tun Dato’ Seri Dr Lim was appointed to the Board of the Company on 6 December 1993. He is also the
Chairman of the Audit Committee of the Company.
His other directorships in public companies are as follows:
• Chairman of Suiwah Corporation Bhd, a public listed company.
• Chairman of Chin Well Holdings Berhad, a public listed company.
• Chairman of Berjaya Vacation Club Berhad, a public company.
• Director of United Overseas Bank (Malaysia) Berhad, a public company.
Of the four (4) meetings of the Company held during the financial year ended 31 December 2006, YA Bhg Tun
Dato’ Seri Dr Lim attended all except for one (1) for which he had extended his apologies.
YA Bhg Tun Dato’ Seri Dr Lim does not hold any shares in the Company and its subsidiary companies nor loan
stocks of the Company, has no family relationship with any other Directors or major shareholders of the Company,
has no conflict of interest with the Company and has no convictions for offences within the past ten years.
YM Raja Dato’ Seri Abdul Aziz bin Raja Salim
Non-Executive Director/Independent
YM Raja Dato’ Seri Abdul Aziz bin Raja Salim, aged 68, a Malaysian, is a Honorary Fellow of The Malaysian Institute
of Taxation, Fellow of The Chartered Association of Certified Accountants, United Kingdom, Fellow of The
Chartered Institute of Management Accountants (“CIMA”), United Kingdom and a Chartered Accountant (Malaysia).
He served as Director-General of Inland Revenue Malaysia from 1980 to 1990 and Accountant-General Malaysia
from 1990 to 1995. YM Raja Dato’ Seri Abdul Aziz was the President of CIMA, Malaysia from 1976 to 1993
and a Council Member of CIMA, United Kingdom from 1990 to 1996. He was awarded the CIMA Gold Medal
in recognition of his outstanding service to the accounting profession.
YM Raja Dato’ Seri Abdul Aziz was appointed to the Board of the Company on 18 June 2003. He is also a member
of the Audit Committee and Remuneration Committee of the Company.
Annual Report 2006
His other directorships in public companies are as follows:
• Director of Camerlin Group Berhad
• Director of Tasek Corporation Berhad
• Director of Gamuda Berhad
• Director of Jerneh Asia Bhd
• Director of PPB Oil Palms Berhad
• Director of PPB Group Berhad
• Director of K & N Kenanga Holdings Berhad
• Director of Kenanga Investment Bank Berhad
(formerly known as K & N Kenanga Berhad)
• Director of Kenanga Unit Trust Berhad
05
Southern Steel Berhad 5283-X
YM Raja Dato’ Seri Abdul Aziz attended all the Board meetings held during the financial year ended 31 December
2006.
Directors’ Profiles (cont’d)
YM Raja Dato’ Seri Abdul Aziz bin Raja Salim (cont’d)
•
•
•
Director of Jerneh Insurance Bhd
Director of Amanah Saham Mara Berhad
Director of Panasonic Manufacturing Malaysia Bhd
(formerly known as Matsushita Electric Company (M) Berhad)
YM Raja Dato’ Seri Abdul Aziz does not hold any shares in the Company and its subsidiary companies nor loan
stocks of the Company. He has no family relationship with any other Directors or major shareholders of the
Company, has no conflict of interest with the Company and has no convictions for offences within the past ten
years.
Yap Peng Leong
Non-Executive Director/Non-Independent
Yap Peng Leong, aged 52, a Malaysian, obtained a Bachelor of Accountancy and Economics degree from the
University of Newcastle Upon Tyne, United Kingdom and is an Associate of the Institute of Chartered Accountants
of England and Wales. He had worked in three major international firms of Public Accountants/Chartered
Accountants in England, Singapore and Kuala Lumpur. He joined the Hong Leong Group in 1987 and held various
positions including Accountant/Manager in Hong Leong Finance Berhad, Group Financial Controller/General
Manager in Hume Industries (Malaysia) Berhad, Chief Operating Officer of Hume Industries (Malaysia) Berhad –
Concrete Division and Hume Cemboard Berhad, Managing Director of Hume Cemboard Industries Sdn Bhd and
Executive Director of HLI-HUME Management Sdn Bhd.
With effect from 1 December 2005, he assumed the position of Managing Director of MZ Motorrad und
Zweiradwerk GmbH.
Mr Yap was appointed to the Board of the Company on 27 June 2002. He is also a member of the Audit Committee
of the Company.
He attended all the Board meetings held during the financial year ended 31 December 2006.
Mr Yap does not hold any shares in the Company and its subsidiary companies nor loan stocks of the Company.
He has no family relationship with any other Directors or major shareholders of the Company, has no conflict of
interest with the Company and has no convictions for offences within the past ten years.
Southern Steel Berhad 5283-X
Annual Report 2006
06
Directors’ Profiles (cont’d)
Koushik Chatterjee
Non-Executive Director/Non-Independent
Koushik Chatterjee, aged 38, an Indian, is an Honours Graduate in Commerce from Calcutta University and a
Fellow Member of the Institute of Chartered Accountants of India.
Mr Chatterjee began his career as Industrial Trainee in Britannia Industries and worked as an Audit Senior in S B
Billimoria & Company before joining Tata Steel Limited (formerly known as The Tata Iron and Steel Company
Limited)(“Tata Steel”) in 1995.
In 1999 he was transferred to Tata Sons Limited in the Group Executive Office and was promoted as General
Manager – Corporate Finance in 2002.
He re-joined Tata Steel as Joint Chief Financial Controller (Corporate) on 1 August 2003 and was subsequently
designated as Chief Financial Controller (Corporate) with effect from 1 January 2004. With effect from 1 August
2004, Mr Chatterjee has been appointed as Vice President (Finance), Tata Steel.
Mr Chatterjee was appointed to the Board of the Company on 30 March 2005.
Mr Chatterjee attended all the Board meetings held during the financial year ended 31 December 2006.
Mr Chatterjee does not hold any shares in the Company and its subsidiary companies nor loan stocks of the
Company. He has no family relationship with any other Directors or major shareholders of the Company, has
no conflict of interest with the Company and has no convictions for offences within the past ten years.
Oo Soon Hee
(Alternate to Koushik Chatterjee)
Non-Executive Director/Non-Independent
Mr Oo Soon Hee, aged 63, a Singaporean, is President of NatSteel Asia Pte. Ltd. He graduated from the University
of Singapore with a Bachelor of Science (Honours) degree in Applied Chemistry and holds a Diploma in Business
Administration. After working as a Consultant in an international consulting company between 1971 and 1977,
he joined NatSteel Ltd as a Sales Manager in June 1977. Over the years, he had been assigned various positions.
Mr Oo was appointed to the Board of the Company as Alternate Director to Mr Koushik Chatterjee on 30 March
2005.
Annual Report 2006
07
Southern Steel Berhad 5283-X
He does not hold any shares in the Company and its subsidiary companies nor loan stocks of the Company, has
no family relationship with any other Directors or major shareholders of the Company, has no conflict of interest
with the Company and has no convictions for offences within the past ten years.
Corporate Governance Statement
The Board of Southern Steel Berhad ("SSB") is pleased to report on the manner in which it has applied the Principles
of Good Governance ('Principles') and the extent to which it has complied with the Code of Best Practice ('Code').
Any areas where the Company has not complied with the Code are indicated herein.
THE BOARD OF DIRECTORS
The Board of Directors comprises six (6) directors, five (5) of whom are non-executive and two (2) of whom are
considered independent. A brief profile of each director and their attendance records are provided in the Annual
Report. Mr. Kwek Leng San, the Chairman of the Board, is a non-independent non-executive director. The Board
considers that the Principles of Good Governance have already been observed by virtue of Mr. Kwek’s substantial
knowledge and experience in business and his non-executive position which is clearly separated from that of the
Group Managing Director. Further, the balance of the Board is such that there is adequate countervailing pressure,
including those of independent directors, to provide the appropriate "checks and balances". The Board will review
its composition and size from time to time to ensure its continued effectiveness. The Chairman of the Audit
Committee is the Senior Independent Non-Executive Director identified by the Board to whom concerns may be
conveyed.
As in previous years, all major investments and other strategic decisions are reserved for the Board, which is also
responsible for corporate governance matters, senior executive remuneration and succession planning for top
management.
Supply of Information
Prior to each Board meeting, Directors are sent an agenda and accompanying Board papers for each agenda
item to be discussed at the meeting. At each meeting, there is a full financial and business review and discussion.
Items reviewed include performance comparison against the annual budget / financial plan previously approved
and management proposals that require the approval of the Board.
Appointment to the Board
The Company does not have a Nomination Committee as all new nominations received are assessed and approved
by the entire Board in line with its policy of ensuring nominees are persons of sufficient calibre and experience.
Under the Company’s Articles of Association, the Board is subject to retirement and re-election at least once in
every three (3) years.
Southern Steel Berhad 5283-X
Annual Report 2006
08
The process of assessing the performance of directors is an on-going responsibility of the entire Board.
The Company does not have a formal training programme for new directors. However, familiarisation programme
with the operations of the Group is arranged for any new appointee to the Board.
All the directors of the Company have completed the Mandatory Accreditation Programme and are supportive
of the Continuous Education Programme.
Corporate Governance Statement (cont’d)
DIRECTORS' REMUNERATION
The Company’s Remuneration Committee was established by the Board on 9 May 2005. The members of the
Committee are Mr Kwek Leng San, YM Raja Dato’ Seri Abdul Aziz bin Raja Salim and Dato’ Dr Tan Tat Wai.
The Group’s remuneration scheme for executive directors is linked to performance, service seniority, experience
and scope of responsibility and is periodically benchmarked to market/industry surveys conducted by human
resource consultants. Performance is measured against profits and targets set in the Group’s annual business plan
and budget.
For non-executive directors, the level of remuneration reflects the level of responsibilities undertaken by them.
The aggregate remuneration of directors distinguishing between executive and non-executive directors for the
financial year ended 31 December 2006 is set out below: Executive Directors
Non-Executive Directors
Fees (RM)
45,000
320,000
Salaries & Other Emoluments (RM)
1,142,400
0
Total (RM)
1,187,400
320,000
The number of directors distinguishing between executive and non-executive directors whose remuneration falls
into the following bands is set out below: Range of remuneration (RM)
50,000 and below
50,001 to 100,000
1,150,000 and above
Executive
0
0
1
Non-Executive
1
4
0
Relations with Shareholders
The Board acknowledges the need for shareholders to be informed of all material business matters affecting the
Group. In addition to various announcements made during the year, the timely release of financial results on a
quarterly basis provides shareholders with an overview of the Group’s performance and operations.
The Annual General Meeting, usually held in May each year, is the principal forum for dialogue with private
shareholders. There is also an open question and answer session in which shareholders may ask questions both
about the resolutions being proposed at the meeting and also about the business in general. Members of the
Board are in attendance to answer questions about matters relating to the Group and Company's business.
In presenting the annual financial statements and quarterly announcements to shareholders, the Directors aim
to present a balanced and understandable assessment of the Group’s position and prospects. This also applies
to other price-sensitive public reports and reports to regulators.
Annual Report 2006
FINANCIAL REPORTING
09
Southern Steel Berhad 5283-X
Information about the Group and the Company such as history, quality achievements, product specifications and
manufacturing process etc, are available on www.southsteel.com.
Corporate Governance Statement (cont’d)
INTERNAL CONTROL
Please refer to the relevant section of the Annual Report on Internal Control Statement.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors are required by the Companies Act, 1965 (“the Act”) to prepare financial statements for each
financial year which have been made out in accordance with applicable approved accounting standards. The
financial statements should give a true and fair view of the state of affairs of the Group and the Company at
the end of the financial year and the results and cash flows of the Group and the Company for the financial year.
The Directors have considered the audit findings of both the external and internal auditors, and are of the view
that appropriate accounting policies have been consistently applied. The basis of the preparation of the annual
financial statements is supported by reasonable and prudent judgements and accounting estimations. All applicable
approved accounting standards have also been followed for the preparation of the financial statements.
Southern Steel Berhad 5283-X
Annual Report 2006
10
Statement On Internal Control
Responsibility
The Board acknowledges its responsibility for the Group’s system of internal control and for reviewing its adequacy
and integrity. However, such a system is designed to manage rather than eliminate risk of failure to achieve
business objectives. Accordingly, such system can provide only reasonable and not absolute assurance against
material misstatement or loss. The concept of reasonable assurance also recognises that the cost of control
procedures should not exceed the expected benefits.
Risk Management Framework
The framework and the key elements of the Group’s system of internal control are as follows:
-
A management structure exists with clearly defined delegation of responsibilities to the management of the
Group’s main operating companies, including authorisation level for all aspects of the business. Each operating
company has clear accountabilities for ensuring that appropriate risk management and control procedures
are in place. Ongoing monitoring of risks and updating of the enterprise-wide key risk register were carried
out by the management of the respective main operating companies within the Group.
-
The Board has appointed the Group Managing Director as Chief Risk Officer to administer the risk management
framework since 2001. Business risk assessment and evaluation is an ongoing exercise undertaken by the
Board and management. The Internal Audit Department will submit yearly to the Audit Committee its review
report on risk management for each main operating company within the Group.
-
For associated companies, the Board nominates representatives to sit as directors and takes a proactive stance
in assessing the performance of respective associated companies with the goal of safeguarding the investment
of the Group. Monthly financial and operating information is submitted for review by the Group’s management.
These associated companies are subject to review by internal auditors of the respective joint venture partners
on a rotational basis.
The key elements of the Group’s internal control system are described below:-
-
Monthly monitoring of results against budget, with major variances being followed up and management
action taken, where necessary.
-
Major decisions require the final approval of the Board and are made after appropriate in-depth analysis.
-
Regular and comprehensive information is provided to management, covering the performance of key financial
and operational indicators.
-
The Internal Audit Department independently reviews the control processes implemented by management
and reports its findings and recommendations independently to the Audit Committee.
-
In addition to the monthly operational meetings, senior management meetings are also held monthly to
consider the Group’s financial performance, business development, and strategic and corporate issues.
-
The Audit Committee, with the assistance of the Internal Audit Department assesses the effectiveness of the
Group’s internal control system, by reviewing the internal audit reports presented to the Audit Committee.
All internal control weaknesses identified during the period have all been, or are being, addressed. None of
the weaknesses have resulted in any material losses, contingencies or uncertainties that would require mention
in the Group’s annual report.
11
Annual Report 2006
Detailed budgeting processes where main operating companies prepare budgets, which are approved by the
Board, on an annual basis.
Southern Steel Berhad 5283-X
-
Audit Committee Report
COMPOSITION AND MEMBERSHIP
The Audit Committee was appointed by the Board from amongst its directors and is composed of a minimum
of 3 members with a majority of independent directors. No alternate director shall be appointed as a member
of the Audit Committee. The Chairman of the Committee shall be an independent non-executive director.
At least one member of the Audit Committee must be a member of the Malaysian Institute of Accountants (MIA)
or non-member of MIA with a minimum of 3 years’ working experience and passed the examinations specified
in Part I of the 1st Schedule of the Accountants Act 1967 or is a member of one of the associations of accountants
specified in Part II of the 1st Schedule of the Accountants Act 1967.
The following 3 directors are existing members of the Committee:1 YA Bhg Tun Dato’ Seri Dr Lim Chong Eu, Chairman
2 YM Raja Dato' Seri Abdul Aziz bin Raja Salim
3 Yap Peng Leong
MEETINGS AND MINUTES
Meetings shall be held not less than four times a year. The external auditors may request a meeting if they
consider that one is necessary.
The Group Managing Director, the Group and Corporate Financial Controllers and the Head of Internal Audit
shall attend the meetings. A representative of the external auditors is to be in attendance at meetings where
matters relating to the audit of the statutory financial statements and / or the external auditors are to be discussed.
A quorum shall be 2 members present, a majority of whom must be independent directors.
During the financial year ended 31 December 2006, a total of 4 meetings were held.
Name
YA Bhg Tun Dato’ Seri Dr Lim Chong Eu
(Chairman)
YM Raja Dato' Seri Abdul Aziz bin Raja Salim
Yap Peng Leong
Southern Steel Berhad 5283-X
Annual Report 2006
12
Status of directorship
Eligible to attend
Independent Non-Executive
4
Director
Independent Non-Executive
4
Director
Non-independent
4
Non-Executive Director
Attended
3
4
4
REPORTING PROCEDURES
The Company Secretary shall be the secretary of the Committee. Minutes of each meeting shall be circulated
to the members of the Committee and all members of the Board.
TERMS OF REFERENCE
Responsibility
Where the Audit Committee is of the view that a matter reported by it to the Board of Directors has not been
satisfactorily resolved resulting in a breach of the Listing Requirements of Bursa Malaysia Securities Berhad, the
Audit Committee shall promptly report such matter to Bursa Malaysia Securities Berhad.
Audit Committee Report (cont’d)
TERMS OF REFERENCE (cont’d)
Authority
The Audit Committee is authorised by the Board to review any activity within its terms of reference and shall
have full and unrestricted access to any information pertaining to the Group and the management, and all
employees of the Group. The Audit Committee is also authorised to obtain independent professional or other
advice as and when necessary.
Duties
The duties of the Committee shall be:
1. To discuss with the external auditors before the audit commences the nature and scope of the audit and
ensure co-ordination where more than one audit firm is involved.
2. To review with the external auditors their evaluation of the internal control system.
3. To review the assistance given by the employees of the Group / Company to the external auditors.
4. To review the adequacy of the scope, functions and resources of the internal audit function and that it has
the necessary authority to carry out its work, and also to consider the major findings of internal audit
investigations and management’s response and ensure co-ordination between the internal and external
auditors.
5. To review the quarterly and annual financial statements before submission to the Board, focusing particularly
on :
a. Any changes in accounting policies and practices;
b. Major judgemental areas including accounting estimates;
c. Significant adjustments resulting from the audit;
d. The going concern assumption;
e. Compliance with accounting standards;
f. Compliance with stock exchange and legal requirements; and
g. Significant and unusual events.
6. To review any related party transaction and conflict of interest situation that may arise within the Group
including any transaction, procedure or course of conduct that raises questions of management integrity.
9. To consider other topics, as defined.
Annual Report 2006
8. To review any appraisal or assessment of the performance, and approve any appointment or termination
of the Head of Internal Audit.
13
Southern Steel Berhad 5283-X
7. To consider the appointment of the external auditor and any question of resignation or dismissal and the
fixing of audit fees.
Audit Committee Report (cont’d)
SUMMARY OF ACTIVITIES
In line with the terms of reference, the main activities carried out during the financial year by the Audit Committee
in discharging its duties are summarised as follows:
1. review of both the internal and external audit plans of the Group and the Company for the year ended
31 December 2006;
2. review of internal audit reports on internal controls and risk management presented by the Internal Auditors
for the Group and the Company;
3. review of unaudited quarterly results before presenting to the Board for approval;
4. review of the related party transactions entered into by the Group and the Company in the quarterly and
annual reports of the Company;
5. review of draft audited financial statements of the Group and the Company with the external auditors before
presenting to the Board for approval; and
6. consider appointment of external auditors and discuss (without presence of management team) the cooperation
rendered by the management to the external auditors.
INTERNAL AUDIT FUNCTION
The Group has an Internal Audit Department which reports to the Audit Committee and assists the Board in
monitoring and managing risks and internal controls. The principal responsibility of the Internal Audit Department
is to undertake regular and systematic review of the operations, policies and procedures in order to provide
reasonable assurance that internal control and risks are satisfactorily monitored and managed within the Group.
Southern Steel Berhad 5283-X
Annual Report 2006
14
Group Financial Highlights
(RM Million)
Turnover
2002
2003
2004
2005
2006
1,460
1,879
2,399
2,430
2,353
Profit/(Loss) Before Taxation
28*
70*
137*
(37)*
63
Profit/(Loss) Attributable to Shareholders
14
52
98
(31)
85
1,697
1,753
1,955
1,798
1,779
Shareholders' Funds
359
517
590
540
624
Paid-up Share Capital
282
287
319
362
362
Net Tangible Assets per Share (sen)
104
158
168
135
158
Tangible Assets Employed
Earnings/ (Loss) Per Share (sen)
5
15*
23*
Dividend - Tax exempt (%)
3
5
10
2.5
5.0
Dividend - Tax exempt (sen per share)
3
5
10
2.5
5.0
(7)*
20
* The effect of adoption of FRS101 and FRS133 are included in 2005 and prior results.
137
200
1,000
(37)
28
100
63
70
2,353
2,430
1,879
2,000
1,460
3,000
Profit/(Loss) Before Taxation
2,399
Turnover
0
02
03
04
05
06
-100
02
03
04
05
06
624
540
590
200
02
03
04
05
06
02
03
04
05
06
Southern Steel Berhad 5283-X
1,600
400
359
1,779
600
1,798
1,753
1,800
1,697
2,000
Shareholders’ Funds
517
1,955
Tangible Assets Employed
Annual Report 2006
15
Chairman’s Statement
On behalf of the Board of Directors, I am pleased to present the Annual Report and Financial Statements of the
Group for the year ended 31 December 2006.
FINANCIAL REVIEW
At the macro level, 2006 has gone by without any significant impact from the 9th Malaysia Plan (“9MP”)
development expenditure. As the 9MP projects have been slow in taking off, the level of construction activities
remained depressed, and in fact, slid further. On the international market, prices recovered somewhat during
the year but China turned into a very big exporter, especially of construction steel, giving rise to generally tough
trading conditions. Despite this difficult trading scenario, the Group achieved a profit before taxation of RM63.3
million for the year with a slight drop in revenue to RM2.35 billion. This compared favourably with the loss before
taxation of RM37.2 million on revenue of RM2.43 billion recorded in 2005. The improvement came about because
the upstream operation managed to achieve better margins with cost reductions and focused sales, while the
pipe subsidiary which suffered heavy losses in the previous year was profitable.
In September, the Group entered into three Conditional Share Sale and Purchase Agreements to dispose its three
overseas associated companies – 40% owned NatSteel Trade International Pte Ltd, 50% owned Southern NatSteel
(Xiamen) Limited and 22.6% owned NatSteelVina Co Ltd to NatSteel Asia Pte Ltd, a major shareholder of the
Group and its partner for these three projects for S$29 million. I am pleased to report that all conditions have
been met and the disposals were completed on 24 January 2007.
REVIEW OF OPERATIONS
Southern Steel Berhad
Southern Steel Berhad (”SSB”) continued to be the biggest contributor of the Group, and accounted for more
than 80% of the Group’s revenue and profit. Despite the absence of the much awaited projects under the 9MP,
the Company’s 2006 results showed significant improvement over the previous year and maintained its strong
market position on the domestic front.
In 2007, other than gearing up productivity and volume to capitalize on the expected local construction boom
under the 9MP, the Company will also focus on upgrading its facilities to enhance its production of higher grade
wire rods.
SUBSIDIARY COMPANIES
Southern Steel Berhad 5283-X
Annual Report 2006
16
(a) Southern Wire Industries (Malaysia) Sdn Bhd (“SWI”)
2006 was the first year of the implementation of the ASEAN – China Free Trade Agreement (ACFTA), and
the resultant flood of Chinese steel wire products reduced the margin for wire products sharply. As SWI
has been exporting 70% of its products, this generated even greater pressure on its business than in previous
years. It was the significant increase in productivity and the reduction in conversion cost through a rigorous,
continuous improvement drive that helped to cushion the big contraction in margins. In addition, higher
sales volume and a better product mix also contributed towards reducing the losses the company suffered
in the previous year.
For the year 2007, with a further drop in import duty forthcoming under the ACFTA, the operating environment
will be even tougher. However, encouraged by the active involvement and tangible contribution of the
workforce in improving productivity in 2006, SWI should further transform its operation to improve on its
financial result in 2007.
Chairman’s Statement (cont’d)
(b) Southern Steel Mesh Sdn Bhd (“SSM”)
With the construction sector registering negative growth and facing intense competition by many new small
operators, SSM’s financial performance turned into a loss in 2006. The adverse performance was mainly
attributed to lower selling prices and higher raw material costs which could not be passed on as a result of
intense competition in a shrinking market.
For 2007, as a market leader, SSM is expected to benefit most from the revival of the construction sector
under the 9MP. Some new strategies have been formulated to ensure the achievement of its business
objectives. TQM activities are being stepped up with the aim of transforming the workforce to undertake
better manning and better machine utilisation in order to achieve higher productivity and a lowering of
conversion cost.
(c) Southern Pipe Industry (Malaysia) Sdn Bhd (“SPM”)
SPM turned around and achieved profitability in 2006. This was due mainly to improved selling prices and
internal cost down effort. With careful stock planning, SPM was able to pass on the escalating zinc prices
to its customers. Efforts to promote in-line galvanised pipes have finally produced significant improvements
in sales and a contribution to profits.
With the implementation of 9MP projects in 2007, SPM foresees greater demand of construction grade
hollow section pipes. Exports to Singapore are also expected to increase in line with the rise in the level of
construction activities there. In-line galvanised pipes which gave rise to the major portion of past years’ losses
have shown significant improvements in 2006 and it is expected to become profitable in 2007.
ASSOCIATED COMPANY
The three overseas associated companies which were disposed of in January 2007 had made an overall loss in
2006, albeit lower than in 2005. The remaining associated company, Steel Industries (Sabah) Sdn Bhd (“SIS”)
continued to make a profit in 2006 because of robust construction activities. For 2007, SIS is likely to benefit
from even more construction activities in Sabah.
PROSPECTS AND OUTLOOK FOR 2007
On behalf of the Board, I would like to take this opportunity to thank the management and staff for their
contribution and commitment to the Group. I would also like to extend my appreciation to the customers,
suppliers, shareholders and bankers for their continued support and confidence in the Group.
Kwek Leng San
Chairman
Annual Report 2006
APPRECIATION AND ACKNOWLEDGEMENT
17
Southern Steel Berhad 5283-X
It is expected that the bulk of the total expenditure of RM200 billion under the 9MP will be spent over the next
three years from the second quarter of 2007. The Group, with its operations spanning various strategic locations
throughout the country, is well positioned to capitalise on this favourable development. At the international
level, competition is expected to increase in the years ahead, as tariffs in the region fall progressively under the
ACFTA. Therefore, the group expects better domestic sales volume but tougher international sales and margin.
Overall, with continued efforts at cost improvement, it is expected that the group should perform favourably.
Laporan Pengerusi
Bagi Pihak Lembaga Pengarah, saya dengan sukacitanya membentangkan Laporan Tahunan dan Penyata Kewangan
Kumpulan bagi tahun berakhir 31hb. Disember 2006.
ULASAN KEWANGAN
Pada paras makro, 2006 telah berlalu tanpa kesan ketara daripada perbelanjaan pembangunan Rancangan
Malaysia ke 9 (RMK9). Memandangkan projek dalam RMK9 lewat dilancarkan, aktiviti pembinaan masih tertekan
dan lebih merosot. Pada peringkat pasaran antarabangsa, harga telah pulih sepanjang tahun tetapi China telah
menukar menjadi pengekspot terbesar terutama sektor keluli pembinaan yang mengakibatkan saingan sengit
dalam perdagangan. Walaupun dalam keadaan perdagangan yang sukar, Kumpulan berjaya mencatatkan
keuntungan sebelum cukai berjumlah RM63.3 juta untuk tahun 2006 dengan sedikit penurunan dalam perolehan
kepada RM2.35 bilion. Pencapaian dalam tahun agak memberangsangkan berbanding kerugian sebelum cukai
berjumlah RM37.2 juta dan perolehan RM2.43 bilion tahun sebelumnya. Peningkatan diperolehi kerana aktiviti
operasi hiliran teratas berjaya memperolehi margin yang baik melalui pengurangan kos serta fokus terhadap
jualan, manakala subsidiari paip yang mengalami kerugian yang besar tahun sebelumnya telah berjaya membuat
keuntungan.
Pada bulan September, Kumpulan telah memeterai tiga perjanjian jual beli saham bersyarat bagi menjual tiga
syarikat bersekutu diluar Negara - 40% dalam NatSteel Trade International Pte Ltd, 50% dalam Southern NatSteel
(Xiamen) Limited dan 22.6% dalam NatSteelVina Co Ltd kepada NatSteel Asia Pte Ltd, yang merupakan pemegang
saham utama dan rakan kongsi dalam ketiga-tiga projek dengan nilai S$29 juta. Sukacita dimaklumkan bahawa
segala syarat-syarat telah diperolehi dan penjualan telah diselesai pada 24hb. Januari 2007.
ULASAN OPERASI
Southern Steel Berhad
Southern Steel Berhad (”SSB”) terus menjadi penyumbang terbesar kepada Kumpulan, iaitu lebih daripada 80%
perolehan dan keuntungan Kumpulan. Walaupun tanpa kemunculan projek dibawah RMK9, syarikat memperolehi
keputusan yang memberangsangkan dalam tahun 2006 berbanding tahun sebelumnya dan berjaya memperkukuhkan
kedudukan dalam pasaran domestik.
Dalam 2007, selain meningkatkan produktiviti dan kuantiti bagi menghadapi jangkaan permintaan dalam sektor
pembinaan domestik dibawah RMK9, syarikat juga akan lebih fokus untuk menaikkan taraf kelengkapan bagi
memperluaskan produksi wayar rod bergred tinggi.
Southern Steel Berhad 5283-X
Annual Report 2006
18
Laporan Pengerusi (sambungan)
SYARIKAT-SYARIKAT SUBSIDIARI
(a) Southern Wire Industries (Malaysia) Sdn Bhd (“SWI”)
2006 merupakan tahun pertama pelaksanaan Perjanjian Perdagangan Bebas ASEAN - China (PPBAC) dan
kesan daripada ini terdapat limpahan produk wayar daripada China yang mengurangkan margin produk
wayar dengan ketara. Memandangkan SWI telah mengekspot lebih 70% produknya maka ini akan memberi
tekanan yang berat terhadap perniagaannya berbanding tahun sebelumnya. Produktiviti telah meningkat
dengan ketara dan kos konversi telah menurun bagi mengimbangi kemerosotan margin. Selain daripada
itu, peningkatan jualan dan gabungan produk yang baik telah menyumbang kearah pengurangan kerugian
yang dialami tahun sebelumnya.
Untuk tahun 2007, dengan pengurangan impot duti di bawah perjanjian PPBAC keadaan operasi akan lebih
mencabar. Walau bagaimanapun, dengan sokongan penglibatan yang aktif dan kontribusi daripada tenaga
pekerja yang meningkatkan produktiviti 2006, SWI yakin akan berupaya menukarkan operasinya dengan
keputusan yang lebih baik pada 2007.
(b) Southern Steel Mesh Sdn Bhd (”SSM”)
Dalam tahun kewangan 2006, SSM telah mengalami kerugian memandangkan sektor pembinaan masih
mencatatkan pertumbuhan negatif dan menghadapi saingan yang sengit daripada operator-operator kecil
yang baru. Keputusan yang kurang memuaskan adalah disebabkan oleh harga jualan yang rendah serta
harga bahan mentah yang tinggi yang tidak dapat disalurkan kepada pelanggan kerana saingan yang sengit
dalam pasaran yang meruncing.
Untuk 2007, sebagai peneraju pasaran, SSM dijangka memperolehi lebih manfaat kesan daripada pemulihan
sektor pembinaan dibawah RMK9. Strategi baru telah dirangka bagi memastikan pencapaian dalam objektif
perniagaannya. Pengurusan Kualiti Menyeluruh (TQM) dipertingkatkan dengan harapan dapat menukarkan
tenaga pekerja menjadi lebih efisien dalam pengendalian mesin bagi mencapai produktiviti yang tinggi dan
kos konversi yang rendah.
(c) Southern Pipe Industry (Malaysia) Sdn Bhd (“SPM”)
SPM telah berjaya membuat keuntungan dalam tahun 2006 dan sebab utamanya adalah kerana harga jualan
yang baik dan usaha dalaman untuk pengurangan kos. Dengan pengendalian stok yang baik, ianya berjaya
melepaskan kenaikan harga jualan zinc kepada pelanggannya. Usaha untuk mempromosi galvanasi paip
akhirnya berjaya meningkatkan jualan dan menyumbangkan keuntungan.
Keseluruhannya tiga syarikat bersekutu yang telah dijual pada Januari 2007 telah mengalami kerugian walaupun
kurang daripada 2005. Syarikat bersekutu yang masih ada, Steel Industries (Sabah) Sdn Bhd (”SIS”) terus membuat
keuntungan dalam kerancakan aktiviti pembinaan pada tahun 2006. Untuk 2007, SIS dijangka memperolehi lebih
faedah terhadap aktiviti pembinaan di Sabah.
Annual Report 2006
SYARIKAT BERSEKUTU
19
Southern Steel Berhad 5283-X
Dengan implementasi projek dibawah RMK9 dalam 2007, SPM menjangkakan permintaan yang tinggi untuk
gred paip pembinaan berrongga. Ekspot ke Singapura dijangka akan meningkat dengan peningkatan aktiviti
pembinaan disana. Galvanasi paip serentak yang telah menyumbang kepada kerugian pada tahun-tahun
sebelum ini telah menunjukkan prestasi yang baik dalam 2006 dan dijangkakan memberi keuntungan dalam
tahun 2007.
Laporan Pengerusi (sambungan)
PANDANGAN DAN PROSPEK UNTUK TAHUN 2007
Adalah diharapkan sebahagian besar daripada jumlah perbelanjaan RM200 bilion dibawah RMK9 akan dibelanjakan
dalam 3 tahun akan datang mulai suku kedua 2007. Kumpulan dengan operasinya meliputi merata lokasi
strategik dalam negara telah bersiap-sedia terhadap pembangunan yang positif ini. Pada peringkat antarabangsa,
saingan dijangka sengit pada tahun-tahun akan datang kerana tarif akan berterusan dikurangkan dibawah PPBAC.
Oleh itu Kumpulan menjangka akan beroleh volum jualan domestik yang lebih baik tetapi jualan dan margin di
peringkat antarabangsa akan lebih mencabar. Keseluruhannya, dengan usaha berterusan bagi memperbaiki kos,
Kumpulan dijangka terus beroperasi dengan jayanya.
PENGHARGAAN DAN PEMBERITAHUAN
Bagi pihak Lembaga, saya ingin mengambil kesempatan ini untuk mengucapkan terima kasih kepada Pengurusan
dan kakitangan kerana sumbangan dan komitmen mereka terhadap Kumpulan ini. Saya juga tidak ketinggalan
mengucapkan penghargaan terhadap pelanggan-pelanggan, pembekal-pembekal, pemegang-pemegang saham
dan bank-bank kerana sokongan yang berterusan dan keyakinan mereka kepada Kumpulan ini.
Kwek Leng San
Pengerusi
Southern Steel Berhad 5283-X
Annual Report 2006
20
Reports and
Financial Statements
26
Statement by Directors
26
Statutory Declaration
27
Report of the Auditors to the Members
28
Income Statements
29
Balance Sheets
30
Consolidated Statement of Changes in Equity
31
Company Statement of Changes in Equity
32
Cash Flow Statements
34
Notes to the Financial Statements
21
Annual Report 2006
Directors’ Report
Southern Steel Berhad 5283-X
22
DIRECTORS' REPORT
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006
The Directors present their report to the members together with the audited financial statements of the Group
and the Company for the financial year ended 31 December 2006.
1
PRINCIPAL ACTIVITIES
The principal activities of the Company are the manufacturing of, sales and trading in billets, steel bars and
wire rods. The principal activities of its subsidiary companies and associated companies are described in Notes
13 and 14 to the financial statements respectively. There have been no significant changes in the nature of
these activities during the financial year.
2
FINANCIAL RESULTS
Profit after taxation for the financial year
3
Group
RM’000
Company
RM’000
84,736
88,901
DIVIDENDS
No dividend has been declared or paid since 31 December 2005. A first and final tax exempt dividend of 5
sen per share amounting to RM18,122,000, based on the number of ordinary shares in issue at 31 December
2006, has been proposed by the Directors. This proposed first and final dividend is subject to the approval
of the shareholders at the forthcoming Annual General Meeting.
4
RESERVES AND PROVISIONS
There were no material transfers to or from reserves and provisions during the financial year except for those
disclosed in the financial statements.
5
Southern Steel Berhad 5283-X
Annual Report 2006
22
SHARE CAPITAL
During the financial year, 269,417 new ordinary shares of RM1.00 each with carrying value of RM249,027
were issued by the Company arising from the conversion of 277,500 5.5% 5-year Irredeemable Convertible
Unsecured Loan Stocks (“ICULS”). The newly issued ordinary shares rank pari passu in all respects with the
existing ordinary shares of the Company except that the said new shares will not be entitled to any dividend,
right, allotment or other distribution where the relevant entitlement date precedes the date of allotment of
the new shares.
DIRECTORS' REPORT
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
6
DIRECTORS
The Directors in office since the date of the last report are:
Non-independent Non-Executive Directors
Kwek Leng San (Chairman)
Yap Peng Leong
Koushik Chatterjee
Oo Soon Hee (alternate to Koushik Chatterjee)
Non-independent Executive Director
Y. Bhg Dato' Dr. Tan Tat Wai (Group Managing Director)
Independent Non-Executive Directors
Y.A. Bhg Tun Dato' Seri Dr. Lim Chong Eu
YM Raja Dato' Seri Abdul Aziz bin Raja Salim
7
DIRECTORS' INTERESTS
According to the Register of Directors’ Shareholdings kept by the Company for the purpose of Section 135
of the Companies Act, 1965, the interests of Directors in office at the end of the financial year in shares of
the Company during the financial year are as follows:
The Company
Number of ordinary shares of RM1.00 each
Acquired/
At 1.1.2006
Allotted
Disposed
At 31.12.2006
Y. Bhg Dato’ Dr. Tan Tat Wai
- Direct interest
- Deemed interest
14,854
32,980,223
0
0
0
0
14,854
32,980,223
Other than as disclosed above, no other Directors in office at the end of the financial year held any interest
in shares in the Company and its related corporations and ICULS of the Company during the financial year.
DIRECTORS’ BENEFITS
During and at the end of the financial year, no arrangement subsisted to which the Company is a party, with
the object or objects of enabling the 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.
23
Annual Report 2006
Since the end of the previous financial year, no Director has received or become entitled to receive a benefit
(other than the fees and other emoluments shown in Note 7 to the financial statements) by reason of a
contract made by the Company or a related corporation with the Director or with a firm of which he is a
member, or with a company in which he has a substantial financial interest.
Southern Steel Berhad 5283-X
8
DIRECTORS' REPORT
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
9
STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS
Before the income statements and balance sheets of the Group and the Company were made out, the
Directors took reasonable steps:
(a) to ascertain that actions have been taken in relation to the writing off of bad debts and the making of
allowance for doubtful debts, and have satisfied themselves that all known bad debts have been written
off and that adequate allowance has been made for doubtful debts; and
(b) to ensure that any current assets, other than debts, which were unlikely to realise in the ordinary course
of business their values as shown in the accounting records of the Group and the Company have been
written down to an amount which they might be expected so to realise.
At the date of this report, the Directors are not aware of any circumstances:
(a) which would render the amounts written off for bad debts or the amount of the allowance for doubtful
debts in the financial statements of the Group and the Company inadequate to any substantial extent;
(b) which would render the values attributed to current assets in the financial statements of the Group and
the Company misleading; or
(c) which have arisen which render adherence to the existing method of valuation of assets or liabilities of
the Group and the Company misleading or inappropriate.
No contingent or other liability has become enforceable or is likely to become enforceable within the period
of twelve months after the end of the financial year which, in the opinion of the Directors, will or may
substantially affect the ability of the Group or the Company to meet their obligations as and when they fall
due.
At the date of this report, there does not exist:
(a) any charge on the assets of the Group and the Company which has arisen since the end of the financial
year which secures the liability of any other person; or
(b) any contingent liability of the Group and the Company which has arisen since the end of the financial
year.
Southern Steel Berhad 5283-X
Annual Report 2006
24
At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this
report or the financial statements which would render any amount stated in the financial statements
misleading.
In the opinion of the Directors,
(a) the results of the Group’s and the Company’s operations during the financial year were not substantially
affected by any item, transaction or event of a material and unusual nature; and
(b) there has not arisen in the interval between the end of the financial year and the date of this report any
item, transaction or event of a material and unusual nature likely to affect substantially the results of
the operations of the Group and the Company for the current financial year in which this report is made
except as disclosed in Note 33 to the financial statements.
DIRECTORS' REPORT
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
10 AUDITORS
The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office.
Signed on behalf of the Board of Directors in accordance with their resolution dated 16 March 2007.
Kwek Leng San
Chairman
Y. Bhg Dato’ Dr. Tan Tat Wai
Group Managing Director
Southern Steel Berhad 5283-X
Annual Report 2006
25
STATEMENT BY DIRECTORS
PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965
We, the undersigned, being two of the Directors of Southern Steel Berhad, state that in the opinion of the
Directors, the accompanying financial statements set out on pages 28 to 79 are drawn up so as to give a true
and fair view of the state of affairs of the Group and the Company as at 31 December 2006 and of the results
and cash flows of the Group and the Company for the financial year ended on that date in accordance with the
provisions of the Companies Act, 1965 and the MASB Approved Accounting Standards in Malaysia for Entities
Other Than Private Entities.
Signed on behalf of the Board of Directors in accordance with their resolution dated 16 March 2007.
Kwek Leng San
Chairman
Y. Bhg Dato’ Dr. Tan Tat Wai
Group Managing Director
STATUTORY
DECLARATION
PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965
I, Ang Meng Chuan, being the Group Financial Controller primarily responsible for the financial management
of Southern Steel Berhad, do solemnly and sincerely declare that the financial statements set out on pages 28
to 79 are in my opinion, 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.
Southern Steel Berhad 5283-X
Annual Report 2006
26
Ang Meng Chuan
Subscribed and solemnly declared by the abovenamed Ang Meng Chuan at Georgetown in the State of Penang
on 16 March 2007.
Before me
Huang Peter
Commissioner for Oaths
(No. P006)
REPORT OF THE AUDITORS
TO THE MEMBERS OF SOUTHERN STEEL BERHAD
We have audited the financial statements set out on pages 28 to 79. 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 these
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 to any other person for the content of
this report.
We conducted our audit in accordance with approved auditing standards in Malaysia. Those 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 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 prepared in accordance with the provisions of the Companies Act, 1965
and the MASB Approved Accounting Standards in Malaysia for Entities Other Than Private Entities 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; and
(ii)
the state of affairs of the Group and the Company as at 31 December 2006 and of the results and
cash flows of the Group and the Company for the financial year ended on that date;
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 Act.
The names of the subsidiary companies of which we have not acted as auditors are indicated in Note 13 to the
financial statements. We have considered the financial statements of these subsidiary companies and the auditors’
reports thereon.
PRICEWATERHOUSECOOPERS
(No. AF-1146)
Chartered Accountants
Penang
16 March 2007
LIM TEONG KEAN
(2499/12/07 (J))
Partner of the firm
Annual Report 2006
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 sub-section (3) of Section 174 of the Act.
27
Southern Steel Berhad 5283-X
We are satisfied that the financial statements of the subsidiary companies that have been consolidated with the
Company's financial statements are in form and content appropriate and proper for the purposes of the preparation
of the consolidated financial statements and we have received satisfactory information and explanations required
by us for those purposes.
INCOME STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006
In RM’000 unless otherwise stated
Note
REVENUE
COST OF SALES
GROSS PROFIT
OTHER OPERATING INCOME
ADMINISTRATION EXPENSES
DISTRIBUTION COSTS
OTHER OPERATING EXPENSES
OPERATING PROFIT
FINANCE COSTS
2005
2005
7
2,430,494
(2,315,216)
115,278
14,060
(49,218)
(53,095)
(15,824)
11,201
1,923,924
(1,787,383)
136,541
32,375
(26,060)
(34,363)
(2,255)
106,238
1,971,726
(1,883,063)
88,663
13,743
(23,437)
(33,459)
(2,943)
42,567
8
(45,740)
(43,059)
(36,291)
(34,693)
(1,763)
(5,333)
0
0
63,278
(37,191)
69,947
7,874
21,458
84,736
2,322
(34,869)
18,954
88,901
(1,114)
6,760
84,518
218
(30,877)
(3,992)
88,901
0
6,760
0
84,736
(34,869)
88,901
6,760
5.0
2.5
9
Attributable to:
EQUITY HOLDERS OF THE COMPANY
MINORITY INTERESTS
PROFIT/(LOSS) FOR THE FINANCIAL
YEAR
DIVIDENDS PER SHARE (SEN)
10
5.0
2.5
EARNINGS/(LOSS) PER SHARE (SEN)
- BASIC AND FULLY DILUTED
11
20.2
(7.4)
Annual Report 2006
28
Southern Steel Berhad 5283-X
Company
2006
2,353,284
(2,166,724)
186,560
40,731
(52,211)
(54,615)
(9,684)
110,781
SHARE OF RESULTS OF
ASSOCIATED COMPANIES
PROFIT/(LOSS) FROM ORDINARY
ACTIVITIES BEFORE TAXATION
TAXATION
PROFIT/(LOSS) AFTER TAXATION
Group
2006
The accompanying notes form an integral part of the financial statements.
BALANCE SHEETS
AS AT 31 DECEMBER 2006
In RM’000 unless otherwise stated
Non-current assets held for sale
CURRENT LIABILITIES
Payables
Short term borrowings
Current tax liabilities
Provisions
12
13
14
15
16
871,800
0
13,076
860
48,991
934,727
928,977
0
80,345
860
48,991
1,059,173
665,877
398,659
5,500
708
0
1,070,744
698,227
398,659
52,220
708
0
1,149,814
17
18
584,771
174,407
6,879
0
14,530
50,218
830,805
581,690
150,051
5,494
319
11,538
39,750
788,842
440,897
68,476
3,567
0
12,255
39,758
564,953
459,333
62,863
3,558
0
6,000
32,205
563,959
19
63,941
894,746
0
788,842
46,720
611,673
0
563,959
20
21
228,355
687,563
301
766
916,985
(22,239)
211,436
696,771
1,319
765
910,291
(121,449)
297,193
454,795
0
426
752,414
(140,741)
283,201
483,184
821
563
767,769
(203,810)
180,996
81,111
23,675
285,782
626,706
268,226
102,118
24,588
394,932
542,792
180,996
70,285
9,652
260,933
669,070
268,226
88,745
8,892
365,863
580,141
15
28
28
22
NET CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Long term borrowings
Deferred tax liabilities
Provisions
23
24
22
TOTAL NET ASSETS
CAPITAL AND RESERVES
Share capital
ICULS *(equity component)
Reserves
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE COMPANY
MINORITY INTERESTS
TOTAL EQUITY
2005
29
25
26
27
362,029
46,953
215,161
361,780
47,174
131,493
362,029
46,953
260,088
361,780
47,174
171,187
624,143
2,563
540,447
2,345
669,070
0
580,141
0
626,706
542,792
669,070
580,141
* 5.5% 5-year Irredeemable Convertible Unsecured Loan Stocks 2003/2008
The accompanying notes form an integral part of the financial statements.
Annual Report 2006
CURRENT ASSETS
Inventories
Receivables
Tax recoverable
Other investments
Deposits with licensed banks
Cash and bank balances
Note
Company
2005
2006
Southern Steel Berhad 5283-X
NON-CURRENT ASSETS
Property, plant and equipment
Subsidiary companies
Associated companies
Other investments
Goodwill on consolidation
Group
2006
Annual Report 2006
0
0
0
0
0
30,000
0
(58)
0
0
0
72,499
0
0
0
0
0
35,852
0
0
0
(221)
0
46,953
0
0
0
249
0
362,029
The accompanying notes form an integral part of the financial statements.
* 5.5% 5-year Irredeemable Convertible Unsecured Loan Stocks 2003/2008
0
30,000
0
72,557
0
35,852
0
47,174
0
361,780
At 1 January 2006
0
0
0
0
0
0
0
30,000
0
0
0
0
0
0
(35,831)
0
43,080
0
0
0
72,557
0
0
0
0
0
0
0
35,852
0
0
0
0
0
0
0
47,174
30,000
72,557
35,852
83,005
0
0
361,780
Exchange differences
- associated companies
Net loss not recognised in
income statement
Compulsory acquisition of
property, plant and equipment
by Government
Derecognised upon adoption
of FRS 3
Issue of shares arising
from conversion of
ICULS (Notes 25 and 26)
Net profit for the financial year
At 31 December 2006
Non-distributable
318,700
Dividends (Note 10) for
the financial year ended:
- 31 December 2004
- 31 December 2005
At 31 December 2005
At 1 January 2005
Exchange differences
- associated companies
Net gain not recognised in
income statement
Issue of shares arising
from conversion of
ICULS (Notes 25 and 26)
Net loss for the financial year
Accretion arising from
additional shares issued
by a subsidiary
30
0
0
0
(3,065)
0
0
0
3,065
0
0
3,065
12
0
0
0
0
3,053
0
0
50
0
0
0
0
50
0
0
50
0
0
0
0
0
50
RevaluaICULS*
Capital
Reserve on
tion Merger
Share
(equity
consoli- redemption
Share
reserve
dation
capital component) premium reserve reserve
Issued and
fully paid
ordinary
shares of
RM1.00 each
In RM’000 unless otherwise stated
Southern Steel Berhad 5283-X
0
0
10,801
0
0
(850)
(850)
11,651
0
0
11,651
0
0
0
601
601
11,050
Total
601
601
12
0
0
(850)
(850)
28
0
84,518 84,518
65,959 624,143
3,065
58
0
0
(21,682) 540,447
(17,524) (17,524)
(9,054) (9,054)
(21,682) 540,447
0
7,249
0
(30,877) (30,877)
0
0
35,773 590,040
Retained
profits/
Exchange
fluctuation (Accumulated
losses)
reserve
Total
equity
601
0
1,896
0
0
(850)
(850)
28
0
218 84,736
2,563 626,706
0
0
0
0
2,345 542,792
0 (17,524)
(9,054)
0
2,345 542,792
1,884
0
7,249
(3,992) (34,869)
601
0
4,453 594,493
Minority
interests
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006
In RM’000 unless otherwise stated
Issued and
fully paid
ordinary
shares of
RM1.00 each
Share
capital
Distributable
Non-distributable
ICULS*
(equity
Share Revaluation Merger
compo
Retained
-nent) premium
profits
reserve reserve
Total
35,852
44,733
33,600
0
0
0
0
0
0
0
0
47,174
0
0
35,852
0
0
44,733
0
0
33,600
(17,524) (17,524)
(9,054) (9,054)
57,002 580,141
361,780
47,174
35,852
44,733
33,600
57,002 580,141
249
0
362,029
(221)
0
46,953
0
0
35,852
0
0
44,733
0
0
33,600
0
28
88,901 88,901
145,903 669,070
At 1 January 2005
Issue of shares arising from
conversion of ICULS
(Notes 25 and 26)
Net profit for the financial year
Dividends (Note 10) for the
financial year ended:
- 31 December 2004
- 31 December 2005
At 31 December 2005
318,700
83,005
43,080
0
(35,831)
0
0
0
361,780
At 1 January 2006
Issue of shares arising from
conversion of ICULS
(Notes 25 and 26)
Net profit for the financial year
At 31 December 2006
76,820 592,710
0
6,760
7,249
6,760
* 5.5% 5-year Irredeemable Convertible Unsecured Loan Stocks 2003/2008
The accompanying notes form an integral part of the financial statements.
Southern Steel Berhad 5283-X
Annual Report 2006
31
CASH FLOW STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006
In RM’000 unless otherwise stated
Note
Group
2006
2005
Company
2005
2006
CASH FLOWS FROM OPERATING
ACTIVITIES
Net profit/(loss) for the financial year
84,518
(30,877)
88,901
6,760
1,763
(21,458)
218
(37)
45,740
(621)
(22,396)
0
0
7
3,771
(912)
5,333
(2,322)
(3,992)
0
43,059
(261)
(2,166)
3,795
79
13
1,453
(2,319)
0
(18,954)
0
(582)
36,291
(749)
(23,135)
0
0
0
1,027
0
0
1,114
0
(6,175)
34,693
(1,289)
(2,166)
0
0
0
263
0
85,148
257
(188)
87,938
1,700
(615)
55,656
33
(44)
55,586
1,664
69
884
2,241
17,512
(618)
1,494
12,021
15,360
(1,045)
884
321
17,256
0
1,494
1,547
13,601
0
(3,997)
2,598
(442)
0
0
2,573
0
2,390
0
1,093
0
0
0
1,040
0
0
(1,841)
0
0
0
166
192,313
0
133,611
0
157,998
0
108,201
(19,103)
(27,696)
16,856
162,370
(48,056)
(1,952)
(1,120)
(549)
110,693
33,315
22,026
(5,733)
183,219
(50,681)
(3,470)
(971)
(16)
128,081
(25)
(6,400)
13,931
165,504
(38,611)
(336)
(470)
0
126,087
24,144
5,690
4,236
142,271
(40,967)
(249)
(251)
0
100,804
Adjustments for:
Southern Steel Berhad 5283-X
Annual Report 2006
32
Share of results of associated companies
Taxation
Minority interests
Dividend income
Interest expense
Interest income
Net unrealised foreign exchange gain
Amortisation of goodwill
Goodwill written off
Bad debts written off
Allowance for doubtful debts
Allowance for doubtful debts written back
Property, plant and equipment:
- depreciation
- write off
- net (gain)/loss on disposals
Inventories:
- write off
- write down to net realisable value
- allowance for inventories obsolescence
- write back of allowance for obsolescence
- write down to net realisable value no longer
required
Provision for retirement benefits
Gain on disposals of investments
Provision for sales tax reassessment
Provision for sales tax reassessment written
back
Unrealised profit on sales to associated
companies
Changes in working capital:
Inventories
Receivables
Payables
Cash generated from operations
Interest paid
Taxation paid
Retirement benefits paid
Payment for sales tax reassessment
Net operating cash flow
The accompanying notes form an integral part of the financial statements.
CASH FLOW STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
CASH FLOWS FROM INVESTING
ACTIVITIES
Dividends received
Interest received
Property, plant and equipment:
- proceeds from disposals
- additions
Acquisition of additional equity interests
in an associated company
Acquisition of additional equity interests
in a subsidiary company from minority
interest holders
Acquisition of additional share capital in
a subsidiary company
Proceeds from disposal of quoted
investments
Note
2005
550
375
587
593
939
(29,997)
440
(27,810)
Net investing cash flow
CASH FLOWS FROM FINANCING
ACTIVITIES
Net repayment of revolving credits
Net repayment of foreign currency loans
Net proceeds from/(repayments of)
bankers’ acceptance
Repayment of long term borrowings
(exclude ICULS)
Issue of shares to a minority interest
holder
Dividends paid
Net financing cash flow
Net change in cash and cash
equivalents
Cash and cash equivalents at beginning
of the financial year
Cash and cash equivalents at end of
the financial year
Group
2006
582
749
44
(22,669)
6,175
1,940
112
(16,344)
0
(2,896)
0
(2,896)
0
(56)
0
0
0
0
0
(5,625)
761
0
0
0
(25,429)
(31,085)
(21,294)
(16,638)
(29,705)
(3,777)
(26,441)
(12,185)
(27,555)
0
(33,441)
0
(392)
(20,597)
(13,802)
(56,839)
(53,769)
(39,905)
2,511
(53,769)
1,875
(26,578)
0
0
(84,740)
28
Company
2005
2006
(120,560)
0
0
(101,921)
0
(26,578)
(113,726)
524
(23,564)
2,872
(29,560)
34,047
57,611
25,021
54,581
34,571
34,047
27,893
25,021
NON-CASH TRANSACTIONS - ADDITIONS OF PROPERTY, PLANT AND EQUIPMENT (“PPE”)
Analysis of total cash payment for cash flow purposes :
In respect of PPE acquired during the financial year
ended 31 December 2006
In respect of PPE acquired during the financial year
ended 31 December 2005 / 31 December 2004
(included in other payables and accruals)
28,480
(22,477)
26,755
(21,422)
23,339
(17,336)
13,102
(7,769)
6,003
5,333
6,003
5,333
22,477
21,422
17,336
7,769
5,333
8,575
5,333
8,575
27,810
29,997
22,669
16,344
The accompanying notes form an integral part of the financial statements.
33
Annual Report 2006
PPE additions
Less: cash payment
Balances included in other payables and accruals as
at 31 December 2006
2005
Company
2006
2005
Southern Steel Berhad 5283-X
Group
2006
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006
In RM’000 unless otherwise stated
1
GENERAL INFORMATION AND PRINCIPAL ACTIVITIES
The Company is a public limited liability company, incorporated and domiciled in Malaysia, and listed on
the Main Board of Bursa Malaysia Securities Berhad.
The registered office of the Company is located at 2723, Lorong Perusahaan 12, Prai Industrial Estate,
13600 Prai, Penang. The principal place of business of the Company is located at 2435, Lorong Perusahaan
12, Prai Industrial Estate, 13600 Prai, Penang.
The principal activities of the Company are the manufacturing of, sales and trading in billets, steel bars
and wire rods. The principal activities of its subsidiary companies and associated companies are described
in Notes 13 and 14 to the financial statements respectively. There have been no significant changes in the
nature of these activities during the financial year.
2
BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
The financial statements of the Group and the Company have been prepared under the historical cost
convention except as disclosed in the summary of significant accounting policies in Note 3 to the financial
statements and in accordance with the provisions of the Companies Act, 1965 and Financial Reporting
Standards (“FRS”), the Malaysian Accounting Standards Board (“MASB”) Approved Accounting Standards
in Malaysia for Entities Other Than Private Entities.
The preparation of financial statements in conformity with FRS requires management to exercise its
judgement in the process of applying the Group’s accounting policies. It also requires the use of accounting
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the financial year. Although these estimates are based on management's
best knowledge of current events and actions, actual results may ultimately differ from those estimates.
Critical accounting estimates and assumptions used that are significant to the financial statements, and
areas involving a higher degree of judgement or complexity, are disclosed in Note 5.
In 2006, the Group and the Company adopted the new or revised FRS that are applicable in the current
financial year. The 2006 financial statements have been amended as required, in accordance with the
relevant transitional provisions in the respective FRS. The following are the FRS that are relevant to the
Group:
Southern Steel Berhad 5283-X
Annual Report 2006
34
FRS 3
FRS 5
FRS 101
FRS 102
FRS 108
FRS 110
FRS 116
FRS 121
FRS 127
FRS 128
FRS 132
FRS 133
FRS 136
FRS 138
Business Combinations
Non-current Assets Held for Sale and Discontinued Operations
Presentation of Financial Statements
Inventories
Accounting Policies, Changes in Accounting Estimates and Errors
Events after the Balance Sheet Date
Property, Plant and Equipment
The Effects of Changes in Foreign Exchange Rates
Consolidated and Separate Financial Statements
Investments in Associates
Financial Instruments: Disclosure and Presentation
Earnings per share
Impairment of Assets
Intangible Assets
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
2
BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED)
All changes in accounting policies have been made in accordance with the transitional provisions in the
respective standards, amendments to published standards and interpretations. All standards, amendments
and interpretations adopted by the Group require retrospective application other than:
(i)
(ii)
FRS 3 – prospectively for business combinations for which the agreement date is on or after 1 January
2006
FRS 5 – prospectively to non-current assets (or disposal groups) that meet the criteria to be classified
as held for sale and to operations that meet the criteria to be classified as held for sale and operations
that meet the criteria to be classified as discontinued on/after 1 January 2006.
The adoption of the above FRS did not result in substantial changes to the Group’s accounting policies
except as disclosed in Note 4.
The new standards, amendments to published standards and interpretations that are mandatory for the
Group’s financial periods beginning on or after 1 January 2007 or later periods, but which the Group does
not opt for early adoption, are as follows:
(iii)
(iv)
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
All significant group accounting policies set out below are consistent with those applied in the previous
financial year unless otherwise stated.
(a)
BASIS OF CONSOLIDATION
The consolidated financial statements include the financial statements of the Company and all its
subsidiary companies, made up to the end of the financial year. A subsidiary company is a company,
in which the Group has the power, directly or indirectly to control the financial and operating policies
of the company so as to obtain benefits from its activities. All inter-company transactions, balances
and the resulting unrealised gains are eliminated on consolidation. Unrealised losses are also eliminated
unless cost cannot be recovered.
35
Annual Report 2006
(ii)
FRS 117 “Leases” (effective for accounting periods beginning on or after 1 October 2006). This
standard requires the classification of leasehold land as prepaid lease payments. The Group will apply
this standard from financial periods beginning on 1 January 2007.
FRS 124 “Related Party Disclosures” (effective for accounting periods beginning on or after 1 October
2006). This standard will affect the identification of related parties and some other related party
disclosures. The Group will apply this standard from financial periods beginning on 1 January 2007.
Amendment to FRS 1192004 “Employee Benefits” – Actuarial Gains and Losses, Group Plans and
Disclosures (effective for accounting periods beginning on or after 1 January 2007). This amendment
introduces the option of an alternative recognition approach for actuarial gains and losses. It may
impose additional recognition requirements for multi-employer plans where insufficient information
is available to apply defined benefit accounting. It also adds new disclosure requirements. As the
Group does not intend to change the accounting policy adopted for recognition of actuarial gains
and losses and does not participate in any multi-employer plans, adoption of this amendment will
only impact the format and extent of disclosures presented in the financial statements. The Group
will apply this amendment from financial periods beginning on 1 January 2007.
FRS 139 “Financial Instruments: Recognition and Measurement” (effective date has yet to be
determined by MASB). This new standard establishes principles for recognition and measuring financial
assets, financial liabilities and some contracts to buy and sell non-financial items. Hedge accounting
is permitted only under strict circumstances. The Group will apply this standard when effective.
Southern Steel Berhad 5283-X
(i)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(a)
BASIS OF CONSOLIDATION (CONTINUED)
The results of all the subsidiary companies are consolidated using the purchase method of accounting
except for the consolidation of Southern Steel Holdings Sdn. Bhd. sub-group prior to 1 January 2002
using the merger method of accounting in accordance with Malaysian Accounting Standard No. 2,
“Accounting for Acquisitions and Mergers”, the generally accepted accounting principles prevailing
at that time. The Group has applied FRS 3, “Business Combinations” prospectively. Accordingly, the
business combination entered into prior to 1 January 2002 has not been restated to comply with
the said FRS.
Under the purchase method of accounting, the results of the subsidiary companies acquired or
disposed of during the financial year are included in the consolidated income statement from the
date on which control is transferred to the Group and are de-consolidated from the date that control
ceases. At the date of acquisition, the fair values of the subsidiary companies’ net assets are
determined and these values are reflected in the consolidated financial statements. The excess of
the purchase consideration over the fair values of the net assets of the subsidiary companies acquired
is reflected in the financial statements as goodwill. However, if the purchase consideration is less
than the fair value of the net assets of subsidiary companies acquired, the difference is recognised
directly in the income statement as negative goodwill.
Goodwill recognised as intangible assets is tested at least annually for impairment and carried at cost
less accumulated impairment losses. The accounting policy on the recognition and measurement
of impairment losses is disclosed in Note 3(i) to the financial statements.
Under the merger method of accounting, the results of the subsidiary companies are presented as
if the merger had been effected throughout the current and previous financial years. The assets and
liabilities combined are accounted for based on the carrying amount from the perspective of the
common control shareholder at the date of transfer. On consolidation, the cost of the merger is
cancelled with the value of the shares received. Any resulting credit difference is classified as equity
and regarded as a non-distributable merger reserve. Any resulting debit difference is adjusted against
any suitable reserve. Any share premium, capital redemption reserve and any other reserves which
are attributable to share capital of the merged enterprises, to the extent that they have not been
capitalised by a debit difference, are classified and presented as movement in other capital reserves.
The gain or loss on disposal of a subsidiary is the difference between net disposal proceeds and the
Group’s share of its net assets as of the date of disposal including the cumulative amount of any
exchange differences that relates to the subsidiary is recognised in the consolidated income statement.
Southern Steel Berhad 5283-X
Annual Report 2006
36
(b)
SUBSIDIARY COMPANIES
Investments in subsidiary companies, which are eliminated on consolidation, are stated at cost less
accumulated impairment losses in the parent company’s separate financial statements. The accounting
policy on the recognition and measurement of impairment losses is disclosed in Note 3(i).
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c)
ASSOCIATED COMPANIES
An associated company is a company in which the Group exercises significant influence, but not
control, over the financial and operating policies. In the financial statements of the Company,
investments in associated companies are stated at cost less accumulated impairment losses. The
accounting policy on the recognition and measurement of impairment losses is disclosed in Note 3(i)
to the financial statements.
The Group equity accounts for its share of the results and reserves of the associated companies from
the date that significant influence effectively commences until the date that significant influence
effectively ceases or when the carrying amount of the investment in an associated company reaches
zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associated
company. Unrealised gains on transactions between the Group and its associated companies are
eliminated to the extent of the Group’s interest in the associated companies. Unrealised losses on
such transactions are also eliminated to the extent of the Group’s interest in the associated companies
unless cost cannot be recovered.
Goodwill on acquisition represents the excess of the purchase consideration over the fair values of
the net assets of the associated companies acquired. Goodwill on acquisition is included in the carrying
amount of the investments in the associated companies. Goodwill is tested at least annually for
impairment and carried at cost less accumulated impairment losses (refer to Note 3 (i)).
MINORITY INTERESTS
Minority interests represent that portion of the profit or loss and the net assets of a subsidiary
attributable to equity interests that are not owned, directly or indirectly through subsidiaries, by the
parent. It is measured at the minorities’ share of the fair value of the subsidiaries’ identifiable assets
and liabilities at the acquisition date and the minorities’ share of changes in the subsidiaries’ equity
since that date.
For purchases of a subsidiary’s equity shares from minority interests for cash consideration and the
purchase price is established at fair value, the accretion of the Group’s interests in the subsidiary is
treated as purchase of equity interest under the purchase method of accounting. The identifiable
assets and liabilities acquired are adjusted to their fair values, with the resulting difference being
attributed to goodwill or negative goodwill.
Disposals of equity shares to minority interests for cash consideration and at fair value result in gains
and losses for the Group and are recorded in the income statement. The gain and loss is the difference
between the Group’s share of net assets immediately before and immediately after the disposal and
a rateable portion of goodwill is realised.
For purchases or disposals from or to minority interests for consideration other than cash and not
at fair value, the accretion or dilution of the Group’s interests is treated as an equity transaction
between the subsidiary and its shareholders. The difference between the Group’s share of net assets
immediately before and immediately after the changes in stake and any consideration received or
paid is adjusted to or against the Group’s reserves.
37
Annual Report 2006
(d)
Southern Steel Berhad 5283-X
3
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d)
MINORITY INTERESTS (CONTINUED)
All other changes in stakes and changes in composition of the Group are treated as equity transactions
between the Group and its majority and minority shareholders. The difference between the Group’s
share of net assets before and after the change, and any consideration received or paid adjusted
to or against the Group’s reserves.
(e)
OTHER INVESTMENTS
Non-current investments are stated at cost. The investments are only written down when the Directors
are of the opinion that there is a decline other than temporary in the value of such investments. Such
a decline is recognised as an expense in the period in which the decline is identified. Write down in
value of investments previously recognised is reversed when the Directors are of the opinion that
the increase in value of investments is other than temporary.
Short term investments are carried at the lower of cost and market value, determined on an aggregate
portfolio basis by category of investment. Cost is determined using the weighted average basis.
Market value is calculated by reference to the stock exchange quoted selling prices at the close of
business on the balance sheet date. Reduction in the carrying amount of investments and reversal
of such reduction is taken to the income statement.
On disposal of an investment, the gain or loss representing the difference between net disposal
proceeds and the carrying amount of investment is credited or charged to the income statement.
(f)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment except for freehold land are stated at cost or valuation less accumulated
depreciation and impairment losses.
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 cost of the item can be measured reliably. The carrying amount of the
replaced part is derecognised. All other repairs and maintenance are charged to the income statement
during the financial period in which they are incurred.
Southern Steel Berhad 5283-X
Annual Report 2006
38
Revaluation of the land and buildings will be conducted at an interval of at least once in every five
years with additional revaluation in the intervening years if the carrying value of the revalued land
and buildings differ materially from the market values. Increases in the carrying amount arising from
revaluation are credited to the revaluation reserve. Decreases that offset previous increases of the
same assets are charged against the revaluation reserve. All other decreases are charged to income
statement.
Freehold land and capital work in progress are not depreciated. Leasehold land is amortised on a
straight line basis over the leasehold periods of 60 to 99 years. All other property, plant and equipment
are depreciated over their estimated useful lives on a straight line basis at the following principal
annual rates:
Buildings
Plant and machinery
Office equipment
Motor vehicles
2% -12%
5% - 20%
5% - 50%
20% - 25%
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f)
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Residual values and useful life of assets are reviewed and adjusted if appropriate, at each balance
sheet date.
Gain or loss on disposals of property, plant and equipment are determined by comparing proceeds
with carrying amounts of assets and are included in the income statements.
On disposal of revalued assets, amounts in revaluation reserve relating to those assets are transferred
to retained profits.
At the balance sheet date, the Group assesses whether there is any indication of impairment. If such
indications exist, an analysis is performed to assess whether the carrying amount of the asset is fully
recoverable. A write down is made if the carrying amount exceeds the recoverable amount. The
accounting policy on the recognition and measurement of impairment losses is disclosed in Note 3(i).
(g)
NON-CURRENT ASSETS HELD FOR SALE
Non-current assets are classified as assets held for sale and stated at the lower of carrying amount
and fair value less costs to sell if their carrying amount is recovered principally through a sale transaction
rather than through continuing use.
RESEARCH AND DEVELOPMENT
Research expenditure is recognised as an expense when incurred. Costs incurred on development
projects (relating to the design and testing of new or improved products) are recognised as intangible
assets when the following criteria are fulfilled:
(i)
it is technically feasible to complete the intangible asset so that it will be available for use or
sale;
(ii)
management intends to complete the intangible asset and use or sell it;
(iii)
there is an ability to use or sell the intangible asset;
(iv)
it can be demonstrated how the intangible asset will generate probable future economic
benefits;
(v)
adequate technical, financial and other resources to complete the development and to use or
sell the intangible asset are available; and
(vi)
the expenditure attributable to the intangible asset during its development can be reliably
measured.
Other development expenditure is recognised as an expense when incurred. Development costs
previously recognised as an expense are not recognised as an asset in a subsequent period.
Development costs that have been capitalised are amortised from the commencement of the
commercial production of the products to which they relate on a straight line basis over the period
of their expected benefits. The accounting policy on the recognition and measurement of impairment
losses in respect of development costs capitalised is disclosed in Note 3(i).
39
Annual Report 2006
(h)
Southern Steel Berhad 5283-X
3
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i)
IMPAIRMENT OF ASSETS
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment. Assets that are subject to amortisation are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment
loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in
use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units). Non-financial assets other than
goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each
reporting date.
The impairment loss is charged to the income statement unless it reverses a previous revaluation in
which case it is charged to the revaluation reserve. Impairment losses on goodwill are not reversed.
In respect of other assets, any subsequent increase in recoverable amount is recognised in the income
statement unless it reverses an impairment loss on a revalued asset in which case it is taken to
revaluation reserve.
(j)
INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Cost is determined principally
on the weighted average basis. Cost of raw materials comprises all costs of purchases and other
costs incurred in bringing the raw materials to their present locations and conditions. Costs of billets
(included in raw materials), work in progress and finished goods comprise direct materials, direct
labour, other direct costs and an appropriate proportion of production overheads (based on normal
operating capacity) but exclude borrowing costs. Net realisable value is the estimated selling price
in the ordinary course of business, less the costs of completion and selling expenses.
(k)
RECEIVABLES
Receivables are carried at anticipated realisable value. Known bad debts are written off and allowance
is made for debts which are considered doubtful.
(l)
FOREIGN CURRENCIES
Southern Steel Berhad 5283-X
Annual Report 2006
40
i)
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using
the currency of the primary economic environment in which the entity operates (the “functional
currency”). The financial statements are presented in Ringgit Malaysia, which is the Company’s
functional and presentation currency.
ii)
Transactions and balances
Transactions in foreign currencies are converted into Ringgit Malaysia at the rates of exchange
approximating to those ruling at transaction dates, unless hedged by forward foreign exchange
contracts, in which case the rates specified in such forward contracts are used. Monetary assets
and liabilities denominated in foreign currencies, are translated into Ringgit Malaysia at rates
of exchange approximating to those ruling at the balance sheet date.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l)
FOREIGN CURRENCIES (CONTINUED)
iii)
Group companies
For inclusion in the consolidated financial statements, assets and liabilities of foreign operations
are translated into Ringgit Malaysia at rates of exchange approximating those prevailing at
the balance sheet date while income statements of foreign operations are translated at average
exchange rates for the financial year. Exchange differences arising from the retranslation of
net investment in foreign operations is dealt with through the exchange fluctuation reserve.
On disposal of the foreign operations, such exchange differences are recognised in the income
statement as part of the gain or loss on disposal. All other exchange differences are dealt with
through the income statement.
The principal closing rates used in the translation of the currency amounts are as follows:
Foreign currency
31.12.2006
RM
31.12.2005
RM
1 US Dollar
1 Singapore Dollar
1 Euro
3.53
2.30
4.65
3.78
2.27
4.47
(m) FINANCIAL INSTRUMENTS
(i)
Financial instruments recognised on the balance sheet
Financial instruments are recognised when the Group and the Company has become a party
to the contractual provisions of an instrument. Financial instruments, or their component parts,
are classified as assets, liabilities or equity in accordance with the substance of the contractual
arrangement. Interest, dividends, gains and losses relating to a financial instrument classified
as a financial liability are reported in the income statement as income or expense. Distributions
to holders of financial instruments classified as equity are debited directly to equity.
(ii)
Other financial instruments
Forward foreign exchange contracts are entered into by the Group to hedge the risk exposure
to fluctuations in foreign currency exchange rates. Forward foreign exchange contracts and
their fair values are not recognised in the financial statements at inception. Gains or losses on
foreign exchange relating to forward foreign exchange contracts entered into by the Group
as hedges for receivables/payables are recognised in the income statements in the financial
year in which the exchange differences on the underlying hedged items are recognised.
41
Annual Report 2006
Financial instruments are offset and the net amount presented in the balance sheet when the
Group and the Company has a legally enforceable right to offset and intends to settle either
on a net basis or to realise the asset and settle the liability simultaneously.
Southern Steel Berhad 5283-X
3
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m) FINANCIAL INSTRUMENTS (CONTINUED)
(iii)
Fair value estimation for disclosure purpose
Financial instruments recognised on the balance sheet
The face values of financial assets (less any estimated credit adjustments) and financial liabilities
with maturity of less than one year or financial liabilities at floating rates are assumed to
approximate their fair values.
Other financial instruments
Fair value of forward foreign exchange contracts is determined using forward foreign exchange
market rates obtainable at the balance sheet date for contracts with similar remaining period
to maturity.
(n)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash in hand, bank balances, demand deposits, bank overdrafts
and short term, highly liquid investments that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value.
(o)
PROVISIONS
Provisions are recognised when the Group has a present legal or constructive obligation as a result
of past events, 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. Where the Group expects a provision to be reimbursed and the reimbursement is virtually
certain, the reimbursement is recognised as a separate asset.
(p)
BORROWINGS AND BORROWING COSTS
Borrowings are initially recognised based on the proceeds received, net of transaction cost incurred.
In subsequent periods, borrowings are stated at amortised cost using the effective yield method.
Any difference between proceeds (net of transaction cost) and the redemption value is recognised
in the income statement over the period of the borrowings.
42
Southern Steel Berhad 5283-X
Annual Report 2006
Interest expense on the ICULS is calculated on an effective yield basis by applying the effective interest
rate of 8.00% per annum for an equivalent irredeemable non-convertible loan stock to the liability
component of the ICULS.
Interest expense and other related costs incurred on borrowings are charged to the income statement
in the financial year in which the interest expense and other related costs are incurred.
(q)
INCOME TAXES
Current tax expense is determined according to the tax laws of each jurisdiction in which the Group
operates and includes all taxes based upon the taxable profits, including withholding taxes payable
by foreign subsidiary company or associated company on distributions of retained profits to companies
in the Group, and real property gains taxes payable on disposal of properties.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(q)
INCOME TAXES (CONTINUED)
Deferred tax is recognised in full, using the liability method, on temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the financial statements unless
the temporary differences arise from initial recognition of an asset or liability in a transaction which
is not a business combination and at the time of the transaction, affects neither accounting profit
nor taxable profit. Deferred tax is recognised on temporary differences arising from investment in
subsidiary companies and associated companies except where the timing of the reversal of the
temporary difference can be controlled and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be
available against which the underlying deductible temporary differences or unused tax losses or
credits can be utilised.
Tax rate enacted or substantively enacted by the balance sheet date are used to determine deferred
tax. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off
current tax assets against current tax liabilities and when the deferred taxes relate to the same tax
authority.
(r)
RECOGNITION OF INCOME
Revenue of the Group and the Company represents the invoiced value of goods, net of discounts
and returns. Revenue from sales of goods is recognised when the goods have been delivered and
significant risks and rewards have been transferred to the buyer.
Interest income is recognised on an accrual basis determined by the principal outstanding and rates
applicable.
Dividend income is recognised when the rights to receive payment is established.
Other income is recognised on an accrual basis.
EMPLOYEE BENEFITS
43
(i)
Short term employee benefits
Short term employee benefits are accrued in the financial year in which the associated services
are rendered by employees of the Group.
(ii)
Post-employment benefits
Defined contribution plan
The Company and its subsidiary companies contribute to a defined contribution plan, the
Employees Provident Fund (“EPF”). The Company and its subsidiary companies’ contributions
to the plan are charged to the income statement in the financial year to which they relate.
Once the contributions have been paid, the Company and its subsidiary companies have no
further payment obligations.
Annual Report 2006
(s)
Southern Steel Berhad 5283-X
3
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(s)
EMPLOYEE BENEFITS (CONTINUED)
(ii)
Post-employment benefits (CONTINUED)
Defined benefit plans
The Company and its subsidiary companies have 4 unfunded plans and a funded plan.
Included in the unfunded plans is a plan established pursuant to the Collective Agreement
between certain subsidiary companies and The Metal Industry Employees’ Union for duration
of 3 years ending 30 June 2009. The unfunded defined benefits plan obligations are provided
for based on actuarial valuations carried out in December 2003, December 2005 and December
2006.
The assets of the funded plan are held separately from those of the relevant subsidiary company
in an independently administered fund. The most recent actuarial valuation for the funded
defined benefit plan was carried out in December 2006.
Effective 1 April 2002, the defined benefit plans of all eligible non-unionised employees of the
Company and its subsidiary companies were changed to that of higher EPF contributions
depending on years of service. The defined benefit obligation in respect of these employees
up to 31 March 2002 under the old plans is carried forward as provision for retirement benefits
in the financial statements. For other eligible employees, the defined benefit obligation is
determined based on years of service of employees up to the balance sheet date.
The liability in respect of defined benefit plans is the present value of the defined benefit
obligation at the balance sheet date minus the fair value of plan assets, together with adjustments
for actuarial gains/losses and past service cost. The defined benefit obligation, calculated using
the projected unit credit method, is determined by independent actuaries, considering the
estimated future cash outflows using market yields at the balance sheet date of government
securities which have currency and terms to maturity approximating the terms of the related
liability. The Group determines the present value of defined benefit obligation and the fair
value of any plan assets with sufficient regularity such that the amounts recognised in the
financial statements do not differ materially from the amounts that would be determined at
the balance sheet date.
Southern Steel Berhad 5283-X
Annual Report 2006
44
Plan assets in excess of the defined benefit obligation are subject to the limitation on recognition
of assets as specified in FRS 1192004, “Employee Benefits”. Actuarial gains and losses arise from
experience adjustments and changes in actuarial assumptions. The amount of net actuarial
gains and losses recognised in the income statement is determined by the corridor method
in accordance with FRS 1192004 and is charged or credited to income statement over the average
remaining service lives of the related employees participating in the defined benefit plans.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(t)
SHARE CAPITAL
(i)
Classification
Ordinary shares are classified as equity.
(ii)
Dividends
Dividends on ordinary shares are recognised as liabilities when approved for payment.
(u)
SEGMENT REPORTING
Segment reporting is presented for enhanced assessment of the Group’s risks and returns. A business
segment is a group of assets and operations engaged in providing products or services that are
subject to risk and returns that are different from those of other business segments. A geographical
segment is engaged in providing products or services within a particular economic environment that
are subject to risks and return that are different from those components.
Segment revenue, expenses, assets and liabilities are those amounts resulting from the operating
activities of a segment that are directly attributable to the segment and the relevant portion that
can be allocated on a reasonable basis to the segment. Segment revenue, expense, assets and
segment liabilities are determined before intra-group balances and intra-group transactions are
eliminated as part of the consolidation process, except to the extent that such intra-group balances
and transactions are between group enterprises within a single segment. Inter-segment pricing is
based on similar terms as those available to other external parties.
COMPOUND INSTRUMENT
4
EFFECTS ON FINANCIAL STATEMENTS ON ADOPTION OF NEW OR REVISED FRS
The effects on adoption of the new or revised FRS as set out in Note 2 are set out below:
(a)
RECLASSIFICATION OF PRIOR YEAR COMPARATIVES
Set out below are changes in accounting policies that resulted in reclassification of prior year’s
comparatives but do not affect the recognition and measurement of the Group and Company’s net
assets:
45
Annual Report 2006
On issue of a financial instrument that contains both liability and an equity component, the fair value
of the liability portion of a compound financial instrument is determined using the market interest
rate for an equivalent financial instrument with no conversion rights; this amount is carried as a
liability on an amortised cost basis until extinguished upon conversion or maturity of the instrument.
The remainder of the proceeds is allocated to the conversion option, which is recognised and included
in shareholders’ equity; the value of the conversion option allocated at inception is not changed at
subsequent periods although its balance is reduced upon conversion of the compound instrument.
Southern Steel Berhad 5283-X
(v)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
4
EFFECTS ON FINANCIAL STATEMENTS ON ADOPTION OF NEW OR REVISED FRS (CONTINUED)
(a)
RECLASSIFICATION OF PRIOR YEAR COMPARATIVES (CONTINUED)
(i)
FRS 101 Presentation of Financial Statements has affected the presentation of minority interests.
In the consolidated balance sheet, minority interests are now presented within equity, separately
from the equity holders of the Company. Profit or loss in the consolidated income statement
as well as total income and expenses for the year recognised directly in equity are now allocated
between minority interests and equity holders of the Company.
(ii)
Under FRS 101, the Group’s share of results of associated companies is now shown net of tax.
The effects of the above standards on the Group’s financial statements for the current and prior
financial years are set out in Note 4(e)(i).
(b)
FRS 3 “BUSINESS COMBINATIONS”, FRS 136 “IMPAIRMENT OF ASSETS” AND FRS 138
“INTANGIBLE ASSETS”
Goodwill
Until 31 December 2005, goodwill was amortised on a straight line method over 25 years, or such
lesser period as the Directors may determine; and at each balance sheet date, the Group assessed
if there was any indication of impairment of the cash-generating-unit to which the goodwill is attached.
In accordance with the provisions of FRS 3 with effect from 1 January 2006, the Group ceased
amortisation of goodwill, and goodwill is stated at cost less accumulated impairment, and is tested
annually for impairment, as well as when there are indications of impairment. Under the transitional
provision of FRS 3, the accumulated amortisation as at 31 December 2005 has been eliminated with
a corresponding decrease in the cost of goodwill.
Until 31 December 2005, negative goodwill was recognised as reserve on consolidation. Under the
transitional provision of FRS 3, the Group’s carrying amount of negative goodwill that arose from
acquisitions prior to that date was derecognised with a corresponding adjustment to retained profits.
The effects on the balance sheet as at 31 December 2006 and income statement for the financial
year ended 31 December 2006 are set out in Notes 4(e)(ii) and 4(e)(iii) respectively.
FRS 5 “NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS”
Annual Report 2006
(c)
Previously, non-current assets held for sale were not classified as current assets. There were no
differences in the measurement of non-current assets held for sale and those for continuing use.
With the adoption of FRS 5, non-current assets are classified as current assets held for sale and stated
at the lower of carrying amount and fair value less costs to sell if their carrying amounts are recovered
principally through a sale transaction rather than through continuing use.
Southern Steel Berhad 5283-X
46
The effects on the balance sheet as at 31 December 2006 and income statement for the financial
year ended 31 December 2006 are set out in Notes 4(e)(ii) and 4(e)(iii) respectively.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
EFFECTS ON FINANCIAL STATEMENTS ON ADOPTION OF NEW OR REVISED FRS (CONTINUED)
(d)
FRS 133 “EARNINGS PER SHARE”
ICULS, a mandatorily convertible instrument, was previously treated as potential ordinary shares in
the calculation of diluted earnings per share. With the adoption of FRS 133, ordinary shares that will
be issued upon the conversion of mandatorily convertible instrument are to be included in the
calculation of basic earnings per share from the date the contract is entered into.
The effects on the income statements for the financial year ended 31 December 2005 and 31
December 2006 are set out in Notes 4(e)(i) and 4(e)(iii) respectively.
Summary of effects on adoption of new or revised FRS on:
(i)
Restatement of the Consolidated Income Statement for the financial year ended 31
December 2005
The following table discloses the adjustments that have been made in accordance with the transitional
and new provisions of the respective FRS to each of the line items in the Group’s income statement
for the financial year ended 31 December 2005.
Group
Share of results of associated
companies
Loss before taxation
Taxation
Loss per share (sen)
- basic
- fully diluted
(ii)
As
previously
reported
Change in accounting policies
FRS 101
FRS 133
As restated
Note 4(a)
Note 4(d)
(8,540)
(40,398)
5,529
3,207
3,207
(3,207)
0
0
0
(5,333)
(37,191)
2,322
(8.9)
(7.2)
0
0
1.5
(0.2)
(7.4)
(7.4)
Effects of changes in accounting policies on the Balance Sheets as at 31 December
2006
The following table discloses the effects of changes in accounting policies that have been made in
accordance with the new provisions of the respective FRS to each of the line items in the Group and
Company’s balance sheets as at 31 December 2006.
Balances
before
changes in
accounting
policies
Group
Retained profits
Goodwill on consolidation
Reserve on consolidation
Investment in associated companies
Non-current assets held for sale
Company
Investment in associated companies
Non-current assets held for sale
59,099
45,196
3,065
77,017
0
52,220
0
Balances
after
changes in
accounting
Change in accounting policies
policies
FRS 3
FRS 5
Note 4(b)
Note 4(c)
6,860
0
65,959
3,795
0
48,991
(3,065)
0
0
0
(63,941)
13,076
0
63,941
63,941
0
0
(46,720)
46,720
5,500
46,720
47
Annual Report 2006
(e)
Southern Steel Berhad 5283-X
4
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
4
EFFECTS ON FINANCIAL STATEMENTS ON ADOPTION OF NEW OR REVISED FRS (CONTINUED)
(e)
Summary of effects on adoption of new or revised FRS on: (continued)
(iii)
Effects of changes of accounting policies on the Consolidated Income Statement for
the financial year ended 31 December 2006
The following table discloses the effects of changes of accounting policies that have been made in
accordance with the new provisions of the respective FRS to each of the line items in the Group’s
income statement for the financial year ended 31 December 2006.
Balances
before
changes in
accounting
policies
Group
Other operating expenses
Profit after taxation
Earnings per share (sen)
-basic
-fully diluted
5
(13,479)
80,941
Change in accounting policies
FRS 3
FRS 133
Note 4(d)
Note 4(b)
0
3,795
0
3,795
23.3
20.2
0
0
(3.1)
0
Balances
after
changes in
accounting
policies
(9,684)
84,736
20.2
20.2
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the circumstances.
(i)
Estimated impairment of goodwill
The Group tests goodwill for impairment annually in accordance with the accounting policy stated
in Note 3(i). More regular reviews are performed if events indicate that this is necessary.
The recoverable amounts of cash-generating units were determined based on value-in-use calculations.
These calculations require the use of estimates as set out in Note 16.
Southern Steel Berhad 5283-X
Annual Report 2006
48
(ii)
Income taxes
The Group is subject to income taxes whereby significant judgement is required in determining the
capital allowances and deductibility of certain expenses during the estimation of the provision for
income taxes. There are many transactions and calculations for which the ultimate tax determination
is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated
tax audit issues based on estimates of whether additional taxes will be due. Where the final tax
outcome of these matters is different from the amounts that were initially recorded, such differences
will impact the income tax and deferred income tax provisions in the period in which such determination
is made.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group's activities expose it to a variety of financial risks, including foreign currency exchange risk, credit
risk, interest rate risk, liquidity risk and cash flow risks. The Group's overall financial risk management
objective is to ensure that the Group minimises its exposure to financial downside risks at reasonable costs.
The Directors regularly review and assess the financial risk management policies to mitigate potential adverse
effects from the unpredictability of financial markets on its financial performance. The Group uses forward
foreign exchange contracts to hedge its risk exposures to fluctuations in foreign currency exchange rates.
It does not trade in financial instruments.
Foreign currency exchange risk
The Group is exposed to foreign currency exchange risk which is mainly in US Dollar. The Group, however,
monitors development in the government's policy and market conditions to take necessary actions should
there be any indication of unfavourable foreign exchange movement.
Credit risk
The Group seeks to control credit risk by applying due credit control procedures on a regular basis to review
and monitor the financial viability of its customers. Sales of products and services are made to customers
with an appropriate credit history, and sales are suspended when the outstanding debts exceed the credit
period/limit granted.
Interest rate, liquidity and cash flow risks
Interest risk exposure arises from the Group's borrowings, and is managed through the use of fixed and
floating rate debts with the objectives of minimising interest burden whilst maintaining an acceptable debt
maturity profile. The Group also seeks to maintain flexibility in funding by maintaining adequate committed
credit lines.
Annual Report 2006
49
Southern Steel Berhad 5283-X
6
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
7
OPERATING PROFIT
Group
Company
2005
2006
2006
2005
0
0
99,295
3,795
79
98,604
0
0
55,078
0
0
50,090
228
12
213
12
85
12
71
12
240
158
225
143
155
1,142
105
1,982
140
1,142
90
1,982
0
7
3,771
3
13
1,453
0
0
1,027
0
0
263
884
2,241
17,512
1,494
12,021
15,360
884
321
17,256
1,494
1,547
13,601
85,148
257
24
87,938
1,700
69
55,656
33
0
55,586
1,664
69
266
609
5,974
0
273
507
6,082
2,390
303
139
5,974
0
299
126
6,082
0
Operating profit is stated after charging:
Southern Steel Berhad 5283-X
Annual Report 2006
50
Amortisation of goodwill
Goodwill written off
Staff costs *
Auditors’ remuneration:
- statutory audit
- others
Directors’ remuneration:
- Fees
- Fees payable to corporations in respect
of services provided by certain Directors
- Other emoluments *
- Other emoluments payable to
corporations in respect of services
provided by certain Directors
Bad debts written off
Allowance for doubtful debts
Inventories:
- write off
- write down to net realisable value
- allowance for inventory obsolescence
Property, plant and equipment:
- depreciation
- write off
- loss on disposals
Rental:
- land and buildings
- equipment and furniture
Research and development expenditure
Provision for sales tax reassessment
* Included in the staff costs and Directors’ other emoluments are contributions to a defined contribution
plan of approximately RM8,378,000 (2005: RM8,567,000) and RM4,596,000 (2005: RM4,439,000) for the
Group and the Company respectively.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
7
OPERATING PROFIT (CONTINUED)
Group
and crediting:
Allowance for doubtful debts written
back
Gross dividends from:
- shares quoted in Malaysia
- subsidiary company
- associated company in Malaysia
Interest income
Inventories:
- write back of allowance for inventory
obsolescence
- write down to net realisable value no
longer required
Property, plant and equipment:
- gain on disposals
Rental income
Net foreign exchange gain:
- unrealised
- realised
Provision for sales tax reassessment
written back
Investments:
- gain on disposals
Company
2006
2005
2006
2005
912
2,319
0
0
37
0
0
621
0
0
0
261
32
0
550
749
0
5,625
550
1,289
618
1,045
0
0
3,997
0
0
0
212
92
684
87
44
92
0
87
22,396
1,777
2,166
1,379
23,135
2,775
2,166
1,122
1,841
0
0
0
442
0
0
0
Number of employees of the Group and the Company at end of the financial year was 2,706 (2005: 2,825)
and 1,197 (2005: 1,259) respectively.
FINANCE COSTS
Interest expense on:
- Borrowings
- ICULS
- Others
(45,134)
(501)
(105)
(45,740)
2005
(41,790)
(892)
(377)
(43,059)
Company
2006
2005
(35,704)
(501)
(86)
(36,291)
(32,409)
(892)
(1,392)
(34,693)
51
Annual Report 2006
Group
2006
Southern Steel Berhad 5283-X
8
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
9
TAXATION
Group
2006
Current tax
Deferred tax
Real property gains tax
Current tax
Current financial year
Benefits from previously unrecognised
tax losses
Over provision in prior financial years
Deferred tax
Origination and reversal of temporary
differences
(Under)/over provision in prior financial
years
Effects of changes in tax rate
Real property gains tax
Over provision in prior financial years
Tax credit/(expense)
Southern Steel Berhad 5283-X
Annual Report 2006
52
2005
Company
2006
2005
396
21,007
21,403
55
21,458
(1,011)
3,233
2,222
100
2,322
439
18,460
18,899
55
18,954
34
(1,248)
(1,214)
100
(1,114)
(316)
(1,233)
0
0
0
712
396
18
204
(1,011)
0
439
439
0
34
34
24,720
3,235
21,436
(1,811)
(10,468)
6,755
21,007
21,403
(2)
0
3,233
2,222
(9,682)
6,706
18,460
18,899
563
0
(1,248)
(1,214)
55
21,458
100
2,322
55
18,954
100
(1,114)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
TAXATION (CONTINUED)
The explanation of the relationship between income tax credit/(expense) and profit/(loss) from ordinary
activities before taxation is as follows:
2005
Company
2005
2006
Profit/(loss) from ordinary activities before
taxation
63,278
(37,191)
69,947
7,874
Tax calculated at income tax rate of 28%
(2005: 28%):
(17,718)
10,413
(19,585)
(2,205)
(493)
6,816
(1,493)
0
0
6,706
(18)
6,524
(6,085)
429
10,226
6
190
(5,361)
2,264
2,202
0
6,660
(5,144)
261
9,504
26,836
0
26,836
0
2,897
0
2,897
0
(4)
(4,413)
0
0
2,558
2
0
18
0
0
0
0
(741)
35
(45)
(60)
48,877
(2,018)
250
(3)
(35)
(8,393)
0
0
0
7
47,727
0
0
0
0
394
712
(10,468)
21,403
204
(2)
2,222
439
(9,682)
18,899
Tax effects of:
Share of results of associated companies
Change in tax rate*
Different tax rates in small & medium
industry
Income not subject to tax
Expenses not deductible for tax purposes
Expenses eligible for double deduction
Utilisation of reinvestment allowance
Future tax benefits arising from allowance
for increase in export
Utilisation of allowance for increase in
export
Current financial year’s tax losses not
recognised
Benefit from previously unrecognised
deductible temporary differences arising
from property, plant and equipment
Previously unrecognised tax losses
Temporary differences not recognised:
- property, plant and equipment
- accruals
- others
Others
Over/(under)provision in prior financial
years:
- current tax
- deferred tax
Tax credit/(expense)
0
0
0
1,729
(3,188)
1,853
0
34
563
(1,214)
* As gazetted in the Finance Act 2006, the income tax rate is 27% and 26% for Year of Assessment 2007
and Year of Assessment 2008 onwards respectively (2005: 28%).
53
Annual Report 2006
Group
2006
Southern Steel Berhad 5283-X
9
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
9
TAXATION (CONTINUED)
(a)
Share of taxation of associated companies
Under FRS 101, the Group’s share of results of associated companies includes the applicable tax
charge. As such, comparative figures of 2005 have been restated as referred to in Notes 4(a)(ii) and
4(e)(i).
(b)
Unused tax losses and tax credits
The Group and the Company have, subject to confirmation by the Inland Revenue Board, the following
unused tax losses and tax credits as at 31 December 2006:
Group
2006
Tax losses carried forward
Unabsorbed capital allowances
Unabsorbed reinvestment allowances
Unabsorbed investment tax allowances
Unabsorbed increase export allowances
10
Annual Report 2006
Southern Steel Berhad 5283-X
192,600
85,564
484,225
1,297
0
763,686
47,715
0
348,262
0
103,214
499,191
100,924
45,439
394,984
0
0
541,347
DIVIDENDS PER SHARE
Paid:
Interim dividend
Proposed:
Final dividend
54
144,793
29,184
437,573
1,297
103,214
716,061
Company
2006
2005
2005
Group & Company
2006
2005
Gross
Amount of
Gross Amount of
dividend
dividend, dividend per
dividend,
per share
tax exempt
share tax exempt
sen
RM
sen
RM
0
0
2.5
9,054
5
5
18,122
18,122
0
2.5
0
9,054
A first and final tax exempt dividend of 5 sen per share amounting to a total of RM18,122,000, based on
the number of ordinary shares in issue at 31 December 2006, will be proposed at the forthcoming Annual
General Meeting. These financial statements do not reflect this dividend, which will be accounted for in
shareholders’ equity as an appropriation of retained profits in the financial year ending 31 December 2007.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
EARNINGS/(LOSS) PER SHARE
(a)
Basic earnings/(loss) per share
The calculation of basic earnings per share for the financial year is based on the net profit attributable
to ordinary shareholders of RM84,518,000 and the weighted average number of ordinary shares
(after conversion of mandatorily convertible instrument) outstanding during the financial year of
419,417,542.
Group
2006
Profit/(loss) attributable to equity holders of the Company (RM’000)
Weighted average number of ordinary shares in issue during
the financial year (‘000)
Adjustment for conversion of ICULS*
Weighted average number of ordinary shares
Basic earnings/(loss) per share (sen)
2005
84,518
(30,877)
362,258
57,160
419,418
345,721
73,697
419,418
20.2
(7.4)
* The adjustment for conversion of ICULS is based on the assumption that all mandatorily convertible
instruments such as ICULS are converted into ordinary shares from the date the contract is entered
into.
Diluted earnings/(loss) per share
Diluted earnings/(loss) per share is not calculated as there is no other dilutive event. Conversion of
ICULS has already been taken into account in the basic earnings/(loss) per share calculation in
accordance with FRS 133.
55
Annual Report 2006
(b)
Southern Steel Berhad 5283-X
11
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
12
PROPERTY, PLANT AND EQUIPMENT
Financial year ended 31 December 2006
Group
Cost/Valuation
At valuation
Freehold land
Long term leasehold land
Short term leasehold land
Buildings
At cost
Freehold land
Long term leasehold land
Short term leasehold land
Buildings
Plant and machinery
Office equipment
Motor vehicles
Capital work in progress
At
1.1.2006
Additions
Reclassifications
Write-offs/
Disposals
At
31.12.2006
28,240
63,526
32,152
242,833
0
0
0
0
0
0
0
0
(221)
0
0
0
28,019
63,526
32,152
242,833
323
68
5,290
16,270
1,300,773
30,707
12,751
366
1,733,299
0
0
0
796
25,886
1,294
56
448
28,480
0
0
0
(1)
59
0
0
(58)
0
0
0
0
0
(1,294)
(1,032)
(572)
0
(3,119)
323
68
5,290
17,065
1,325,424
30,969
12,235
756
1,758,660
Accumulated depreciation
Southern Steel Berhad 5283-X
Annual Report 2006
56
At valuation
Long term leasehold land
Short term leasehold land
Buildings
At cost
Long term leasehold land
Short term leasehold land
Buildings
Plant and machinery
Office equipment
Motor vehicles
Net book value
At
1.1.2006
Charge for
the financial
year
Reclassifications
Write-offs/
Disposals
At
31.12.2006
5,313
3,036
42,049
1,164
913
11,131
0
0
0
0
0
0
6,477
3,949
53,180
0
141
1,384
716,218
25,521
10,660
804,322
1
130
635
68,200
2,368
606
85,148
0
0
0
0
0
0
0
0
0
0
(1,025)
(1,013)
(572)
(2,610)
1
271
2,019
783,393
26,876
10,694
886,860
928,977
871,800
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Financial year ended 31 December 2005
Group
Cost/Valuation
At valuation
Freehold land
Long term leasehold land
Short term leasehold land
Buildings
At cost
Freehold land
Long term leasehold land
Short term leasehold land
Buildings
Plant and machinery
Office equipment
Motor vehicles
Capital work in progress
At
1.1.2005
Additions
Reclassifications
Write-offs/
Disposals
At
31.12.2005
28,240
63,526
32,152
242,833
0
0
0
0
0
0
0
0
0
0
0
0
28,240
63,526
32,152
242,833
323
0
5,290
12,576
1,292,292
29,420
11,297
233
1,718,182
0
68
0
3,701
18,860
2,274
1,695
157
26,755
0
0
0
(7)
24
7
0
(24)
0
0
0
0
0
(10,403)
(994)
(241)
0
(11,638)
323
68
5,290
16,270
1,300,773
30,707
12,751
366
1,733,299
Accumulated depreciation
Net book value
Charge for
the financial
year
Reclassifications
Write-offs/
Disposals
At
31.12.2005
4,149
2,123
30,963
1,164
913
11,086
0
0
0
0
0
0
5,313
3,036
42,049
11
826
653,920
23,593
10,413
725,998
130
558
70,777
2,822
488
87,938
0
0
0
0
0
0
0
0
(8,479)
(894)
(241)
(9,614)
141
1,384
716,218
25,521
10,660
804,322
992,184
928,977
57
Annual Report 2006
At valuation
Long term leasehold land
Short term leasehold land
Buildings
At cost
Short term leasehold land
Buildings
Plant and machinery
Office equipment
Motor vehicles
At
1.1.2005
Southern Steel Berhad 5283-X
12
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
12
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Financial year ended 31 December 2006
Company
Cost/Valuation
At valuation
Freehold land
Long term leasehold land
Short term leasehold land
Buildings
At cost
Freehold land
Long term leasehold land
Short term leasehold land
Buildings
Plant and machinery
Office equipment
Motor vehicles
At
1.1.2006
Additions
Reclassifications
Write-offs/
Disposals
At
31.12.2006
11,900
32,741
23,005
164,822
0
0
0
0
0
0
0
0
0
0
0
0
11,900
32,741
23,005
164,822
323
68
5,290
6,333
904,685
16,923
11,532
1,177,622
0
0
0
120
22,741
426
52
23,339
0
0
0
(1)
1
0
0
0
0
0
0
0
(35)
(218)
(260)
(513)
323
68
5,290
6,452
927,392
17,131
11,324
1,200,448
Accumulated depreciation
Southern Steel Berhad 5283-X
Annual Report 2006
58
At valuation
Long term leasehold land
Short term leasehold land
Buildings
At cost
Long term leasehold land
Short term leasehold land
Buildings
Plant and machinery
Office equipment
Motor vehicles
Net book value
At
1.1.2006
Charge for
the financial
year
Reclassifications
Write-offs/
Disposals
At
31.12.2006
2,606
2,333
30,875
695
621
8,240
0
0
0
0
0
0
3,301
2,954
39,115
0
140
260
419,411
14,227
9,543
479,395
1
130
262
43,874
1,268
565
55,656
0
0
0
0
0
0
0
0
0
0
(16)
(204)
(260)
(480)
1
270
522
463,269
15,291
9,848
534,571
698,227
665,877
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Financial year ended 31 December 2005
Company
Cost/Valuation
At valuation
Freehold land
Long term leasehold land
Short term leasehold land
Buildings
At cost
Freehold land
Long term leasehold land
Short term leasehold land
Buildings
Plant and machinery
Office equipment
Motor vehicles
At
1.1.2005
Additions
Reclassifications
Write-offs/
Disposals
At
31.12.2005
11,900
32,741
23,005
164,822
0
0
0
0
0
0
0
0
0
0
0
0
11,900
32,741
23,005
164,822
323
0
5,290
3,293
901,865
16,450
9,990
1,169,679
0
68
0
3,047
7,017
1,339
1,631
13,102
0
0
0
(7)
0
7
0
0
0
0
0
0
(4,197)
(873)
(89)
(5,159)
323
68
5,290
6,333
904,685
16,923
11,532
1,177,622
Accumulated depreciation
Net book value
Charge for
the financial
year
Reclassifications
Write-offs/
Disposals
At
31.12.2005
1,911
1,711
22,634
695
622
8,241
0
0
0
0
0
0
2,606
2,333
30,875
11
65
378,176
13,432
9,183
427,123
129
195
43,647
1,608
449
55,586
0
0
0
0
0
0
0
0
(2,412)
(813)
(89)
(3,314)
140
260
419,411
14,227
9,543
479,395
742,556
698,227
59
Annual Report 2006
At valuation
Long term leasehold land
Short term leasehold land
Buildings
At cost
Short term leasehold land
Buildings
Plant and machinery
Office equipment
Motor vehicles
At
1.1.2005
Southern Steel Berhad 5283-X
12
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
12
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Group
2006
Net book value
At valuation
Freehold land
Long term leasehold land
Short term leasehold land
Buildings
At cost
Freehold land
Long term leasehold land
Short term leasehold land
Buildings
Plant and machinery
Office equipment
Motor vehicles
Capital work in progress
2005
Company
2006
2005
28,019
57,049
28,203
189,653
28,240
58,213
29,116
200,784
11,900
29,440
20,051
125,707
11,900
30,135
20,672
133,947
323
67
5,019
15,046
542,031
4,093
1,541
756
871,800
323
68
5,149
14,886
584,555
5,186
2,091
366
928,977
323
67
5,020
5,930
464,123
1,840
1,476
0
665,877
323
68
5,150
6,073
485,274
2,696
1,989
0
698,227
The land and buildings of the Group and the Company which are stated at valuation were last revalued
based on a valuation exercise carried out in March 2002 and April 2002 by the following independent
qualified valuers, who are members of the Institute of Surveyors Malaysia (“ISM”) and directors of C. H.
Williams, Talhar & Wong Sdn. Bhd., on an open market value basis using the comparison method:
Lee Eng Kow
Khoo Tiang Huat
Chong Pah Aung
Heng Kiang Hai
Danny Yeo Soon Kee
Ku Fuziah Ku Hamzah
P’ng Soo Theng
Had the revalued properties been stated at historical cost less accumulated depreciation, the net book
values would have been as follows:
Southern Steel Berhad 5283-X
Annual Report 2006
60
At valuation
Freehold land
Long term leasehold land
Short term leasehold land
Buildings
Group
2006
16,230
52,393
5,600
136,894
211,117
2005
16,390
53,436
6,293
148,473
224,592
Company
2006
2005
7,059
31,108
3,427
96,256
137,850
7,059
31,844
3,540
102,271
144,714
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
SUBSIDIARY COMPANIES
Company
2006
2005
Shares in unquoted corporations, at cost
Investment in Redeemable Convertible Cumulative
Preference Shares (“RCCPS”) in a subsidiary company
358,659
358,659
40,000
398,659
40,000
398,659
On 6 May 2005, the Company together with its subsidiary company restructured the subsidiary’s RM40,000,000
loan into 100,000 redeemable convertible cumulative preference shares ("RCCPS") of RM1.00 each at an
issue price of RM400.00 per share for a total consideration of RM40,000,000.
The subsidiary companies of the Company, all of which are incorporated in Malaysia are as follows:
EQUITY INTEREST
2006
2005
(%)
(%)
PRINCIPAL ACTIVITIES
*
*
*
*
Investment holding
Providing transportation services
Rental of properties
Rental of properties
Dormant
Dormant
Dormant
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Dormant
Manufacture and sale of all types of fine
steel wire
Manufacture and marketing of steel
wire mesh and concrete wires
Manufacture and sale of steel wire,
wire ropes, tyre bead wire and welding
wire, galvanised wire and strand
Manufacture and sale of steel
pipes
100
100
75
75
100
100
100
100
83.7
83.7
Southern Steel Holdings Sdn. Bhd.
Southern Steel Trading Sdn. Bhd.
Southern Steel Properties Sdn. Bhd.
Danstil Sdn. Bhd.
Southern Coated Wire Sdn. Bhd.
Southern Galvanised Wire Sdn. Bhd.
* Southern Steel Solutions Sdn. Bhd.
(formerly known as Southern Precision
Casting Sdn. Bhd.)
* Southern Steel Management Sdn. Bhd.
Southern Speciality Wire Sdn. Bhd.
* Southern Steel Mesh Sdn. Bhd.
Southern Wire Industries (Malaysia)
Sdn. Bhd.
Southern Pipe Industry (Malaysia)
Sdn. Bhd.
61
Annual Report 2006
DIRECT SUBSIDIARY COMPANIES
Southern Steel Berhad 5283-X
13
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
13
SUBSIDIARY COMPANIES (CONTINUED)
EQUITY INTEREST
2006
2005
(%)
(%)
SUBSIDIARY COMPANIES OF:
PRINCIPAL ACTIVITIES
SOUTHERN STEEL HOLDINGS
SDN. BHD.
* Southern Steel Bar Sdn. Bhd.
* Southern Steel Industries Sdn. Bhd.
Dormant
Dormant
100
100
100
100
Supply of contract labour
Trading in steel wire mesh and
concrete wire
100
100
100
#100
100
100
100
100
100
100
100
#100
SOUTHERN STEEL MESH SDN. BHD.
* Southern Mesh Sdn. Bhd.
* E-Tatt Steel Wires Sdn. Bhd.
SOUTHERN WIRE INDUSTRIES
(MALAYSIA) SDN. BHD.
Southern PC Steel Sdn. Bhd.
Cempaka Raya Sdn. Bhd.
* Trend Staples Industry Sdn. Bhd.
SOUTHERN PIPE INDUSTRY
(MALAYSIA) SDN. BHD.
* Asia Seamless Pipes Sdn. Bhd.
Manufacture and sale of pre-stressed
concrete strands and wires
Supply of contract labour
Manufacture and sale of staples and
related products
Dormant
* Subsidiary companies not audited by PricewaterhouseCoopers, Malaysia.
# Subsidiary companies previously held as direct subsidiary. During the financial year, Asia Seamless Pipes
Sdn. Bhd. was transferred to Southern Pipe Industry (Malaysia) Sdn. Bhd. and E-Tatt Steel Wires Sdn.
Bhd. was transferred to Southern Steel Mesh Sdn. Bhd. for nominal value of RM 2 each.
14
ASSOCIATED COMPANIES
Group
2006
Southern Steel Berhad 5283-X
Annual Report 2006
62
Unquoted shares, at cost
Accumulated impairment losses
Share of post acquisition reserves
less losses, amortisation of goodwill
and net of translation differences
Associated companies classified
as non-current assets held for
sale (Note 19)
Represented by:
Share of net assets
Goodwill on acquisition, net
of amortisation
2005
62,355
0
62,355
62,355
0
62,355
14,662
17,990
(63,941)
13,076
0
80,345
13,076
78,897
0
13,076
1,448
80,345
Company
2006
2005
62,355
(10,135)
52,220
0
(46,720)
5,500
62,355
(10,135)
52,220
0
0
52,220
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
14
ASSOCIATED COMPANIES (CONTINUED)
The associated companies of the Group, which are held directly by the Company (unless otherwise indicated)
are as follows:
EQUITY INTEREST
2006
2005
(%)
(%)
ASSOCIATED COMPANIES
PRINCIPAL
ACTIVITIES
COUNTRY OF
INCORPORATION
Southern Oriental Sdn. Bhd.
Investment holding
Malaysia
50.0
50.0
Steel Industries (Sabah)
Sdn. Bhd.
Manufacture and
sale of steel products
Malaysia
27.5
27.5
*NatSteel Trade International
Pte. Ltd.
Trading in steel and
steel related products
Singapore
40.0
40.0
*Southern NatSteel (Xiamen)
Limited
Manufacture and sale
of ferrous and
metallic products and
the related by-products
People’s Republic
of China
50.0
50.0
Manufacture and
trading of iron and
steel products
Vietnam
22.6
22.6
*NatSteelVina Company Ltd.
* Associated companies classified as non-current assets held for sale
OTHER INVESTMENTS
Non-current
Shares in corporations quoted in Malaysia
At cost
Allowance for diminution in value
Market value
Current
Shares in a corporation quoted outside
Malaysia
Carrying amount
Market value
6,586
(5,726)
860
2,283
0
0
2005
6,586
(5,726)
860
1,118
319
399
Company
2006
2005
6,434
(5,726)
708
2,181
0
0
6,434
(5,726)
708
1,071
0
0
The market values of the quoted investments at the balance sheet date approximated their fair values.
63
Annual Report 2006
Group
2006
Southern Steel Berhad 5283-X
15
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
16
GOODWILL ON CONSOLIDATION
Cost
At 1 January
Addition during the financial year
At 31 December
Accumulated amortisation
At 1 January
Amortisation for the financial year
Goodwill written off
At 31 December
(a)
Group
2006
2005
97,558
0
97,558
97,479
79
97,558
(48,567)
0
0
(48,567)
48,991
(44,693)
(3,795)
(79)
(48,567)
48,991
Impairment tests for goodwill
The carrying amounts of goodwill allocated to the Group’s cash-generating units (CGUs) are as
follows:
Southern Wire Industries (Malaysia) Sdn. Bhd.
Danstil Sdn. Bhd.
Southern Steel Mesh Sdn. Bhd.
(b)
Southern Steel Berhad 5283-X
Annual Report 2006
64
2006
2005
28,419
805
19,767
48,991
28,419
805
19,767
48,991
Recoverable amount based on value in use
The recoverable amount of cash generating units containing the above goodwill is determined based
on value in use calculations. These calculations use pre-tax cash flow projections based on recent
financial budgets and projections prepared by the management and approved by the Board of
Directors. These projections cover a period of ten years as a going concern, using projected growth
rate of 10% for the first five years which is consistent with forecasts included in industry reports.
Projected growth rate of 5% is used thereafter. Discount rate of 6% representing estimated weighted
average cost of capital is used.
The budgeted gross margin used in the budget and projections were based on past experience and
expectations of market development.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
17
INVENTORIES
Group
2006
Raw materials
Work in progress
Finished goods
General consumables and other stores
364,323
16,134
116,748
87,566
584,771
2005
358,016
15,581
123,535
84,558
581,690
Company
2006
2005
302,799
0
74,572
63,526
440,897
308,059
0
80,567
70,707
459,333
Included in raw materials are goods-in-transit in respect of the Group and the Company amounting to
RM61,311,000 (2005: RM57,480,000) and RM56,178,000 (2005: RM55,855,000) respectively.
RECEIVABLES
Trade receivables
Amounts due from:
Subsidiary companies
Associated companies
Other related parties *
Other receivables
Less: Allowance for doubtful debts
Trade receivables
Amounts due from:
Associated companies
Other related parties *
Other receivables
Deposits
Prepayments
2005
Company
2006
2005
166,858
146,016
41,653
39,397
0
1,592
8,516
13,882
190,848
0
2,672
4,342
9,439
162,469
19,326
1,592
8,516
4,321
75,408
17,679
2,672
4,342
3,110
67,200
(16,900)
(14,215)
(4,828)
(4,045)
(1,575)
(1,748)
(1,126)
(21,349)
169,499
235
4,673
174,407
(1,575)
(1,504)
(1,126)
(18,420)
144,049
664
5,338
150,051
(1,575)
(1,748)
(1,126)
(9,277)
66,131
113
2,232
68,476
(1,575)
(1,504)
(1,126)
(8,250)
58,950
551
3,362
62,863
* Other related parties are mainly those companies referred to in Note 30.
65
Annual Report 2006
Group
2006
Southern Steel Berhad 5283-X
18
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
18
RECEIVABLES (CONTINUED)
The range of credit terms of receivables of the Group and the Company (in days) is as follows:
Group
2006
Trade receivables
Amounts due from:
Subsidiary companies (trade)
Associated companies and other related
parties (trade)
Company
2006
2005
2005
14 – 120
14 – 120
14
14
-
-
14
14
14
14
14
14
Included in amounts due from subsidiary companies are the following:
Company
2006
2005
Trade balances
Non-trade balances
15,219
4,107
19,326
13,674
4,005
17,679
Amounts due from associated companies and other related parties are mainly trade in nature. Non-trade
amounts due from subsidiary companies are unsecured and with no fixed terms of repayment.
Non-trade amounts due from subsidiary companies of approximately RM3,374,000 (2005: RM3,432,000)
at the balance sheet date carried an effective interest rate of 6.93% (2005: 4.94%) per annum.
The currency exposure profile of receivables (excluding prepayments) is as follows:
Group
2006
Southern Steel Berhad 5283-X
Annual Report 2006
66
Ringgit Malaysia
US Dollar
Singapore Dollar
Others
136,860
21,544
10,017
1,313
169,734
2005
116,590
22,254
4,703
1,166
144,713
Company
2006
2005
66,224
20
0
0
66,244
52,637
6,864
0
0
59,501
Concentration of credit risk with respect to trade receivables is limited due to the large number of customers
of the Group and the Company, which are locally and internationally dispersed, covering a broad spectrum
of manufacturing and distribution operations and have a variety of end markets. The historical experience
of the Group and the Company in the collection of account receivables falls within the credit period. The
Directors believe that there is no additional credit risk beyond the allowance for doubtful debts made.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
19
NON-CURRENT ASSETS HELD FOR SALE
On 27 September 2006, the Company entered into three conditional sale and purchase agreements for the
proposed disposals of its entire equity interest of 40% in NatSteel Trade International Pte. Ltd., 50% in
Southern NatSteel (Xiamen) Limited and 22.6% in NatSteelVina Company Ltd. to NatSteel Asia Pte. Ltd.,
on a willing-buyer willing-seller basis for a total cash consideration of Singapore Dollars 29 million (“Proposed
Disposals”). The decision to divest these associated companies is to enable the Group to focus all its resources
into its Malaysian business operations, and conserving its funds to only invest in venture that the Group has
controlling stake to ensure good returns. Based on the share of results of the aforementioned associated
companies up to the date of classification as held for sale, there is no impairment loss to be recognised.
The Proposed Disposals have been completed subsequent to the balance sheet date as disclosed in Note
33. The carrying amounts of the above associated companies have been presented as non-current assets
held for sale.
PAYABLES
Group
2006
Trade payables
Other payables and accruals
Amounts due to:
Subsidiary companies
Associated companies
Other related parties *
2005
Company
2005
2006
119,935
71,442
191,377
116,380
57,088
173,468
99,908
57,449
157,357
100,813
42,055
142,868
0
36,978
0
228,355
0
37,968
0
211,436
102,858
36,978
0
297,193
102,365
37,968
0
283,201
* Other related parties are mainly those companies referred to in Note 30 to the financial statements.
Credit terms of payables of the Group and the Company range from 5 days to 90 days (2005: 5 days to
90 days).
Amounts due to subsidiary companies, which are primarily non-trade balances, are unsecured, interest free
and with no fixed terms of repayment.
The currency exposure profile of payables is as follows:
Group
2006
Ringgit Malaysia
US Dollar
Euro
Others
184,866
42,075
1,234
180
228,355
2005
164,829
43,913
2,009
685
211,436
Company
2006
2005
254,543
41,469
1,006
175
297,193
237,709
43,245
1,884
363
283,201
67
Annual Report 2006
Amounts due to associated companies are mainly trade in nature and relate to purchases of raw materials.
Credit terms of amounts due to associated companies and other related parties range from 4 days to 60
days (2005: 4 days to 60 days).
Southern Steel Berhad 5283-X
20
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
21
SHORT TERM BORROWINGS
Group
2006
Unsecured
Bank overdrafts
Bankers’ acceptance
Revolving credits
Foreign currency loans
Long term borrowings due within 12
months (Note 23)
2005
Company
2006
2005
30,177
431,004
156,356
0
17,241
428,493
188,767
3,777
24,120
272,043
88,606
0
13,184
292,640
118,867
0
70,026
687,563
58,493
696,771
70,026
454,795
58,493
483,184
The currency exposure profile of the short term borrowings is as follows:
Group
2006
Ringgit Malaysia
US Dollar
549,881
137,682
687,563
2005
561,639
135,132
696,771
Company
2006
2005
317,113
137,682
454,795
351,829
131,355
483,184
The effective interest rates of the short term borrowings (other than long term borrowings due within 12
months) of the Group and the Company at the balance sheet date range from 3.37% to 8.00% (2005:
3.06% to 7.50%) and 3.37% to 7.08% (2005: 3.06% to 6.27%) per annum respectively. The effective
interest rates of long term borrowings due within 12 months are as disclosed in Note 23.
Short term borrowings are held against negative pledge over all the assets of the respective companies
within the Group (Note 23).
22
Southern Steel Berhad 5283-X
Annual Report 2006
68
PROVISIONS
Non-current
Retirement benefits
Sales tax reassessment
Others
Current
Retirement benefits
Group
2006
2005
Company
2006
2005
23,392
0
283
23,675
21,915
2,390
283
24,588
9,652
0
0
9,652
8,892
0
0
8,892
766
24,441
765
25,353
426
10,078
563
9,455
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
PROVISIONS (CONTINUED)
Retirement benefits - Defined benefit plan
Funded plan
Present value of obligations
Fair value of plan assets
Unrecognised actuarial gain
Assets not recognised
Unfunded plans
Present value of obligations
Unrecognised net actuarial gain
Current
Non-current
Group
2006
2005
Company
2006
2005
362
(979)
(617)
106
511
0
410
(880)
(470)
0
470
0
0
0
0
0
0
0
0
0
0
0
0
0
23,544
614
24,158
24,158
22,680
0
22,680
22,680
10,078
0
10,078
10,078
9,455
0
9,455
9,455
766
23,392
24,158
765
21,915
22,680
426
9,652
10,078
563
8,892
9,455
The plan assets of the Group represent portfolio value of the funds of a subsidiary company’s defined benefit
plan placed with an investment manager.
Movements in provision for retirement benefits during the financial year are as follows:
Group
2006
At 1 January
Charged to income statement:
- current financial year (included in staff costs)
Retirement benefits paid
At 31 December
2005
Company
2006
2005
22,680
21,078
9,455
8,666
2,598
(1,120)
24,158
2,573
(971)
22,680
1,093
(470)
10,078
1,040
(251)
9,455
The amounts recognised in the income statement are as follows:
Current service cost
Interest cost
Expected return on plan assets
Amortisation of transitional liability
Adjustment for limit on net assets
Actuarial gain
Included as staff costs in:
Cost of sales
Administration expenses
2005
Company
2006
2005
1,276
1,358
(62)
0
41
(15)
2,598
1,147
1,406
(26)
46
0
0
2,573
516
577
0
0
0
0
1,093
496
544
0
0
0
0
1,040
2,248
350
2,598
2,246
327
2,573
988
105
1,093
946
94
1,040
The principal actuarial assumptions used in respect of the defined benefit plans of the Group and Company
are as follows:
Discount rate
Expected rates of salary increases
Expected return on plan assets
Group
2006
2005
%
%
6.00 - 7.00
7.00
5.00 - 6.00
5.00 - 6.00
7.00
7.00
Company
2006
2005
%
%
7.00
7.00
6.00
6.00
N/A
N/A
69
Annual Report 2006
Group
2006
Southern Steel Berhad 5283-X
22
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
23
LONG TERM BORROWINGS
Group
2006
Unsecured
- USD85 million Term Loan
- Others
ICULS (liability component) (Note 26)
Less: Amounts due within 12 months
(Note 21)
- USD85 million Term Loan
- Others
ICULS (liability component) (Note 26)
Repayable:
- not later than 1 year
- later than 1 year but not later than
5 years
Company
2006
2005
2005
225,057
21,182
4,783
251,022
289,170
30,240
7,309
326,719
225,057
21,182
4,783
251,022
289,170
30,240
7,309
326,719
60,015
7,061
2,950
70,026
180,996
48,195
7,560
2,738
58,493
268,226
60,015
7,061
2,950
70,026
180,996
48,195
7,560
2,738
58,493
268,226
70,026
58,493
70,026
58,493
180,996
251,022
268,226
326,719
180,996
251,022
268,226
326,719
The carrying value of the term loans at the balance sheet date approximated their fair values.
All the above term loans are repayable by half yearly instalments.
On 9 August 2004, the Company entered into a USD85 million Term Loan facility agreement to refinance
the outstanding balance of the USD125 million Term Loan facility previously restructured on 8 and 11
March 2002, amounting to USD74 million. The USD85 million Term Loan is repayable in 10 unequal
instalments, the amount of which ranges from 5% to 15% of the principal loan amount, commencing from
May 2005.
Southern Steel Berhad 5283-X
Annual Report 2006
70
The effective interest rates of the USD85 million Term Loan facility are based on the USD SIBOR* plus
applicable margin for the relevant periods. The applicable margin for the first 12 months from the date
of drawdown is at 1.45% per annum and thereafter, ranging from 1.05% to 1.45% per annum, which
will be determined annually based on the ratio of total funded debt/profit before taxation, interest,
depreciation and amortisation of the Group.
Under the USD85 million Term Loan facility agreement, the Company and/or Group undertake to maintain
certain prescribed financial value or ratios in respect of Times Interest Cover, Gearing ratios, and Minimum
Consolidated Tangible Assets. There is also a negative undertaking whereby certain restrictions are imposed
on the amount of dividend that can be paid in any financial year unless the prior consent of the lenders
is obtained.
The effective interest rates per annum of long term bank borrowings at balance sheet date range from
6.83% to 7.11% (2005: 5.78% to 6.27%).
All term loans are held against negative pledge over the assets of the companies.
* (SIBOR denotes the Singapore Interbank Offer Rate for USD)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
23
LONG TERM BORROWINGS (CONTINUED)
The currency exposure profile of the total long term borrowings is as follows:
Group
2006
Ringgit Malaysia
US Dollar
7,309
319,410
326,719
4,783
246,239
251,022
7,309
319,410
326,719
DEFERRED TAX LIABILITIES
Deferred tax liabilities
- Subject to income tax
- Subject to real property gains tax
Subject to income tax:
Deferred tax assets
Unutilised capital allowances
Tax losses
Allowance for doubtful debts
Allowance for inventories
obsolescence
Accruals
Provision for retirement benefits
Future tax benefits arising from
allowance for increase in export
ICULS (liability component)
Other deductible temporary
differences
Deferred tax liabilities
Excess of capital allowances over
depreciation charge
Revaluation reserve
Subject to real property gains tax:
Deferred tax liability
Revaluation reserve
2005
Company
2006
2005
(80,643)
(468)
(81,111)
(101,650)
(468)
(102,118)
(70,043)
(242)
(70,285)
(88,503)
(242)
(88,745)
99
14,831
3,089
12,822
29,838
3,666
0
12,406
993
12,723
28,259
1,164
880
5,121
4,897
2,300
3,032
4,847
0
3,509
2,620
0
1,728
2,647
26,836
395
0
980
26,836
395
0
980
450
56,598
380
57,865
0
46,759
0
47,501
(119,029)
(18,212)
(137,241)
(80,643)
(139,282)
(20,233)
(159,515)
(101,650)
(105,257)
(11,545)
(116,802)
(70,043)
(122,816)
(13,188)
(136,004)
(88,503)
(468)
(81,111)
(468)
(102,118)
(242)
(70,285)
(242)
(88,745)
71
Annual Report 2006
Group
2006
Southern Steel Berhad 5283-X
24
4,783
246,239
251,022
2005
Company
2006
2005
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
24
DEFERRED TAX LIABILITIES (CONTINUED)
Movements in deferred tax liabilities during the financial year are as follows:
Group
2006
At 1 January
Credited/(charged) to income
statement:
Property, plant and equipment
Tax losses
Allowance for doubtful debts
Allowance for inventory
obsolescence
Accruals
Provision for retirement benefits
ICULS (liability component)
Other temporary differences
Future tax benefits arising from
allowance for increase in export
At 31 December
2005
Company
2006
2005
(102,118)
(105,351)
(88,745)
(87,497)
9,551
(15,007)
(577)
5,991
(84)
(366)
6,479
(15,853)
(171)
2,292
(3)
73
(1,420)
2,089
50
(585)
70
1,502
(1,699)
170
(1,673)
(608)
0
1,781
(27)
(585)
0
0
(2,158)
221
(1,673)
0
26,836
21,007
(81,111)
0
3,233
(102,118)
26,836
18,460
(70,285)
0
(1,248)
(88,745)
The amounts of deductible temporary differences and unutilised tax losses (both of which have no expiry
date) for which no deferred tax asset is recognised at the balance sheet date are as follows:
Group
2006
Deductible temporary differences
- accruals
- property, plant and equipment
- others
Tax losses
Southern Steel Berhad 5283-X
Annual Report 2006
72
4,193
5,709
169
88,408
2005
4,410
9,978
0
86,425
Company
2006
2005
0
0
0
0
0
0
0
0
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
25
SHARE CAPITAL
Group and Company
2006
2005
Authorised:
Ordinary shares of RM1.00 each
Preference shares of RM1.00 each
Issued and fully paid:
Ordinary shares of RM1.00 each
At 1 January
Issue of shares arising from conversion
of ICULS
At 31 December
500,000
2,000
502,000
500,000
2,000
502,000
361,780
318,700
249
362,029
43,080
361,780
During the financial year, 269,417 new ordinary shares of RM1.00 each with a carrying value of RM249,027
were issued by the Company arising from the conversion of 277,500 ICULS. The newly issued ordinary shares
rank pari passu in all respects with the existing ordinary shares of the Company except that the said new
shares will not be entitled to any dividends, rights, allotments or other distributions where the relevant
entitlement date precedes the date of allotment of the new shares.
IRREDEEMABLE CONVERTIBLE UNSECURED LOAN STOCKS (“ICULS”)
The Irredeemable Convertible Unsecured Loan Stocks (“ICULS”) are classified as compound instruments.
Upon issuance of the ICULS on 1 August 2003, the total nominal value of the ICULS of RM141,176,000
were segregated as equity and liability components of RM109,264,000 and RM31,912,000 respectively.
Group and Company
2006
2005
Equity
Liability
Equity
Liability
component component component component
Repayable:
- not later than 1 year
- later than 1 year but not later than 5
years
47,174
7,309
83,005
17,700
(221)
0
0
46,953
(27)
(3,000)
501
4,783
(35,831)
0
0
47,174
(7,249)
(4,034)
892
7,309
2,950
2,738
1,833
4,783
4,571
7,309
^ Included in equity component of ICULS converted is tax effect of approximately RM7,000 (2005:
RM1,172,000).
* Coupon interest payable included in other payables and accruals at the balance sheet date is approximately
RM1,346,000 (2005: RM1,351,000).
73
Annual Report 2006
At 1 January
Conversion of ICULS into ordinary
shares^
Coupon interest paid/payable*
Finance costs
At 31 December
Southern Steel Berhad 5283-X
26
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
26
IRREDEEMABLE CONVERTIBLE UNSECURED LOAN STOCKS (“ICULS”) (CONTINUED)
The principal terms and conditions of ICULS are as follows:
The nominal amount of the ICULS issued on 1 August 2003 is RM141,176,500 in denominations and
multiples of RM1.00 and constituted by a Trust Deed.
The ICULS bear interest at the rate of 5.50% per annum, payable annually in arrears commencing from
the date of issue of the ICULS and the last payment shall be made on the maturity date on 31 July 2008.
The registered holders of the ICULS have the right to convert the ICULS into new ordinary shares of the
Company on any day between Monday and Friday that is not a public holiday during the tenure of the
ICULS.
The Conversion Price is fixed at RM1.03 for every new ordinary share of the Company and shall be satisfied
solely by tender of ICULS by the ICULS holders for cancellation by the Company.
The ICULS will not be redeemed for cash except upon occurrence of an event of default as provided in
the Trust Deed. At the close of business on the maturity date, all outstanding ICULS will be mandatorily
converted into new ordinary shares by the Company.
The ICULS shall constitute an unsecured obligation of the Company and shall rank pari passu in all respects
without priority amongst itself and ranks pari passu to all other present and future unsecured and
unsubordinated obligations of the Company from time to time outstanding.
New ordinary shares arising from the conversion of the ICULS shall, upon allotment, rank pari passu in all
respects with the then existing ordinary shares of the Company, except that the said new ordinary shares
will not be entitled to any dividends, rights, allotments or other distributions where the relevant entitlement
date precedes the date of allotment of the new ordinary shares.
The carrying amount of the liability component of ICULS at the balance sheet date approximates its fair
value.
27
Southern Steel Berhad 5283-X
Annual Report 2006
74
RESERVES
Non-distributable
Share premium
Revaluation reserve
Merger reserve
Reserve on consolidation
Capital redemption reserve
Exchange fluctuation reserve
Retained profits/(accumulated losses)
Group
2006
2005
Company
2006
2005
35,852
72,499
30,000
0
50
10,801
149,202
35,852
72,557
30,000
3,065
50
11,651
153,175
35,852
44,733
33,600
0
0
0
114,185
35,852
44,733
33,600
0
0
0
114,185
65,959
215,161
(21,682)
131,493
145,903
260,088
57,002
171,187
Subject to confirmation by the Inland Revenue Board, the Company has sufficient tax exempt income and
Section 108 tax credit to frank approximately RM47,602,000 (2005: RM2,760,000) of the retained profits
of the Company at the balance sheet date if paid out as dividends. The extent of the retained profits not
covered at that date amounted to approximately RM98,301,000 (2005: RM54,242,000).
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
28
CASH AND CASH EQUIVALENTS
Cash and cash equivalents included in the cash flow statements comprise the following:
Group
2006
Deposits with licensed banks
Cash and bank balances
Bank overdrafts (Note 21)
14,530
50,218
64,748
(30,177)
34,571
2005
11,538
39,750
51,288
(17,241)
34,047
Company
2006
2005
12,255
39,758
52,013
(24,120)
27,893
6,000
32,205
38,205
(13,184)
25,021
The currency exposure profile of deposits with licensed banks and cash and bank balances is as follows:
Group
2006
Ringgit Malaysia
US Dollar
49,771
14,977
64,748
2005
25,929
25,359
51,288
Company
2006
2005
37,036
14,977
52,013
12,846
25,359
38,205
The effective interest rates of the deposits with licensed banks of the Group and the Company at the balance
sheet date range from 1.50% to 3.20% (2005: 1.50% to 2.75%) per annum.
Deposits with licensed banks of the Group and the Company at 31 December 2006 have an average maturity
of 1 to 7 days (2005: 3 to 7 days) and 1 day (2005: 3 days) respectively. Bank balances are deposits held
at call with banks.
CAPITAL COMMITMENTS
Capital expenditure not provided for in the financial statements are as follows:
2005
Company
2006
2005
75
15,188
38,516
53,704
14,015
19,518
33,533
12,565
37,586
50,151
12,839
18,585
31,424
Annual Report 2006
Capital expenditure commitments
in respect of property, plant
and equipment:
- approved and contracted for
- approved but not contracted for
Group
2006
Southern Steel Berhad 5283-X
29
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
30
SIGNIFICANT RELATED PARTY TRANSACTIONS
Group
Company
Sale of goods to:
Hong Leong Company
(Malaysia) Berhad
Group
#NatSteel Ltd. Group
Annual Report 2006
Southern Steel Berhad 5283-X
2005
Enterprises controlled by
the same enterprise
which exercises
significant influence
over the Company
63,724
55,108
44,197
38,614
Enterprises controlled by
the same enterprise
which exercises
significant influence
over the Company
0
230
0
0
135,870
98,264
135,870
98,264
0
78,384
0
78,384
69,981
65,002
69,981
65,002
0
1,493
0
1,493
627,921
508,243
627,921
508,243
1,060
2,022
1,060
2,022
Enterprises that has a
director in common
with the Company*
NatSteel Trade
International Pte. Ltd.
Associated company
Steel Industries
(Sabah) Sdn. Bhd.
Associated company
NatSteel Trade
International Pte. Ltd.
Services obtained
from:
Su Hock Group
Company
2006
2005
2006
Chin Well Holdings
Berhad Group
Purchase of goods
from:
# NatSteel Ltd. Group
76
Relationship
Enterprises controlled by
the same enterprise
which exercises
significant influence
over the Company
Associated company
Enterprises in which
substantial interest is
owned indirectly by a
director, who is also a
substantial shareholder
of the Company**
* The common director is Y.A. Bhg Tun Dato’ Seri Dr. Lim Chong Eu
**The director and substantial shareholder is Y. Bhg Dato’ Dr. Tan Tat Wai
# NatSteel Ltd ceased to be a major shareholder of the Company with effect from 15th February 2005.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
30
SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED)
Company
Relationship
Dividend income from:
Steel Industries
(Sabah) Sdn. Bhd.
Associated company
Group
2005
2006
0
0
Company
2006
2005
550
550
These related party transactions, which were conducted in accordance with the general mandate obtained
from shareholders for recurrent related party transactions, were entered into in the normal course of business
and have been established based on terms and conditions negotiated between the Group and its related
parties.
SEGMENTAL REPORTING
(a)
Primary reporting format - business segments
No business segmental reporting has been prepared as the Group’s activities involve only one business
segment, i.e. the manufacturing and sale of steel products.
Secondary reporting format - geographical segments
Revenue
2006
ASEAN countries
Others
Associates
Non-current assets
held for sale
Total assets
2005
2,011,663 2,038,859
341,621
391,635
2,353,284 2,430,494
2006
Capital expenditure
2005
2006
2005
1,752,456 1,767,670
0
0
1,752,456 1,767,670
13,076
80,345
28,480
0
28,480
26,755
0
26,755
63,941
0
1,829,473 1,848,015
In determining the geographical segments of the Group, revenue is based on the geographical areas
in which the customers are located. Total assets and capital expenditure are determined based on the
locations of assets.
77
Annual Report 2006
(b)
Southern Steel Berhad 5283-X
31
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
32
FORWARD FOREIGN EXCHANGE CONTRACTS
The details of forward foreign exchange contracts of the Group and the Company which are due for
maturity within 1 to 3 months (2005: 1 month) from the balance sheet date are as follows:
Currency
sold
Equivalent
RM’000
At 31 December 2006
Payables
USD
RM
144,369
RM3.54 per US dollar
Disposal of associated
companies
RM
Singapore
Dollar
59,900
RM2.30 per Singapore
Dollar
Trade receivables
RM
USD
556
204,825
USD
EUR
RM
RM
21,838
917
22,755
RM3.78 per US Dollar
RM4.48 per Euro
At 31 December 2006
Payables
USD
RM
140,760
RM3.54 per US dollar
Disposal of associated
companies
RM
Singapore
Dollar
USD
EUR
RM
RM
Hedged items
Group
At 31 December 2005
Payables
Company
At 31 December 2005
Payables
Southern Steel Berhad 5283-X
Annual Report 2006
78
Average
contractual rate
Currency
Bought
59,900
200,660
21,838
917
22,755
RM3.54 per US Dollar
RM2.30 per Singapore
Dollar
RM3.78 per US Dollar
RM4.48 per Euro
The foreign exchange market rates obtainable by the Group and the Company at the balance sheet date
approximated the contractual rates. The unrecognised gains or losses on open contracts which hedge
payables are deferred until the related transactions are completed, at which time they are included in the
measurement of such transactions.
The fair value of the outstanding forward foreign exchange contracts of the Group and the Company as
at balance sheet date is an unfavourable net position of RM253,325 (2005: favourable net position of
RM1,155) and RM246,325 (2005: favourable net position of RM1,155) respectively.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (cont’d)
In RM’000 unless otherwise stated
33
SIGNIFICANT POST BALANCE SHEET EVENT
On 24 January 2007, the Company completed the disposal of 40% interest in NatSteel Trade International
Pte. Ltd. (incorporated in Singapore), 50% interest in Southern NatSteel (Xiamen) Limited (incorporated
in China) and 22.6% in NatSteelVina Co. Ltd. (incorporated in Vietnam) to NatSteel Asia Pte. Ltd. The total
gain from disposal of these associated companies in respect of the Group and the Company amounted
to RM2,603,000 and RM19,824,000 respectively.
APPROVAL OF FINANCIAL STATEMENTS
The financial statements have been approved for issue in accordance with a resolution of the Board of
Directors dated 16 March 2007.
Annual Report 2006
79
Southern Steel Berhad 5283-X
34
Other Information
1. PROPERTIES OWNED BY SOUTHERN STEEL AND ITS SUBSIDIARIES/
HARTANAH MILIK SOUTHERN STEEL DAN SUBSIDIARI
Land and Building/Tanah dan Bangunan
Location
Lokasi
Description
Keterangan
Tenure
Pegangan
Approximate
Area
Anggaran
Kawasan
Approximate
Age (Years)
Anggaran
Jangkamasa
(Tahun)
State of Penang
Southern Steel Berhad 5283-X
Annual Report 2006
80
Date of
Revaluation/
Acquisition
Tarikh Penilaian
Semula/
Perolehan
Net Book
Value As At
Nilai Buku
pada
31/12/2006
(RM'000)
1
2435 Lorong Perusahaan 12
Prai Industrial Estate
13600 Prai
Factories
Leasehold
expiring on
31-01-2039
50.9 acres
16-24
15-4-2002
58,468
2
No PT 3171 Mukim 1
Seberang Perai Tengah
Factories
Leasehold
expiring on
21-03-2050
4.77716 acres
9-11
15-4-2002
3
No PT 3178 Mukim 1
Seberang Perai Tengah
Factories
Leasehold
expiring on
09-04-2050
2.60451 acres
9
15-4-2002
4
2595 Lorong Perusahaan 12
Prai Industrial Estate
13600 Prai
Factories
Leasehold
expiring on
09-04-2050
2.60451 acres
9
15-4-2002
5
2613 Lorong Perusahaan 12
Prai Industrial Estate
13600 Prai
Factories
Leasehold
expiring on
21-03-2050
5.09674 acres
9
15-4-2002
6
No PT 3831 Mukim 1
Seberang Perai Tengah
Factory
Leasehold
expiring on
21-10-2054
1.31359 acres
11
15-4-2002
7
No PT 3980 Mukim 1
Seberang Perai Tengah
Drains
Leasehold
expiring on
25-01-2059
2.12715 acres
-
15-4-2002
8
No PT 4271
(formerly Plot 596)
Mukim 1,
Seberang Perai Tengah
Vacant Land
Leasehold
expiring on
04-11-2064
0.1187 hectares
-
15-4-2002
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
) 82,955
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
9
2723 Lorong Perusahaan 12
Prai Industrial Estate
13600 Prai
Land
Warehouse
Office
Leasehold
expring on
24-06-2046
4.70227 acres
16
15-4-2002
8,576
Other Information (cont’d)
1. PROPERTIES OWNED BY SOUTHERN STEEL AND ITS SUBSIDIARIES/
HARTANAH MILIK SOUTHERN STEEL DAN SUBSIDIARI
Land and Building/Tanah dan Bangunan
Tenure
Pegangan
Approximate
Area
Anggaran
Kawasan
10 11 Jalan Nagasari
Taman Nagasari
13600 Prai
Double-storey
terrace house
Freehold
104 sq m
16
15-4-2002
11 11A Jalan Nagasari
Taman Nagasari
13600 Prai
Double-storey
terrace house
Freehold
104 sq m
16
15-4-2002
12 15 Jalan Nagasari
Taman Nagasari
13600 Prai
Double-storey
terrace house
Freehold
104 sq m
16
15-4-2002
13 17 Jalan Nagasari
Taman Nagasari
13600 Prai
Double-storey
terrace house
Freehold
104 sq m
16
15-4-2002
14 19 Jalan Nagasari
Taman Nagasari
13600 Prai
Double-storey
terrace house
Freehold
140 sq m
16
15-4-2002
15 No PT 1538 Mukim 1
Seberang Perai Tengah
Scrap yard
Leasehold
expiring on
07-08-2045
6.82957 acres
-
15-4-2002
3,318
16 2482 Lorong Perusahaan 12
Prai Industrial Estate
13600 Prai
Factory
Buildings
Leasehold
expiring on
23-01-2045
2.96008 acres
18.5
15-4-2002
17 2489 Lorong Perusahaan 12
Prai Industrial Estate
13600 Prai
Factories
Leasehold
expiring on
13-5-2043
1.03294 acres
17
15-4-2002
)
)
)
)
)
) 7,649
)
)
)
)
)
18 No PT 1539 Mukim 1
Seberang Perai Tengah
Scrap yard
Leasehold
expiring on
07-08-2045
5.59899 acres
-
15-4-2002
19 No PT 1550 Mukim 1
Seberang Perai Tengah
Scrap yard
Leasehold
expiring on
21-05-2046
1.99110 acres
-
15-4-2002
)
)
)
)
)
)
)
)
)
)
)
)
)
) 469
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
) 3,687
)
)
)
81
Annual Report 2006
Date of
Revaluation/
Acquisition
Tarikh Penilaian
Semula/
Perolehan
Southern Steel Berhad 5283-X
Approximate
Age (Years)
Anggaran
Jangkamasa
(Tahun)
Net Book
Value As At
Nilai Buku
pada
31/12/2006
(RM'000)
Description
Keterangan
Location
Lokasi
Other Information (cont’d)
1. PROPERTIES OWNED BY SOUTHERN STEEL AND ITS SUBSIDIARIES/
HARTANAH MILIK SOUTHERN STEEL DAN SUBSIDIARI
Land and Building/Tanah dan Bangunan
Date of
Revaluation/
Acquisition
Tarikh Penilaian
Semula/
Perolehan
Net Book
Value As At
Nilai Buku
pada
31/12/2006
(RM'000)
16
15-4-2002
11,956
4.74672 acres
15
15-4-2002
2,477
Leasehold
expiring on
01-03-2059
4.34682 acres
-
15-4-2002
1,667
Weighbridge
Office building
Leasehold
expiring on
13-01-2059
1.10710 acres
9
15-4-2002
1,065
24 No.PT 4272
(formerly Plot 597)
Mukim 1,
Seberang Perai Tengah
Vacant Land
Leasehold
expiring on
04-11-2064
1.1858 hectares
-
15-4-2002
1,799
25 Lot 867 Section 10
Georgetown
Vacant Land
Freehold
63 sq m
-
15-4-2002
26 Lot 868 Section 10
Georgetown
Vacant Land
Freehold
66 sq m
-
15-4-2002
27 Lot 869, Section 10
Georgetown
Vacant Land
Freehold
52 sq m
-
15-4-2002
28 Lot 870, Section 10
Georgetown
Vacant Land
Freehold
37 sq m
-
15-4-2002
Description
Keterangan
Tenure
Pegangan
Approximate
Area
Anggaran
Kawasan
Approximate
Age (Years)
Anggaran
Jangkamasa
(Tahun)
20 2590 Lorong Perusahaan 12
Prai Industrial Estate
13600 Prai
Factory
Vacant land
Leasehold
expiring on
07-11-2049 &
06-06-2050
7.83140 acres
21 2703 Lorong Perusahaan 12
Prai Industrial Estate
13600 Prai
Factory
Vacant land
Leasehold
expiring on
17-12-2045
& 07-11-2045
22 No PT 3983 Mukim 1
Seberang Perai Tengah
Existing road
23 No PT 3982 Mukim 1
Seberang Perai Tengah
Location
Lokasi
Southern Steel Berhad 5283-X
Annual Report 2006
82
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
500
Other Information (cont’d)
1. PROPERTIES OWNED BY SOUTHERN STEEL AND ITS SUBSIDIARIES/
HARTANAH MILIK SOUTHERN STEEL DAN SUBSIDIARI
Land and Building/Tanah dan Bangunan
Date of
Revaluation/
Acquisition
Tarikh Penilaian
Semula/
Perolehan
Net Book
Value As At
Nilai Buku
pada
31/12/2006
(RM'000)
14
6-4-2004
6,342
2.52981 acres
-
15-4-2002
1,478
Leasehold
expiring on
03-10-2042
5.60422 acres
5
15-4-2002
2,803
Factory
Freehold
304,210 sq ft
11-43
15-4-2002
10,470
33 4457 Mukim 15,
Jalan Chain Ferry
12100 Butterworth
Factory
Godown
Freehold
413,427 sq ft
12-38
15-4-2002
23,165
34 Lot No 2225, Section 4
12100 Butterworth
Open yard
Freehold
40,382 sq ft
-
15-4-2002
750
35 Lot 4808 Jalan Utas 15/7
Shah Alam Industrial Estate
40000 Shah Alam
Factories
Leasehold
expiring on
11-02-2069 &
02-12-2072
634,950 sq ft
& 328,800 sq ft
9.5-32
15-4-2002
44,606
36 Rawang Integrated
Industrial Park
Factory
Freehold
497,838 sq ft
10
15-4-2002
15,157
37 5 1/2 Mile, Jalan Kapar
42100 Klang, Selangor
Factories
Freehold
8.0069 acres
11-26
15-4-2002
18,534
Description
Keterangan
Tenure
Pegangan
Approximate
Area
Anggaran
Kawasan
Approximate
Age (Years)
Anggaran
Jangkamasa
(Tahun)
29 2624 Lorong Perusahaan 12
Prai Industrial Estate
13600 Prai
Factory
Leasehold
expiring on
05-06-2046
9.53048 acres
30 No PT 3057 Mukim 1
Seberang Perai Tengah
Factory
Leasehold
expiring on
21-03-2050
31 2427 Tingkat Perusahaan 6
Prai Industrial Estate
13600 Prai
Billet yard
32 3081 Jalan Besar
Nibong Tebal
Location
Lokasi
State of Selangor Darul Ehsan
Southern Steel Berhad 5283-X
Annual Report 2006
83
Other Information (cont’d)
1. PROPERTIES OWNED BY SOUTHERN STEEL AND ITS SUBSIDIARIES/
HARTANAH MILIK SOUTHERN STEEL DAN SUBSIDIARI
Land and Building/Tanah dan Bangunan
Date of
Revaluation/
Acquisition
Tarikh Penilaian
Semula/
Perolehan
Net Book
Value As At
Nilai Buku
pada
31/12/2006
(RM'000)
25
15-4-2002
15,199
6,669 sq m
-
15-4-2002
603
Leasehold
expiring on
23-05-2089
1,240 sq ft
11
15-4-2002
48
Single storey
terrace house
Leasehold
expiring on
05-11-2088
1,860 sq ft
11
15-4-2002
52
Single storey
terrace house
Leasehold
expiring on
12-10-2086
960 sq ft
17
15-4-2002
42
43 Lot 2186 Mukim of
Pasir Panjang
Port Dickson
Vacant Land
Freehold
0.187 acres
-
15-4-2002
44 Lot 2184 Mukim of
Pasir Panjang
Port Dickson
Vacant Land
Freehold
0.154 acres
Single-storey
terrace house
Leasehold
expiring on
06-05-2082
143.0707 sq m
Description
Keterangan
Tenure
Pegangan
Approximate
Area
Anggaran
Kawasan
38 Plot 2 Taman Meru
Industrial Estate
Jelapang, 30020 Ipoh
Land
Factory
Leasehold
expiring on
06-09-2043
43,240 sq m
39 No Lot 196802
Mukim Hulu Kinta
Vacant land
Leasehold
expiring on
21-06-2052
40 24 Laluan Taman Jati 10
Taman Meru Jaya
30020 Ipoh
Single storey
terrace house
41 1297 Jalan Jelapang
Taman Meru Jaya
30020 Ipoh
42 58 Laluan Jati 5
Taman Sri Meru
30020 Ipoh
Location
Lokasi
Approximate
Age (Years)
Anggaran
Jangkamasa
(Tahun)
State of Perak Darul Ridzuan
State of Negeri Sembilan
Southern Steel Berhad 5283-X
Annual Report 2006
84
-
15-4-2002
13.5
15-4-2002
)
)
)
)
)
)
)
)
270
State of Johor
45 No PTD 64673
Mukim Plentong
Johor Bahru
94
Other Information (cont’d)
ANALYSIS OF SHAREHOLDINGS AS AT 20 MARCH 2007
Authorised Capital
:
500,000,000 ordinary shares
2,000,000 preference shares
Issued and Fully Paid
:
362,445,221 ordinary shares of RM1.00 each
No of Shareholders
:
3,860
Voting Rights
On show of hands
On poll
:
:
1 vote
1 vote for each share held
DISTRIBUTION SCHEDULE OF SHAREHOLDERS AS AT 20 MARCH 2007
Holdings
Less than 100
100 1,000
1,001 10,000
10,001 100,000
100,001 - less than 5% of issued shares
5% and above of issued shares
TOTAL
No of
Holders
Total Holdings
%
8
1,978
1,480
305
86
3
3,860
271
1,959,211
5,811,327
8,836,518
87,895,203
257,942,691
362,445,221
0.0001
0.5405
1.6034
2.4380
24.2506
71.1674
100.0000
THIRTY LARGEST SHAREHOLDERS
According to the Register of Depositors, the 30 largest shareholders of the Company as at 20 March 2007
are as follows:
1
2
3
4
5
6
7
8
9
10
11
Assets Nominees (Tempatan) Sdn Bhd
Hume Industries (Malaysia) Berhad
NatSteel Asia Pte Ltd
Southern Amalgamated Co Sdn Bhd
Hwang Enterprises Sdn Bhd
Bumiputra-Commerce Nominees (Tempatan) Sdn Bhd
Pledged Securities Account for Southern Amalgamated Co Sdn Bhd
(28358 PPNG)
Southern Properties Sdn Bhd
Hong Bee Hardware Company, Sdn Berhad
UOBM Nominees (Tempatan) Sdn Bhd
Pledged Securities Account for Southern Properties Sdn Bhd (PGB)
Malaysia Nominees (Tempatan) Sendirian Berhad
Great Eastern Life Assurance (Malaysia) Berhad (Par 1)
HSBC Nominees (Tempatan) Sdn Bhd
Pledged Securities Account for Hwang Enterprises Sdn Bhd
(201-468246-089)
Pertubuhan Keselamatan Sosial
No. of Shares
%
146,461,324
.
89,929,000
21,552,367
13,123,309
10,935,439
40.4092
8,925,399
6,344,309
5,075,000
2.4626
1.7504
1.4002
3,201,800
0.8834
3,000,000
0.8277
2,678,617
0.7390
24.8117
5.9464
3.6208
3.0171
85
Annual Report 2006
Name of Shareholders
Southern Steel Berhad 5283-X
2
Other Information (cont’d)
2
ANALYSIS OF SHAREHOLDINGS AS AT 20 MARCH 2007 (CONTINUED)
THIRTY LARGEST SHAREHOLDERS (CONTINUED)
Name of Shareholders
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Southern Steel Berhad 5283-X
Annual Report 2006
86
Amanah Raya Nominees (Tempatan) Sdn Bhd
Skim Amanah Saham Bumiputera
AMMB Nominees (Tempatan) Sdn Bhd
AmTrustee Berhad for HLG Penny Stock Fund (5/4-3)
Lembaga Tabung Haji
Seri Pinang Sdn Bhd
Malaysia Nominees (Tempatan) Sendirian Berhad
Great Eastern Life Assurance (Malaysia) Berhad (DR)
Liao York
Ch’ng Cheow Lyn
HSBC Nominees (Tempatan) Sdn Bhd
HSBC (Malaysia) Trustee Berhad for Amanah Saham Sarawak
Insotech Sdn Bhd
Su Hock Company Sdn Bhd
M & A Nominee (Tempatan) Sdn Bhd
Titan Express Sdn Bhd
Malaysia Nominees (Tempatan) Sendirian Berhad
Great Eastern Life Assurance (Malaysia) Berhad (LGF)
Citigroup Nominees (Asing) Sdn Bhd
CBNY for DFA Emerging Markets Fund
HSBC Nominees (Tempatan) Sdn Bhd
HSBC (M) Trustee Bhd for Hwang-DBS Dana Izdihar (4207)
Mayban Nominees (Tempatan) Sdn Bhd
Avenue Invest Berhad for Perusahaan Otomobil Nasional Berhad
(E00020-984380)
Choong Chew Kheng
Choong Cheow Sai
Pacific & Orient Insurance Co Berhad
Ke-Zan Nominees (Asing) Sdn Bhd
Kim Eng Securities Pte Ltd for Exquisite Holdings Limited
No. of Shares
%
2,400,000
0.6622
1,624,982
0.4483
1,605,600
1,512,200
1,400,000
0.4430
0.4172
0.3863
1,384,427
1,371,509
1,344,000
0.3820
0.3784
0.3708
1,067,761
972,815
902,800
0.2946
0.2684
0.2491
900,000
0.2483
865,300
0.2387
773,800
0.2135
733,000
0.2022
709,388
674,000
649,000
611,000
0.1957
0.1860
0.1791
0.1686
332,728,146
91.8009
Other Information (cont’d)
ANALYSIS OF SHAREHOLDINGS AS AT 20 MARCH 2007 (CONTINUED)
SUBSTANTIAL SHAREHOLDERS
According to the Register of Substantial Shareholders, the substantial shareholders of the Company as at
20 March 2007 are as follows:
Name of shareholders
Direct
Hume Industries (Malaysia) Berhad
Hong Leong Company (Malaysia) Berhad
Y Bhg Tan Sri Quek Leng Chan
HL Holdings Sdn Bhd
Hong Realty (Private) Limited
Hong Leong Investment Holdings Pte Ltd
Kwek Holdings Pte Ltd
Kwek Leng Beng
Davos Investment Holdings Private Limited
Kwek Leng Kee
Quek Leng Chye
NatSteel Asia Pte Ltd
Tata Steel Limited
Southern Amalgamated Co Sdn Bhd
Su Hock Company Sdn Bhd
Y Bhg Dato' Seri Tan Hoay Eam
Y Bhg Dato’ Dr Tan Tat Wai
2
3
4
40.41
24.81
8.96
0.27
0.00
146,461,324
146,461,324
146,461,324
146,461,324
146,461,324
146,461,324
146,461,324
146,461,324
146,461,324
146,461,324
89,929,000
32,487,806
32,487,806
32,980,223
%
40.41
40.41
40.41
40.41
40.41
40.41
40.41
40.41
40.41
40.41
24.81
8.96
8.96
9.10
1
1
1
1
1
1
1
1
1
1
2
3
3
4
Deemed interest through Hume Industries (Malaysia) Berhad
Deemed interest through NatSteel Asia Pte Ltd
Deemed interest through Southern Amalgamated Co Sdn Bhd
Deemed interest through Southern Amalgamated Co Sdn Bhd, Hock Kheng Industries Sdn Bhd and
spouse
87
Annual Report 2006
1
146,461,324
89,929,000
32,487,806
972,815
14,854
No of shares held
%
Indirect
Southern Steel Berhad 5283-X
2
Other Information (cont’d)
3
ANALYSIS OF IRREDEEMABLE CONVERTIBLE UNSECURED LOAN STOCKS (“ICULS”) HOLDINGS AS
AT 20 MARCH 2007
Nominal value of outstanding
ICULS 2003/2008
:
RM58,681,490
No of ICULS 2003/2008 Holders
:
789
Voting Rights
On show of hands
On poll
:
:
1 vote
1 vote for each RM1.00 nominal amount of ICULS held
DISTRIBUTION SCHEDULE OF ICULS 2003/2008 HOLDERS AS AT 20 MARCH 2007
Holdings
less than 100
100 1,000
1,001 10,000
10,001 100,000
100,001 – less than 5% of issued
2003/2008 ICULS
5% and above of issued ICULS 2003/2008
TOTAL
No of ICULS
2003/2008
Holders
Nominal Value
of ICULS
2003/2008 (RM)
%
15
470
237
55
10
643
408,500
783,380
1,481,305
3,610,900
0.0011
0.6961
1.3350
2.5243
6.1534
2
789
52,396,762
58,681,490
89.2901
100.0000
THIRTY LARGEST ICULS 2003/2008 HOLDERS
According to the Register of Depositors, the 30 largest ICULS 2003/2008 holders of the Company as at
20 March 2007 are as follows:
Name of ICULS 2003/2008 Holders
Southern Steel Berhad 5283-X
Annual Report 2006
88
1
2
3
4
5
6
7
8
9
10
11
Assets Nominees (Tempatan) Sdn Bhd
Hume Industries (Malaysia) Berhad
NatSteel Asia Pte Ltd
Hong Bee Hardware Company, Sdn Berhad
Chua Holdings Sdn Bhd
Santomi Sdn Bhd
Malaysia Nominees (Tempatan) Sendirian Berhad
Great Eastern Life Assurance (Malaysia) Berhad (Par 1)
Ong Yih Yeong
Choong Cheow Sai
Ong Seik Seik
Ong Huay Siang
Leong Kok Tai
Nominal Value
of ICULS
2003/2008 (RM)
%
28,240,262
48.1246
24,156,500
1,058,000
782,500
368,000
259,400
41.1654
1.8030
1.3335
0.6271
0.4420
254,500
216,300
200,000
200,000
170,000
0.4337
0.3686
0.3408
0.3408
0.2897
Other Information (cont’d)
3
ANALYSIS OF IRREDEEMABLE CONVERTIBLE UNSECURED LOAN STOCKS (“ICULS”) HOLDINGS AS
AT 20 MARCH 2007 (CONTINUED)
THIRTY LARGEST ICULS 2003/2008 HOLDERS (CONTINUED)
Name of ICULS 2003/2008 Holders
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
%
102,200
100,000
100,000
90,000
61,800
57,000
0.1742
0.1704
0.1704
0.1534
0.1053
0.0971
51,000
50,000
50,000
45,800
0.0869
0.0852
0.0852
0.0780
40,000
34,600
33,500
33,000
32,000
30,000
30,000
29,300
29,000
0.0682
0.0590
0.0571
0.0562
0.0545
0.0511
0.0511
0.0499
0.0494
56,904,662
96.9718
DIRECTORS’ INTERESTS AS AT 20 MARCH 2007
89
Annual Report 2006
Subsequent to the financial year end, there is no change as at 20 March 2007 to the Directors’ interests
in the ordinary shares and/or irredeemable convertible unsecured loan stocks of the Company and/or its
related corporations, appearing in the Directors’ Report on page 23 as recorded in the Register of Directors’
Shareholdings kept by the Company under Section 135 of the Companies Act, 1965.
Southern Steel Berhad 5283-X
4
Ng Boo Kean @ Ng Beh Kian
Seberang Distributors Sdn Bhd
Westport Grain Terminals Sdn Bhd
Zaidan Bin Hj Othman
Boey Kok Wooi
Southern Investment Bank Berhad
Employee’s Provident Fund
Steel Industries (Sabah) Sdn Bhd
Lee Oi Hian
Lau Hwee Tiang
Malaysia Nominees (Tempatan) Sendirian Berhad
Great Eastern Life Assurance (Malaysia) Berhad (Par 2)
Yap Koon Chai
Lim Chiew Sheah
Ooi Guat Li
Nar Swee Kim
Chee See Giap @ Sin Chien
Koay Seng Leong @ Koih Soon Pit
Lim Cheng Teik
Tan Liew Cheun
HLG Nominee (Tempatan) Sdn Bhd
Pledged Securities Account for Mohd Khamil Bin Jamil
Nominal Value
of ICULS
2003/2008 (RM)
Other Information (cont’d)
5.
DISCLOSURE REQUIREMENTS
Pursuant to the Listing Requirements of Bursa Malaysia Securities Berhad.
UTILISATION OF PROCEEDS
During the financial year, there were no proceeds raised by the Group and the Company from any corporate
proposals.
SHARE BUYBACKS
During the financial year, there were no share buybacks by the Group and the Company.
OPTIONS, WARRANTS OR CONVERTIBLE SECURITIES
During the financial year, RM277,500 nominal amount of ICULS were converted into 269,417 ordinary
shares of RM1.00 each.
AMERICAN DEPOSITORY RECEIPT (ADR) OR GLOBAL DEPOSITORY RECEIPT (GDR) PROGRAMME
During the financial year, the Group and the Company did not sponsor any ADR or GDR programme.
IMPOSITION OF SANCTIONS/PENALTIES
There were no sanctions and/or penalties imposed on the Group and the Company, Directors or Management
by the relevant regulatory bodies.
NON-AUDIT FEES
Non-audit fee of RM1,500 was paid to the external auditors by the Group and the Company for the financial
year.
PROFIT ESTIMATE, FORECAST OR PROJECTION
The Group and the Company did not release any profit estimate, forecast or projection for the financial
year. There is no significant variance between the results for the financial year and the unaudited results
previously released by the Group.
PROFIT GUARANTEES
During the financial year, there were no profit guarantees given by the Group and the Company.
MATERIAL CONTRACTS INVOLVING DIRECTORS’ AND MAJOR SHAREHOLDERS’ INTEREST
There were no material contracts involving directors’ and major shareholders’ interest except for the following:
Three Conditional Sale and Purchase Agreements (“SPAs”), all dated 27 September 2006, made between
Southern Steel Berhad (“SSB”) and NatSteel Asia Pte Ltd (“NSA”) for the disposal of the following:
(a)
(b)
Southern Steel Berhad 5283-X
Annual Report 2006
90
(c)
SSB’s entire 50.0% equity interest in NatSteel (Xiamen) Limited (“SNSXL”) for a cash consideration
of SGD19,357,000 (“SNSXL Disposal”);
SSB’s entire 22.6% equity interest in NatSteelVina Co Ltd (“NSVCL”) for a cash consideration of
SGD3,105,000; and (“NSVCL Disposal”); and
SSB’s entire 40.0% equity interest in NatSteel Trade International Pte Ltd (“NSTIPL”) for a cash
consideration of SGD6,538,000 (“NSTIPL Disposal”).
The SNSXL Disposal, the NSVCL Disposal and the NSTIPL Disposal were completed on 24 January 2007 in
accordance with the terms and conditions of the SNSXL Conditional SPA, NSVCL Conditional SPA and NSTIPL
Conditional SPA.
RELATED PARTY TRANSACTIONS
Significant related party transactions of the Group during the financial year are disclosed in Note 30 to the
financial statements in accordance with the general mandate obtained from shareholders at the Annual
General Meeting held on 19 May 2006 setting out the aggregate value of recurrent transactions conducted
during the financial year.
REVALUATION OF LANDED PROPERTIES
The Group policy is to revalue its landed properties at a 5 year interval with additional revaluation in the
intervening years if the carrying value of the revalued landed properties differs materially from the market
value.
NOTICE OF ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that the Forty-Fifth Annual General Meeting of Southern Steel Berhad (the “Company”)
will be held at the Level 1 Training Room B, Southern Steel Berhad, 2723 Lorong Perusahaan 12, Prai Industrial
Estate, 13600 Prai, Penang on Monday, 14 May 2007 at 3.00 pm in order:
1
To receive the audited financial statements for the year ended 31 December 2006 and
the Directors’ and Auditors’ Reports thereon;
RESOLUTION 1
2
To declare a final dividend of 5% tax exempt for the year ended 31 December 2006;
RESOLUTION 2
3
To re-elect the following retiring Director:
YM Raja Dato’ Seri Abdul Aziz bin Raja Salim;
4
RESOLUTION 3
To consider and, if thought fit, pass the following resolution:
“THAT pursuant to Section 129(6) of the Companies Act, 1965, YA Bhg Tun Dato’ Seri
Dr Lim Chong Eu who has attained the age of 70 be re-appointed as a Director of the
Company to hold office as a Director until the conclusion of the next annual general
meeting of the Company”;
RESOLUTION 4
5
To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company and authorise
the Directors to fix their remuneration;
RESOLUTION 5
6
To approve the payment of Directors’ fees of RM365,000.00 for the year ended 31
December 2006, to be divided amongst the Directors in such manner as the Directors
may determine.
RESOLUTION 6
AS SPECIAL BUSINESS
To consider and, if thought fit, pass the following Ordinary and Special Resolutions:
Ordinary Resolution:
Authority To Issue Shares
RESOLUTION 7
91
Annual Report 2006
“THAT pursuant to Section 132D of the Companies Act, 1965, the Directors be and
are hereby empowered to issue shares in the Company at any time and upon such
terms and conditions and for such purposes as the Directors may, in their absolute
discretion, deem fit, provided that the aggregate number of shares issued pursuant to
this resolution in any one financial year does not exceed 10% of the issued capital of
the Company for the time being and that the Directors be and are hereby empowered
to obtain the approval for the listing of and quotation for the additional shares so
issued on Bursa Malaysia Securities Berhad and that such authority shall continue in
force until the conclusion of the next Annual General Meeting of the Company”;
Southern Steel Berhad 5283-X
7
NOTICE OF ANNUAL GENERAL MEETING (cont’d)
8
Ordinary Resolution:
Proposed Renewal of Shareholders’ Mandate for Recurrent Related Party Transactions
of a revenue or trading nature
“ THAT approval be and is hereby given to the Company and its subsidiaries to enter
into the recurrent related party transactions of a revenue or trading nature referred
to in Section 2.4 of the Circular to Shareholders dated 20 April 2007 (the “Circular”)
with the parties who fall within the Mandated Related Parties referred to in the Circular,
provided that such transactions are undertaken in the ordinary course of business of
the Company and its subsidiaries, made at arm’s length, and are on terms not more
favourable to the related parties than those generally available to the public and not
to the detriment of the minority shareholders;
RESOLUTION 8
AND THAT such approval shall only continue to be in force until:(a)
the conclusion of the next Annual General Meeting (“AGM”) of the Company;
(b)
the expiration of the period within which the next AGM of the Company after
the date it is required to be held pursuant to Section 143(1) of the Companies
Act, 1965 (but shall not extend to such extension as may be allowed pursuant
to Section 143(2) of the Companies Act, 1965); or
(c)
revoked or varied by resolution passed by the shareholders in general meeting,
whichever is the earlier.
AND THAT the aggregate value of the transactions conducted pursuant to this
shareholders’ mandate during the financial year be disclosed in accordance with the
Listing Requirements of Bursa Malaysia Securities Berhad in the annual report of the
Company.
AND THAT the Directors of the Company be and are hereby authorised to complete
and do all such acts and things (including executing all such documents as may be
required) as they may consider expedient or necessary to give effect to this resolution.”
9
Southern Steel Berhad 5283-X
Annual Report 2006
92
Special Resolution:
Proposed Amendments to the Articles of Association of Southern Steel Berhad
“That the deletions, alterations, modifications, variations and additions to the Articles
of Association of the Company as set out in Appendix I of the Circular to Shareholders
of the Company dated 20 April 2007 be and are hereby approved.”
10
To consider any other business of which due notice shall have been given.
RESOLUTION 9
NOTICE OF ANNUAL GENERAL MEETING (cont’d)
Notice of Dividend Entitlement
NOTICE IS ALSO HEREBY GIVEN that a final dividend of 5% tax exempt for the financial year ended 31 December
2006, if approved, will be paid on 15 June 2007 to depositors registered in the Record of Depositors at the close
of business on 28 May 2007.
A depositor shall qualify for entitlement to the dividend only in respect of:
(a)
shares transferred into the depositor’s securities account before 4.00 pm on 28 May 2007 in respect of
transfers; and
(b)
shares bought on Bursa Malaysia Securities Berhad on cum entitlement basis according to the Rules of Bursa
Malaysia Securities Berhad.
By Order of the Board
Lim Gim Siok
Secretary
Penang
20 April 2007
Southern Steel Berhad 5283-X
Annual Report 2006
93
STATEMENTS ACCOMPANYING
NOTICE OF ANNUAL GENERAL MEETING
(PURSUANT TO PARAGRAPH 8.28(2) OF THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD)
A
Further details of Directors who are standing for re-election or re-appointment as per Agenda 2 and
3 of the Notice of 45th Annual General Meeting respectively
1.
YM Raja Dato’ Seri Abdul Aziz Bin Raja Salim
(Independent Non-Executive Director)
Resolution 3
YM Raja Dato’ Seri Abdul Aziz bin Raja Salim, aged 68, a Malaysian, is a Honorary Fellow of The Malaysian Institute
of Taxation, Fellow of The Chartered Association of Certified Accountants, United Kingdom, Fellow of The Chartered
Institute of Management Accountants (“CIMA”), United Kingdom and a Chartered Accountant (Malaysia). He
served as Director-General of Inland Revenue Malaysia from 1980 to 1990 and Accountant-General Malaysia from
1990 to 1995. YM Raja Dato’ Seri Abdul Aziz was the President of CIMA, Malaysia from 1976 to 1993 and a
Council Member of CIMA, United Kingdom from 1990 to 1996. He was awarded the CIMA Gold Medal in
recognition of his outstanding service to the accounting profession.
His other directorships in public companies are as follows:
•
Director of Camerlin Group Berhad
•
Director of Tasek Corporation Berhad
•
Director of Gamuda Berhad
•
Director of Jerneh Asia Bhd
•
Director of PPB Oil Palms Berhad
•
Director of PPB Group Berhad
•
Director of K & N Kenanga Holdings Berhad
•
Director of Kenanga Investment Bank Berhad (formerly known as K & N Kenanga Berhad)
•
Director of Jerneh Insurance Bhd
•
Director of Amanah Saham Mara Berhad
•
Director of Panasonic Manufacturing Malaysia Bhd (formerly known as Matsushita Electric Company (M)
Berhad)
2.
YA Bhg Tun Dato’ Seri Dr Lim Chong Eu
(Independent Non-Executive Director)
Resolution 4
YA Bhg Tun Dato’ Seri Dr Lim Chong Eu, aged 87, a Malaysian, is renowned as a leading statesman and holds
the distinction of being the former Chief Minister of Penang. He has had a long and illustrious record as a political
leader and representative of the people in many fields of national interests. He graduated with a Bachelor of
Medicine and Bachelor of Surgery (M.B. Ch B.) from Edinburgh University of Scotland in 1944.
Southern Steel Berhad 5283-X
Annual Report 2006
94
His other directorships in public companies are as follows:
•
Chairman of Suiwah Corporation Bhd, a public listed company.
•
Chairman of Chin Well Holdings Berhad, a public listed company.
•
Chairman of Berjaya Vacation Club Berhad, a public company.
•
Director of United Overseas Bank (Malaysia) Berhad, a public company.
Note:
Save as disclosed, the above Directors have no family relationship with any Director and/or major shareholder of
the Company, have no conflict of interest with the Company and have not been convicted for any offence within
the past 10 years.
B
The above Directors do not have any interests in the securities of the Company as at 30 March 2007.
C
Details of attendance of Directors at Board of Directors’ Meetings
Please refer to the Board of Directors’ attendance as set out in the Directors’ Profile appearing on pages 4 to 7
of the Annual Report 2006.
Southern Steel Berhad 5283-X
Annual Report 2006
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95
Southern Steel Berhad 5283-X
Annual Report 2006
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96
SOUTHERN STEEL BERHAD 5283-X
2723, Lorong Perusahaan 12,
Prai Industrial Estate,
13600 Prai, Penang, Malaysia.
Tel
Fax
: 604-390 6540
: 604-390 8060
www.southsteel.com