Notes on the quarterly report – 30th June 2003

PART A: EXPLANATORY NOTES AS PER MASB 26

A1.	Basis of preparation of interim financial reports

These interim financial statements are prepared in compliance with the Malaysian Accounting Standards Board (MASB) Standard No. 26 “Interim Financial Reporting” and paragraph 9.22 of the Kuala Lumpur Stock Exchange Listing Requirements and should be read in conjunction with the Company’s annual financial statements for the year ended 31st December 2002. 

As part of the restructuring exercise in conjunction with the listing of KNM Group Berhad on the Second Board of the Kuala Lumpur Stock Exchange, KNM Group Berhad entered into a sale and purchase agreement to acquire the entire issued and paid-up share capital of KNM Process System Sdn Bhd and KNM International Sdn. Bhd which was completed on 2nd May 2003 and 2nd June 2003 respectively by using the acquisition method of accounting.

The accounting policies and presentation adopted for the interim financial statements are consistent with those adopted for the last annual audited financial statements except for the adoption of MASB 25, Income Taxes.

A2.	Qualification of Annual Financial Statements

There were no audit qualifications on the annual financial statements of the Company for the year ended 31st December 2002.

A3.	Seasonal and cyclical factors

The Group’s business operation results were not materially affected by any major seasonal or cyclical factors.
	
A4.	Unusual nature and amounts of items affecting assets, liabilities, equity, net income or cash flows

There were no unusual nature and amounts of items affecting assets, liabilities, equity, net income or cash flows during the current quarter under review other than negative goodwill recognized in the income statement.

A5.	Material changes in estimates

There were no material changes in estimates of amount reported in the current period under review. 

A6.	Issuances and repayment of debt and equity securities	

There is no issuance, cancellation, repurchase, resale and repayment of debt and equity securities for the current period under review.

Notes on the quarterly report – 30th June 2003

A7.	Dividend Paid	

No dividend was declared or paid during the period under review. 

A8.	Segment information

Segmental analysis of the results and assets employed for 6 month period 30th June 2003.

Business Segments	
Process
equipment	Terminals, 
Refineries
and process plants	
Plant
maintenance	

Consolidated	
	RM ‘000	RM ‘000	RM ‘000	RM ‘000	

Revenue from external
customer	
   47,295	
          11,611	
      1,592	
    60,498	
					
	   47,295	          11,611	      1,592 	    60,498	
					
Segment results	        6518	           1600	          219	      8,337	
Financing costs				     (1,179)	
Interest income				           60	
Profit before tax				      7,218	

A9.	Valuation of property, plant and equipment

Valuation for property, plant and equipment of the Group have been brought forward without any amendment. 

A10.	Material events subsequent to the end of the interim period

Subsequent to the period under review, KNM Group Berhad will undertake the issuance of 11,080,000 new ordinary shares of RM1.00 each at an issue price of RM1.48 per new ordinary share payable in full upon application comprising: 

•	2,280,000 new ordinary shares of RM1.48 each made available for application by directors, eligible employees, suppliers and persons who have contributed to the success of KNM Group Berhad and its subsidiaries;

•	4,400,000 new ordinary shares of RM1.48 each by way of private placement; and

•	4,400,000 new ordinary shares of RM1.48 each made available for application by the Malaysian Public,

in conjunction with its listing on the Second Board of the Kuala Lumpur Stock Exchange.

                                                                                                                                             
Notes on the quarterly report – 30th June 2003

A11.	Changes in the composition of the Group

On 18 December 2000, KNM Group Berhad entered into a conditional sale and purchase agreement with the shareholders of KNM Process System Sdn. Bhd. for the acquisition of 3,100,000  ordinary shares of RM1.00 each representing the entire issued and paid-up share capital of KNM Process System Sdn. Bhd. purchase consideration of RM 34,186,350.

The said purchase consideration was satisfied through the issuance of 28,253,182 new shares of KNM  Group Berhad to the shareholders of KNM Process System Sdn. Bhd. at an issue price of approximately RM1.21 per share.

The purchase consideration of RM 34,186,350 for the acquisition was arrived at based on the audited consolidated net tangible assets of KNM Process System as at 31 December 1999.

The above acquisition was undertaken as part of the restructuring exercise in conjunction with the listing of KNM Group Berhad on the Second Board of the Kuala Lumpur Stock Exchange. The acquisition was completed on 2 May 2003.

	On 2 June 2003, KNM entered into a Conditional Sale and Purchase Agreement with the shareholders of KNMI namely KNMPS, for the acquisition of the entire issued and paid-up capital of KNMI comprising 500,002 ordinary shares of RM1.00, at par. The purchase consideration of RM500,002 for the acquisition of KNMI was satisfied by cash.

	The Acquisition of KNMI was completed on 2 June 2003.

A12.	Changes in contingent liabilities

There were no material contingent liabilities for the Group as at the date of this announcement.

                                                                                                                                     
Notes on the quarterly report – 30th June 2003

A13.	Capital commitments

	Approved and contracted for
RM’000		Approved but not contracted for
RM’000	

Plant and Machinery 	
      0		
      2,000	

Office Equipment, Furniture and Fittings	
      0		
      2,000	

Motor Vehicles	
      0		
         500	
Total	      0		      4,500	

      A14.	Related party transactions

Significant related party transactions for the period under review are as follows:
						
	RM ‘000

Inter Merger Sdn Bhd, holding company
- Rental expense payable	451
- Administrative cost payable	172

Inter Merger Trading Sdn Bhd, a related company
- Purchase of materials	465

I. M. Bina Sdn Bhd, a related company
- Contracts billings payable	2,368

KNM-DP Fabricators Sdn Bhd, an associated company  
- Contracts billings payable	3,419
- Rental income receivable	240

      A15.	Comparison with preceding quarter’s results 

	The Group’s restructuring exercise in conjunction with its listing on the Second Board of the Kuala Lumpur Stock Exchange was completed on 2nd June 2003. As the financial statements of the Group for the current quarter ended 30th June 2003 are drawn up for the first time, no preceding quarter’s results are available for comparison. 

Notes on the quarterly report – 30th  June 2003

PART B: 	ADDITIONAL INFORMATION REQUIRED BY THE KUALA LUMPUR STOCK EXCHANGE LISTING REQUIREMENTS

B1.	Review of performance 
	
The Group achieved revenue of RM 60.50 million and  profit before tax of RM 7.22 million for the quarter under review.

B2.	Variation of results against preceding quarter 

As the financial statements of the Group for the current quarter ended 30th June 2003 are drawn up for the first time, no comparative figures are available to be presented.

B3.	Current year prospects 

Barring any unforeseen circumstances and on the assumption that the current situation remain, the Board is cautiously optimistic that the Group’s performance for the remaining quarters of this financial year will be reasonably good.

B4.	Variance of actual and forecast profit 

Not applicable for this reporting. 

B5.	Tax expense 
 
				Period ended 	
				30th June 2003	
		RM' 000		
In respect of the current period:

Income Tax			      1,765		
Deferred Tax			           -		
Total				      1,765		

The effective tax rate for the period under review was lower than the statutory income tax rate of 28% due to the utilization of reinvestment allowance in the subsidiaries.  

B6.	Unquoted investments and/or properties 

The Group has not made any investments in any unquoted investments and/or properties during the quarter under review.

Notes on the quarterly report – 30th June 2003

B7.	Quoted and marketable investments 

There were no investments in quoted and marketable securities made during the quarter under review.

B8.	Status of corporate proposal announced 

B8.1	In connection with and on integral part of the listing and quotation of KNM Group Berhad on the Second Board of the Kuala Lumpur Stock Exchange, the Company undertake the following exercise:-

i)	Acquisition as disclosed in note A11.

ii)	Special Dividend

	Payment of special dividend amounting to RM 2,880,000 net of tax by KNMPS to existing shareholders of KNMPS prior to acquisition of KNMPS by KNM.
	
iii)	Rights issue to the existing shareholders of KNM

	Payment issue of 4,666,816 new ordinary shares of RM1.00 each in KNM at an issue price of RM1.00 per rights share to all existing shareholders of KNM on the basis of approximately 165 new ordinary shares of RM1.00 each for every existing 1,000 ordinary shares held in KNM.

iv)	Placement of shares

	Placement of 4,400,000 new ordinary shares of RM1.00 each in KNM at an issue price of RM1.48 per ordinary share

v)	Public issue

	Public issue of 6,680,000 new ordinary shares of RM1.00 each in KNM to the Malaysian public at an issue price of RM1.48 per ordinary share.

B8.2	Status Utilisation Of Proceeds

The gross proceeds arising from the Rights Issue, Placement and Public Issue which are estimated to amount approximately RM21.065 million would be utilised by KNM in the following manner:-

	             Time frame for utilization	TOTAL	
	Financial year    2003	Financial year   2004		
	       RM ‘000	RM ‘000	RM’000	
Repayment of term loans	11,077	-	11,077	
Capital expenditure	5,090	3,100	8,190	
Working Capital	298	-	298	
Listing Expenses	1,500	-	1,500	
Total	17,965	3,100	21,065	

Notes on the quarterly report – 30th June 2003

B9.	Group borrowings 

The Group’s borrowings as at the end of the reporting quarter are as follows:

	RM ‘000	
Short term borrowings:
		
Bank Overdraft	  10,986	
Bankers acceptance	  41,832	
Short term portion of term loan	  17,682	
Hire purchase liabilities	    2,392	
Total	  72,892	
		
Long term borrowings:
		
Term loan 	  6,578	
Hire purchases liabilities	  2,506	
Total	  9,084	
	
The above inclusive of borrowing in foreign currency in USD 500,000 and RMB 24,800

The Exchange rate RMB = RM 0.459
US = RM  3.8

The trade finance facilities are secured by way of charge against Land and building,  and corporate guarantees of subsidiary companies. The term loan is secured by way of a first party loan agreement and deed of assignment over the property and a guarantee by a subsidiary company. 

B10.	Off balance sheet financial instrument 

There is no material financial instrument with off balance sheet risk as at the date of this report..

B11.	Changes in material litigation 

Neither KNM Group Berhad nor any of its subsidiaries is engaged in any litigation or arbitration, either as plaintiff or defendant, which has a material effect the financial position of Company or any of its subsidiaries and the Board does not know of any proceedings pending or threatened, or of any fact likely to give rise to any proceedings, which might materially and adversely affect the position or business of Company or any of its subsidiaries. 

Notes on the quarterly report – 30th June 2003

B12.	Basis earnings per share 

						Jun-03	
							
						RM’ 000	
							
Consolidated profit before taxation			           7,218 	
							
less Taxation					    (1,765)	
						 	
Consolidated profit after taxation before pre-acquisition profit	     5,453 	
							
less pre-acqusition profit 			    (4,579)	
						 	
Consolidated profit after taxation before negative goodwill	        874 	
							
Add: Negative goodwill				    22,009 	
 						 	
Consolidated profit after taxation and negative goodwill		    22,883 	
 							
Weighted average number of shares issue			    26,102 	
							
Enlarged number of shares in issue			    44,000 	
							
Based on consolidated profit after taxation and preacqusition profit	
							
Net EPS (sen)						
							
- before negative goodwill				            3.35	
- after negative goodwill				     87.67 	
							
Fully diluted net EPS (sen)		 			
							
- before negative goodwill				       1.99 	
- after negative goodwill				     52.01 	

	

The calculation of basic earnings per share for the period is based on the net profit attributable to ordinary shareholders of RM22,883,000 and the weighted average number of ordinary shares outstanding during the quarter of 26,102,000.

Weighted average number of ordinary shares

											RM’000

Issued ordinary shares at beginning of the period				 28,253
Effect of rights issue in 20 June 2003						   4,667
Weighted average number of ordinary shares					 26,102