Notes to the quarterly Interim Financial Report – 30 June 2004

PART A: EXPLANATORY NOTES AS PER MASB 26

A1.	Basis of preparation 

The interim financial report is unaudited and prepared in compliance with the Malaysian Accounting Standards Board (MASB) Standard No. 26 “Interim Financial Reporting” and paragraph 9.22 of the Bursa Malaysia Listing Requirements and should be read in conjunction with the Company’s audited annual financial statements for the year ended 31 December 2003.
. 
The accounting policies and methods of computation adopted for the interim financial report are consistent with those adopted for the last annual audited financial statements. 

A2.	Qualification of annual financial statements

There were no audit qualifications on the annual financial statements of the Company for the year ended 31 December 2003.

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 amount of items affecting assets, liabilities, equity, net income or cash flows

There were no unusual nature and amount of items affecting assets, liabilities, equity, net income or cash flows for the current quarter and financial year to date.

A5.	Material changes in estimates

There were no material changes in estimates of amount reported in the current quarter. 

A6.	Issuances and repayment of debt and equity securities	

There were no issuance, cancellation, repurchase, resale and repayment of debt and equity securities for the current financial year to date other than the amount of RM80.0 million of Murabahah Underwritten Note Issuance Facility (“MUNIF”) issued on 25 June 2004 out of MUNIF/Islamic Medium Term Notes (“IMTN”) limit of RM150.0 million for repayment of bank borrowings. The entire RM150.0 million MUNIF/IMTN is fully underwritten by Amanah Short Deposits Berhad and has a tenure of 7-years from the date of issuance.

                       

                                                                                                           
A7.	Dividend Paid	

No dividend was paid during the financial year to date. 

A8.	Segment information

Segmental analysis of the revenue and result :-

Business Segment:	Revenue
6 months ended
30.06.2004	Operating Profit
6 months ended
30.06.2004	
	RM’000	RM’000	
Process equipment	69,583	8,960	
Terminal, refineries and process plant	3,012	388	
Steel structural system	2,080	268	
Process maintenance	1,204	155	
Change in stock level	-	577	
	75,879	10,348	

A9.	Valuation of property, plant and equipment

Property, plant and equipment of the Group is stated at cost less accumulated depreciation. There is no revaluation of property, plant and equipment for the current quarter and financial year to date.

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

There was no material event subsequent to the end of the reporting period and up to the date of issuance  of this report. 

A11.	Changes in the composition of the Group

There were no changes in the composition of the Group for the current quarter and financial year to date.

A12.	Changes in contingent liabilities

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

              
                                                                                                                  
A13.	Capital commitments

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

Property, plant and equipment	
 3,984		
42,170	
Investment	 55,000*		   5,000	
	58,984		 47,170	

* refers to acquisition and subscription of 50% equity interest in FBM-KNM FZCo of Euro 12.0 million.	

      A14.	Related party transactions

Significant related party transactions for the financial year to date are as follows:

	RM ‘000	
Inter Merger Sdn Bhd, holding company		
- Rental expense payable	451	
- Administrative cost payable	175	
		
Inter Merger Trading Sdn Bhd, a related company		
- Purchase of materials	62	
		
I. M. Bina Sdn Bhd, a related company		
- Contracts billings payable	2,254	
		
KNM-DP Fabricators Sdn Bhd, an associated company		
- Contracts billings payable	4,805	
- Rental income receivable	(240)	

A15.	Comparison with preceding years’ comparable results

	As the financial statements of Group were drawn up for the first time in second quarter of last year based on two month’s results, the preceding year’s corresponding quarter result is not comparable with the current year’s quarter results.

PART B: 	ADDITIONAL INFORMATION REQUIRED BY THE BURSA MALAYSIA LISTING REQUIREMENTS

B1.	Review of performance 
	
The Group achieved revenue of RM75.88 million and profit before tax of RM9.23 million for the current quarter ended 30 June 2004.

B2.	Variation of results against preceding quarter 

	The Group’s revenue of RM40.66 million and profit before taxation of RM4.58 million for the second quarter ended 30 June 2004 were higher by 15.4% and 1.5% lower compared to the first quarter’s revenue of RM35.22 million and profit before taxation of RM4.65 million respectively. The decrease of the profit before taxation was mainly due to upfront cost of completing the MUNIF/IMTN programme incurred in the quarter under review compared to preceding quarter amounting to RM1.45 million. Adjusting the one-off costs, profit before taxation would be RM6.03 million which represents 29.0% higher compared to the first quarter.

B3.	Current year prospects 

The Board is confident and expects the Group’s operations to be profitable in the remaining period to the end of financial year 2004.

B4.	Profit forecast

Not applicable as no profit forecast was published.

B5.	Tax expense 
 							                                    						                                    
	3 months	3 months	6 months	6 months	
	ended 30.6.2004	ended 30.6.2003	     ended 30.6.2004	ended 30.6.2003                                     	
	RM’000	RM’000	RM’000	RM’000	
Income Tax expense :-					
					
Current	1,280	1,765	2,856	1,765	
Prior period	(643)	-	(643)	-	
	637	1,765	2,213	1,765	
					  				
The Group’s effective tax rate is lower than the statutory tax rate mainly due to the availability of certain tax incentives. 

B6.	Unquoted investments and properties 

The Group has not made or disposed any investments in any unquoted investments and properties for the current quarter and financial year to date.

B7.	Quoted and marketable investments 

There were no investments or disposals in quoted and marketable securities during the current quarter and financial year to date.

B8.	Status of corporate proposal announced 

(1)	The following proposals as reported in previous quarter have been approved by Ministry of Internal Trade and Industries (“MITI”) on 24 May 2004.

(i)	Proposed Private Placement of 4,400,000 new ordinary shares of RM1.00 each in KNM (“KNM Shares”) (“Placement Shares”), representing up to ten percent (10%) of the issued and paid-up share capital of the Company at an issue price of RM3.50 each (“Proposed Placement”);

	(ii)	Proposed Bonus Issue of up to 27,830,000 new ordinary share of RM1.00 each in KNM (“Bonus Shares”), to be credited as fully paid-up on the basis of one (1) bonus share for every two (2) existing KNM shares held on an entitlement date to be determined and announced later (“Proposed Bonus Issue”);

(iii)	Proposed Share Split of every one (1) existing KNM share into two (2) new ordinary shares of RM0.50 each (“Subdivided KNM Shares”) held on an entitlement date to be determined and announced later (“Proposed Share Split”);

(iv)	Proposed Employees’ Share Option Scheme for eligible employees and Directors of the Company and its subsidiaries (“KNM Group”) (“Proposed ESOS”);and 

(v)	Proposed increase in the authorised share capital of KNM from RM50,000,000 comprising 50,000,000 KNM shares to RM200,000,000 comprising 400,000,000 Subdivided KNM shares (“Proposed Capital Increase”)

Subsequently, approval in principle was received from Bursa Malaysia via its letter dated 14 June 2004 for:-

(i)	the listing of and quotation for:
(a)	up to 27,830,000 Bonus shares in the event the Proposed Bonus Issue is implemented before the Proposed share split; or
(b)	up to 55,660,000 subdivided KNM Shares in the event the Proposed Bonus Issue is implemented after the Proposed share split;

(ii)	the Proposed Share Split; and 
(iii)	the listing of and quotation for such number of new shares that may be issued pursuant to the exercise of options granted under the Proposed ESOS, not exceeding 15% of the issued and paid-up share capital of KNM at any one time.

B8.	Status of corporate proposal announced  (Cont’d)

Approval from Securities Commission (“SC”)(on behalf of the Foreign Investment Committee (“FIC”) was also obtained via letter dated 15 June 2004 are subject to the following conditions:

(i)	CIMB/KNM should inform SC upon completion of the Proposed Placement;
(ii)	KNM should obtain the Ministry of International Trade and Industry (“MITI”)’s clearance with respect to the equity condition imposed on KNM Process System Sdn Bhd and KNM Ogpet (East Coast) Sdn Bhd, and should inform SC on the status;
(iii)	KNM should provide a detailed breakdown of the proceeds proposed to be utilised for working capital in the announcement to the shareholders. KNM should also disclose the status of the utilization of proceeds from the Proposed Placement in its quarterly and annual reports until the proceeds have been fully utilized; and
(iv)	CIMB/KNM should fully comply with the relevant requirements of the Policies and Guidelines on Issue/Offer of Securities relating to the implementation of the Proposed Placement and Proposed Share Split.

All the resolutions listed under B8(1)(i) to (v) consistent with approvals in principle received from the authorities have been approved by the shareholders in the Extraordinary General Meeting held on 22 July 2004.
	
On 20 August 2004 and 24 August 2004, ESOS was offered and the Proposed Private Placement was completed respectively.
	
The Bonus Shares will be allotted and issued, credited as fully paid-up, to the shareholders of KNM as 5.00 p.m. on Thursday, 2 September 2004, on the basis of one (1) Bonus Share for every two (2) Subdivided KNM Shares to be allotted and issued pursuant to the Share Split. Ex-date and entitlement date for bonus issue are 30 August 2004 and 2 September 2004 respectively.

(2)	As reported in previous quarter, on 21 May 2004, KNM's wholly-owned subsidiary, KNM International Sdn Bhd ("KNMI") entered into a joint venture through a Share Sale and Shareholders Agreement ("JV") with FBM-Hudson Italiana SpA ("FBM") for acquisition and subscription of 50% equity interest in FBM's manufacturing plant in Jebel Ali Free Zone (JAFZ), Dubai (“FBM-KNM FZCo”)for a cash consideration of Euro 12.0 million.

The above proposal is in progress. The entire proposal is expected to be completed by the third quarter of 2004.

(3)	The utilisation of IPO proceeds was made as follows:

	Total Proceeds	Utilised	Unutilised	
	RM’000	RM’000	RM’000	
Repayment of term loan	11,077	(10,874)	203	
Capital expenditure	8,190	(5,408)	2,782	
Listing expenses	1,500	(1,864)	(364)	
Working capital	298	(298)	-	
				
Total	21,065	(18,444)	2,621	

B9.	Group borrowings and debt securities
The Group’s borrowings as at the end of the reporting period were as follows:

	RM ‘000	
Short term:
Borrowings (secured)	
      6,171	
MUNIF/IMTN	     80,000*	
Bank Overdraft	          691	
Bankers acceptance	     18,360	
Short term portion of term loan	          185	
Hire purchase liabilities	            70	
	   105,477	
		
Long term :
Borrowings (secured)	
      14,693	
Hire purchases liabilities	              -	
	      14,693	
	
* This forms part of the RM150.0 million Murabahah Underwritten Notes Issuance Facility/ Islamic Medium Term Notes Facility (“MUNIF/IMTN”), of which RM80.0 million has been issued.
	
The above inclusive of borrowing in foreign currency of RMB45 million.

The Exchange rates used  is 1 RMB = RM 0.459. 

B10.	Off balance sheet financial instrument 

There was no material financial instrument with off balance sheet risk as at the end of the period under review other than the following.

Forward foreign exchange contracts expiring within one (1) year :-

Currency	Contract Amount
’000	Equivalent Amount in RM’000	
USD	7,320	27,911	
CAD	1,373	3,839	
GBP	    22	151	
SGD	   244	549	
EURO	   315	1,460	
		33,910	

As forward foreign exchange contracts are entered into to hedge the Group’s purchases in foreign currencies, the contracted rates would be used to convert the foreign currency amounts into Ringgit Malaysia. This method of hedging mitigates the Group from currency risks such that the values of the underlying liabilities or assets are preserved. 

There are no significant credit and market risks posed by the above off balance sheet financial instruments.

B11.	Changes in material litigation 

As at the date of this announcement, there were no changes in material litigation since the last annual balance sheet date.

B12. 	Dividend payable

The proposed final dividend of 5% tax exempt totalling RM2,200,000 in respect of the previous financial year ended 31 December 2003 was approved by shareholders in the Annual General Meeting dated 17 June 2004. The dividend was paid on 9 August 2004. Entitlement to dividend was determined based on the record of depositors on 8 July 2004.

	B13.      Basic earnings per share
			
The calculation of basic earnings per share for the period is based on the net profit attributable to ordinary shareholders of RM7,018,000 and on the number of ordinary shares outstanding during the quarter of 44,000,000. For the preceding year, earnings per share calculation is based on weighted average number of shares of 26,102,000.

B14. 	Authorisation for issue

The interim financial report was authorised for issue by the Board of Directors in accordance with a Directors resolution on 30 August 2004.