Notes to the quarterly Interim Financial Report – 30 September 2005

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 2004.

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 2004.

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 those stated below:

	RM’000	
Balance of MUNIF outstanding as at 1 January 2005	130,000	
MUNIF Repaid	(40,000)	
Balance of MUNIF outstanding as at 30 September 2005	 90,000	

As at 30 September 2005, the amount outstanding for Murabahah Underwritten Note Issuance Facility (“MUNIF”) /Islamic Medium Term Notes (“IMTN”) was RM90.0 million out of the limit of RM150.0 million, mainly used for repayment of bank borrowings and working capital. The entire RM150.0 million MUNIF/IMTN facility is fully underwritten by Amanah Short Deposits Berhad and has a tenure of 7-years from the date of issuance.
 
Options relating to 15,127,200 ordinary shares of RM0.50 each were granted to eligible employees at an option price of RM1.63 per share with expiry date of 24 August 2009 pursuant to the Company’s Employees’ Share Option Scheme (ESOS). At the date of this report, 4,121,100 shares were exercised and 758,900 options were lapsed primarily due to staff resignation. After taking into account these new shares, the issued and paid up capital of the Company was increased to 149,321,000. Total number of unexercised share option as at date of report was 10,247,200.

A7.	Dividend Paid	

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

A8.	Segment information

Segmental analysis of the revenue and result :-
Business Segment:	Revenue
9 months ended
30.9.2005	Operating Profit
9 months ended
30.9.2005	
	RM’000	RM’000	
Process equipment	244,155	35,530	
Terminal, refineries and process plant	
969	
66	
Steel structural system	137	29	
Process maintenance	1,017	405	
	246,278	36,030	

A9.	Valuation of property, plant and equipment

Property, plant and equipment of the Group is stated at cost/valuation less accumulated depreciation and accumulated impairment losses where applicable.

There is no revaluation of property, plant and equipment during the period under review.

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 changes in 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	
5,337		
75,269	
Investment	-		20,000	
	5,337		95,269	

      A14.	Related party transactions

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

	RM ‘000	
Inter Merger Sdn Bhd, *		
- Office rental, related charges and administrative expense 	1,314	
		
*a company in which Dato’ Abdul Rani Bin Mohd Razalli, 
  Mr.Lee Swee Eng and Gan Siew Liat are directors		
		
I.M.Bina Sdn Bhd,**		
-General construction and civil works	9,264	
		
Inter Merger Trading Sdn Bhd,**		
-Supply of production materials and fixed assets	57	

**a company in which Inter Merger Sdn Bhd is a holding company		
		
KNM-DP Fabricators Sdn Bhd, an associated company		
- Provision of fabrication works	2,576	
- Reimbursement of site and maintenance expenses	(240)	

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

B1.	Review of performance 
	
The Group achieved revenue of RM246.28 million and profit before tax of RM39.30 million for the current quarter ended 30 September 2005. The revenue increased mainly due to the additional manufacturing capacity and job orders secured.

B2.	Variation of results against preceding quarter 

	The Group’s revenue of RM104.90 million and profit before taxation of RM14.19 million for the third quarter ended 30 September 2005 were higher by 49.90% and 11.73% compared to second quarter’s revenue of RM 69.98 million and profit before taxation of RM12.70 million respectively. 

	The increase in net profit before tax was mainly due to higher turnover recognised as a result of additional manufacturing capacity and job orders secured.

B3.	Current year prospects 

The Board expects the Group’s results from its operation be in line with this current quarter for the remaining period.

B4.	Profit forecast

Not applicable as no profit forecast was published.

B5.	Tax expense 
 							                                    				          
	9 months	9 months	
	ended 30.9.2005	ended 30.9.2004	
	RM’000	RM’000	
Income Tax expense :-			
			
Current	9,347	2,341	
Prior period	70	(643)	
	9,417	1,698	
					  				
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 proposals announced 

(1)	As announced on 12 August 2005, the Company submitted an application to the Securities Commission for the proposed transfer of the listing and quotation for its entire issued and paid up share capital from the Second Board to the Main Board of Bursa Malaysia Securities Berhad (Proposed Transfer Listing). The Proposed Transfer is subject to the approval of the:-

	(a)	Securities Commission; and 
	(b)	the approval-in-principle of Bursa Malaysia Securities Berhad (Bursa Securities); and
	(c)	any other relevant authorities

	Following the approval by the Securities Commission on 14 September 2005, Bursa Securities’ approval-in-principle on 16 September 2005 and the fulfillment of all conditions for the Proposed Transfer Listing, the Proposed Transfer Listing from the Second Board to the Main Board of Bursa Securities under “Industrial Products” was effected on 30 September 2005.

(2)	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	(7,733)	457	
Listing expenses	1,500	(1,864)	(364)	
Working capital	298	(298)	-	
				
Total	21,065	(20,769)	296	

(3)	As announced on 24 May 2005, KNM Overseas (China) Sdn Bhd (KNMOC), an indirect wholly-owned subsidiary of the Company entered into a Memorandum of Understanding (MOU) on 24 May 2005 with the Changshu Administrative Committee of Economic Development Zone of Jiangsu Province, People’s Republic of China (CEDZ) to increase its investment in KNM Special Process Equipment (Changshu) Co Ltd, of Xinghua Gangqu, Changshu City, 215513, Jiangshu Province, People’s Republic of China (KNMSPEC), a wholly-owned subsidiary of KNMOC, by acquiring a piece of land measuring approximately 8 acres (Phase 2) to cater to the expansion in the operations of KNMSPEC. The approval from Bank Negara Malaysia was obtained on 25 August 2005.

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)	
23,396		
Bank Overdraft	205		
Bill Payable	959		
Hire purchase liabilities	72		
	24,632		

Long term :
Borrowings (secured)	
16,541		
MUNIF 	90,000		
Hire purchases liabilities	35		
	106,576		

The above inclusive of borrowing in foreign currency of RMB48.16 million and EURO3.60 million.

The Exchange rates used are 1 RMB = RM 0.4666 and 1 EURO = RM4.5304

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	76,904	289,229	
GBP	167	1,130	
EURO	23,872	110,807	
SGD	857	1,924	
AUD	8,935	25,130	
			
		428,220	

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

There was no dividend declared or recommended during quarter under review.

B13.      Earnings per share
			
	Individual Quarter	Cumulative Quarter		
	30 September 2005	30 September2004	30 September 2005	30 September 2004	
(a) Basic earnings per   share					

Net Profit attributable to shareholders (RM’000)	

11,079	

4,438	

29,887	

11,456	
Number of shares at the beginning of the period (‘000)	

145,911	

44,000	

145,911	

44,000	
Effects of share split (‘000)	
-	
48,400	
-	
48,400	
Effects of bonus issue (‘000)	
-	
48,400	
-	
48,400	
Effect of  ESOS (‘000)	1,487	-	1,487	-	
Effect of Private Placement	-	603	-	603	
Weighted average number of shares (‘000)	
147,398	
141,403	
147,398	
141,403	
Basic earnings per share (sen)	
7.52	
3.14	
20.28	
8.10	

	Individual Quarter	Cumulative Quarter	
	30 September 2005	30 September 2004	30 September 2005	30 September2004	
(b) Diluted earnings per share					

Net Profit attributable to shareholders (RM’000)	

11,079	

4,438	

29,887	

11,456	

Weighted average number of shares as per above (‘000)	

147,398	

141,403	

147,398	

141,403	
Number of shares under ESOS (‘000)	
11,856	
2,017	
11,856	
2,017	
Number of shares would have been issued at fair value(‘000)	

(7,053)

(1,501)

(7,053)

(1,501)

Weighted average number 
of shares - diluted (‘000)	

152,201	

141,919	

152,201	

141,919	
Fully diluted earnings per share (sen)	
7.28	
3.13	
19.64	
8.07	

The comparative basic and diluted earnings per share have been restated to take into account the effects of bonus issue and share split.

B14. 	Authorisation for issue

The interim financial report was authorised for issue by the Board of Directors in accordance with a Board of Directors meeting on 22 November 2005.