Notes to the quarterly Interim Financial Report – 31 December 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	122,000	
MUNIF Repaid and withdrawal	(50,000)	
Balance of MUNIF outstanding as at 31 December 2005	 72,000	

As at 31 December 2005, the amount outstanding for Murabahah Underwritten Note Issuance Facility (“MUNIF”) /Islamic Medium Term Notes (“IMTN”) was RM72.0 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 and 5,034,080 ordinary shares of RM0.50 each were granted to eligible employees at an option price of RM1.63 and RM2.88 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, 4,875,600 shares were exercised and 1,040,780 share options were lapsed primarily due to staff resignation. After taking into account these new shares alloted, the issued and paid up capital of the Company was increased to 150,075,600 and total number of unexercised share options as at date of report was 14,244,900.

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
12 months ended
31.12.2005	Operating Profit
12 months ended
31.12.2005	
	RM’000	RM’000	
Process equipment	342,293	52,127	
Terminal, refineries and process plant	
397	
66	
Steel structural system	137	29	
Process maintenance	1,056	125	
	343,883	52,347	

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 other than those disclosed under item no. B8. 

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 under than those disclosed in item no. B8.

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	
4,226		
38,200	
Investment	49,561		38,747	
	53,787		76,947	

      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 	1,733	
		
*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	18,543	
		
Inter Merger Trading Sdn Bhd,**		
-Supply of production materials and fixed assets	64	

**a company in which Inter Merger Sdn Bhd is a holding company		
		
KNM-DP Fabricators Sdn Bhd, an associated company		
- Provision of fabrication works	7,923	
- 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 a revenue of RM343.88 million and profit before tax of RM54.15 million for the current year ended 31 December 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 RM97.61 million and profit before taxation of RM14.84 million for the fourth quarter ended 31 December 2005 were lower and higher by 6.95% and 4.58% compared to third quarter’s revenue of RM104.9 million and profit before taxation of RM14.19 million respectively. 

	The increase in net profit before tax was mainly due to lower overall operating cost.

B3.	Current year prospects 

The Board is confident that the Group’s results for the year 2006 will remain profitable.

B4.	Profit forecast

Not applicable as no profit forecast was published.

B5.	Tax expense 
 							                                    				          
	12 months	12 months	
	ended 31.12.2005	ended 31.12.2004	
	RM’000	RM’000	
Income Tax expense :-			
			
Current	8,981	          1,556	
Prior period	22	(2,080)	
Deferred taxation	4,005	(1,007)	
	13,008	(1,531)	
					  				
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 3 January 2006, KNM International Sdn Bhd (KNMI), a wholly-owned subsidiary of KNM proposed to acquire entire equity interest in FBM-Hudson Italiana Spa, a company incorporated in Italy comprising 228,000 fully paid-up ordinary shares of Euro dollars 1.00 each from Hamon & CIE International SA, a company incorporated in Belgium for a consideration of Euro 1,750,180.The shares consideration is equivalent to RM7,881,061 based on the exchange rate of RM4.503:Euro1.00. As an integral part of the Proposed FBM Acquisition, KNM shall also purchase the entire Balance Lenders’ Debt based on a cash consideration of 30% of the Balance Lenders’ Debt or Euro 5,006,968 (equivalent to RM22,546,378) (KNMI Debt Purchase). Therefore, the total consideration for the Proposed FBM Acquisition (including the KNMI Debt Purchase) is Euro 6,757,148 or equivalent to RM30,427,437 (Total Consideration).

	The proposed FBM acquisition is subject to and conditional upon the approvals from the following:-

	(i)	Bank Negara Malaysia;
	(ii)	Shareholders of KNM; and
	(iii)	The acceptance of each of the Lender of the KNMI Debt purchase by 31 January 2006

(2)	As announced on 30 December 2005, KNM Process Systems Sdn Bhd, a wholly-owned subsidiary of KNM of 51%( Plus 1 share) equity interest in KNM Pty Ltd (formerly known as Hudson Products Pacific Pty Ltd), a company incorporated in Australia  comprising 2,193,001 fully paid-up ordinary shares and 1 partly paid-up ordinary share from Process Heat Transfer Pty Ltd for a cash consideration USD3,000,000.

	The HPP acquisition was completed on 18 January 2006.

(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	(7,972)	218	
Listing expenses	1,500	(1,864)	(364)	
Working capital	298	(298)	-	
				
Total	21,065	(21,008)	57	

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)	
14,989		
Bank Overdraft	1,862		
Bill Payable	5,334		
Hire purchase liabilities	57		
	22,242		

Long term :
Borrowings (secured)	
15,137		
MUNIF 	72,000		
Hire purchases liabilities	25		
	87,162		

The above inclusive of borrowing in foreign currency of RMB29.83 million and EURO3.60 million.

The Exchange rates used are 1 RMB = RM 0.4693 and 1 EURO = RM4.4759

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	80,396	300,838	
GBP	102	672	
EURO	12,871	59,941	
SGD	847	1,903	
AUD	7,807	21,895	
JPY	46,172	1,552	
			
		386,801	

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 Directors recommend a final dividend of 5 sen per 50 sen ordinary shares less tax amounting to RM5,386,025 assuming based on 149,611,800 ordinary shares outstanding at 31 December 2005.

B13.      Earnings per share
			
	Individual Quarter	Cumulative Quarter		
	31 December 2005	31 December 2004	31 December 2005	31 December 2004	
(a) Basic earnings per   share					

Net Profit attributable to shareholders (RM’000)	
11,251	
3,010	
41,138	
14,466	
Number of shares at the beginning of the period (‘000)	

145,912	

44,000	

145,912	

44,000	
Effects of share split (‘000)	
-	
48,400	
-	
48,400	
Effects of bonus issue (‘000)	
-	
48,400	
-	
48,400	
Effect of  ESOS (‘000)	1,883	84	1,883	84	
Effect of Private Placement	-	1,555	-	1,555	
Weighted average number of shares (‘000)	
147,795	
142,439	
147,795	
142,439	
Basic earnings per share (sen)	
7.61	
2.11	
27.83	
10.16	

	Individual Quarter	Cumulative Quarter	
	31 December 2005	31 December 2004	31 December 2005	31 December 2004	
(b) Diluted earnings per share					

Net Profit attributable to shareholders (RM’000)	
11,251	
3,010	
41,138	
14,466	

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

147,795	

142,439	

147,795	

142,439	
Number of shares under ESOS (‘000)	
10,241	
5,055	
10,241	
5,055	
Number of shares would have been issued at fair value(‘000)	

(6,007)

(3,762)

(6,007)

(3,762)

Weighted average number 
of shares - diluted (‘000)	
152,029	
143,732	
152,029	
143,732
	
Fully diluted earnings per share (sen)	
7.40	
2.09	
27.06	
10.06	

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 23 February 2006.