ANNUAL REPORT FOR THE YEAR ENDED 30 … REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2006 Page Notice of Annual General Meeting 1 - 3 Notis Mesyuarat Agung Tahunan 4 - 6 Corporate Information

BATU KAWAN BERHAD (6292-U)

ANNUAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2006

Page

Notice of Annual General Meeting 1 - 3

Notis Mesyuarat Agung Tahunan 4 - 6

Corporate Information 7

Profile of the Directors 8 - 10

Chairman’s Review 11 - 12

Ulasan Pengerusi 13 - 15

Statement of Corporate Governance 16 - 24

Statement on Internal Control 25 - 26

Report of the Audit Committee 27 - 29

Report of the Directors 30 - 33

Directors’ Responsibility Statement 34

Income Statements 35

Balance Sheets 36

Statement of Changes in Equity of the Group 37

Statement of Changes in Equity of the Holding Company 38

Consolidated Cash Flow Statement 39

Cash Flow Statement of the Holding Company 40

Notes to the Financial Statements 41 - 67

Statement by the Directors 68

Statutory Declaration 68

Report of the Auditors to the Members 69

Shareholding Statistics 70 - 71

Properties of the Group 72

BATU KAWAN BERHAD

Contents

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BATU KAWAN BERHAD

NOTICE IS HEREBY GIVEN that the Forty-second ANNUAL GENERAL MEETING of the members of the Company willbe held at its Registered Office, Wisma Taiko, 1, Jalan S. P. Seenivasagam, 30000 Ipoh, Perak Darul Ridzuan, Malaysia onWednesday, 14 February 2007 at 2.15 p.m. for the following purposes:-

1. To receive and adopt the Financial Statements for the year ended 30 September 2006 and theDirectors’ and Auditors’ Reports thereon.

2. To sanction the payment of a Final Dividend and a Special Dividend for the year ended 30September 2006.

3. To re-elect the following Directors:-

(a) Dato’ Lee Hau Hian(b) Dato’ Lee Soon Hian

4. To consider and, if thought fit, pass resolutions pursuant to Section 129(6) of the Companies Act,1965 to re-appoint the following as Directors of the Company to hold office until the next AnnualGeneral Meeting of the Company:-

(a) R.M. Alias(b) Tan Sri Dato’ Thong Yaw Hong

5. To approve Directors’ fees for the year ended 30 September 2006 amounting to RM534,000 (2005 :RM534,625).

6. To appoint Auditors and to authorise the Directors to fix their remuneration.

7. As SPECIAL BUSINESS, to consider and, if thought fit, pass the following as Ordinary Resolutions:-

(a) PROPOSED AUTHORITY TO BUY BACK ITS OWN SHARES BY THE COMPANY

“THAT authority be given to the Directors for the Company to buy back such amount of ordinaryshares of RM1 each in the Company (“Proposed Authority to Buy Back Shares”) as may bedetermined by the Directors from time to time through the Bursa Malaysia Securities Berhad(“Bursa Securities”) upon such terms and conditions as the Directors may deem fit and expedientin the best interests of the Company provided that the aggregate number of shares purchasedpursuant to this resolution does not exceed approximately 3.59% of the issued and paid-upshare capital of the Company (or equivalent to 10,369,000 shares in the Company based on itsadjusted issued and paid-up share capital [excluding treasury shares] of 289,152,000 shares ofRM1 each as at 8 December 2006) and that an amount not exceeding the total audited retainedprofits of the Company be allocated for the Proposed Authority to Buy Back Shares (as at 30September 2006, the retained profits of the Company was RM335,736,000) AND THAT theDirectors may resolve to cancel the shares so purchased and/or retain the shares so purchasedas treasury shares which may be distributed as dividends to the shareholders of the Companyand/or resold on the Bursa Securities and/or cancelled;

AND THAT the Directors be and are hereby empowered to do all such acts and things to give fulleffect to the Proposed Authority to Buy Back Shares with full powers to assent to any conditions,modifications, revaluations, variations and/or amendments (if any) as may be imposed by therelevant authorities;

AND THAT such authority shall commence upon the passing of this ordinary resolution and willexpire at the conclusion of the next Annual General Meeting of the Company following thepassing of this ordinary resolution or the expiry of the period within which the next AnnualGeneral Meeting is required by law to be held (unless earlier revoked or varied by ordinaryresolution of the shareholders of the Company in general meeting) but not so as to prejudice thecompletion of a purchase by the Company before the aforesaid expiry date and, in any event, inaccordance with the provisions of the guidelines issued by the Bursa Securities or any otherrelevant authority.”

(Resolution 1)

(Resolution 2)

(Resolution 3)(Resolution 4)

(Resolution 5)(Resolution 6)

(Resolution 7)

(Resolution 8)

(Resolution 9)

Notice of Annual General Meeting

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BATU KAWAN BERHAD

Notice of Annual General Meeting (Continued)

(b) PROPOSED SHAREHOLDERS’ MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONSOF A REVENUE OR TRADING NATURE

“THAT subject to the Companies Act, 1965, the Memorandum and Articles of Association of theCompany and the Listing Requirements of the Bursa Malaysia Securities Berhad, approval beand is hereby given to the Company and/or its subsidiary companies to enter into all arrangementsand/or transactions as set out in PART B Section 2.2(b) of the Circular to Shareholders dated 19December 2006 involving the interests of Directors, major shareholders or persons connectedwith Directors or major shareholders (“Related Parties”) of the Company and/or its subsidiarycompanies provided that such arrangements and/or transactions are:-

(i) recurrent transactions of a revenue or trading nature;(ii) necessary for the Group’s day-to-day operations;(iii) carried out in the ordinary course of business on normal commercial terms which are not

more favourable to the Related Parties than those generally available to the public; and(iv) are not to the detriment of minority shareholders;(“the Mandate”);

THAT such authority shall commence upon the passing of this resolution and shall continue tobe in force until:-

(i) the conclusion of the next Annual General Meeting of the Company following the AnnualGeneral Meeting at which such mandate was passed, at which time it will lapse, unless bya resolution passed at the meeting, the authority is renewed;

(ii) the expiration of the period within which the next Annual General Meeting after the date it isrequired to be held pursuant to Section 143(1) of the Companies Act, 1965 but shall notextend to such extension as may be allowed pursuant to Section 143(2) of the CompaniesAct, 1965; or

(iii) revoked or varied by resolution passed by the shareholders in general meeting;

whichever is the earlier;

AND THAT the Directors of the Company be authorised to complete and do all such acts andthings (including executing all such documents as may be required) as they may considerexpedient or necessary to give effect to the Mandate.”

8. To transact any other ordinary business.

By Order of the BoardJ.C. LIMLEONG SEA FOOK(Secretaries)

Ipoh,Perak Darul Ridzuan,Malaysia.

19 December 2006

.

(Resolution 10)

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BATU KAWAN BERHAD

Notice of Annual General Meeting (Continued)

NOTES:-

(1) A member of the Company entitled to attend and vote at the meeting is entitled to appoint a proxy or not more than two proxies to votein his stead. A proxy need not be a member of the Company.

(2) The instrument appointing a proxy, to be valid, must be deposited at the Registered Office of the Company at Wisma Taiko, 1, JalanS. P. Seenivasagam, 30000 Ipoh, Perak Darul Ridzuan, not less than 48 hours before the time for holding the meeting.

(3) The Final Dividend and Special Dividend, if approved, will be paid on 15 March 2007 to all shareholders on the Register of Members as at16 February 2007.

A Depositor with the Bursa Malaysia Depository Sdn Bhd shall qualify for entitlement to the dividends only in respect of:-

(i) securities deposited into the Depositor’s Securities Account before 12.30 p.m. on 14 February 2007 in respect of securities whichare exempted from mandatory deposit;

(ii) securities transferred into the Depositor’s Securities Account before 4.00 p.m. on 16 February 2007 in respect of transfers; and

(iii) securities bought on the Bursa Malaysia Securities Berhad on a cum entitlement basis according to the Rules of the Bursa MalaysiaSecurities Berhad.

(4) Profile of the Directors (together with their attendance in Board Meetings) standing for re-election or re-appointment as Directors of theCompany under Resolutions 3 to 6 are shown on pages 8 to 10 of this 2006 Annual Report.

(5) Ordinary Resolution 9 under item 7(a), if passed, is to give authority to Directors to buy back the Company’s own shares. This authoritywill expire at the next Annual General Meeting of the Company unless earlier revoked or varied by ordinary resolution of the Companyat a general meeting.

(6) Ordinary Resolution 10 under item 7(b), if passed, will allow the Group to enter into Recurrent Related Party Transactions of a Revenueor Trading Nature in the ordinary course of business made on an arm’s length basis and on normal commercial terms not morefavourable to the related parties than those generally available to the public, and are not to the detriment of the minority shareholders.

By obtaining the Proposed Shareholders’ Mandate under Ordinary Resolution 10 and the renewal of the same on an annual basis, thenecessity to convene separate general meetings from time to time to seek shareholders’ approval as and when such recurrent relatedparty transactions occur is avoided which would reduce substantial administrative time, inconvenience and expenses associated withthe convening of such meetings, without compromising the corporate objectives of the Group or adversely affecting the businessopportunities available to the Group.

For Ordinary Resolutions 9 and 10 mentioned above, further information is set out in the Circular to Shareholders of the Company which isdespatched together with the Company’s 2006 Annual Report.

(A proxy form is attached with this Annual Report)

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BATU KAWAN BERHAD

DENGAN INI DIBERITAHU bahawa MESYUARAT AGUNG TAHUNAN pemegang-pemegang saham Syarikat yang Ke EmpatPuluh Dua akan diadakan di Pejabat Berdaftar di Wisma Taiko, 1, Jalan S. P. Seenivasagam, 30000 Ipoh, Perak DarulRidzuan, Malaysia pada hari Rabu, 14 Februari 2007 pada jam 2.15 petang untuk tujuan-tujuan berikut:-

1. Menerima dan meluluskan Penyata Kewangan bagi tahun berakhir 30 September 2006 dan LaporanPara Pengarah dan Juruaudit.

2. Meluluskan bayaran Dividen Akhir dan Dividen Khas bagi tahun berakhir 30 September 2006.

3. Melantik semula Pengarah-Pengarah berikut:-

(a) Dato’ Lee Hau Hian(b) Dato’ Lee Soon Hian

4. Mempertimbangkan dan sekiranya wajar, meluluskan resolusi menurut Seksyen 129(6) Akta Syarikat,1965 bagi melantik semula penama berikut sebagai Pengarah Syarikat untuk berkhidmat hinggaMesyuarat Agung Tahunan Syarikat tahun berikutnya:-

(a) R.M. Alias(b) Tan Sri Dato’ Thong Yaw Hong

5. Meluluskan bayaran yuran Pengarah-Pengarah sebanyak RM534,000 bagi tahun berakhir 30 September2006 (2005 : RM534,625).

6. Melantik Juruaudit dan memberi kuasa kepada para Pengarah menetapkan ganjaran Juruaudit.

7. Sebagai URUSAN KHAS, untuk menimbangkan dan sekiranya bersesuaian meluluskan yang berikutsebagai Resolusi-Resolusi Biasa:-

(a) CADANGAN MEMBERI KUASA MEMBELI BALIK SAHAM SENDIRI OLEH SYARIKAT

“BAHAWA kuasa diberi kepada Pengarah-Pengarah untuk Syarikat membeli balik saham biasabernilai RM1 setiap satu dalam Syarikat (“Cadangan Memberi Kuasa Membeli Balik Saham”)dengan amaunnya ditentukan oleh Pengarah-Pengarah dari masa ke semasa melalui BursaMalaysia Securities Berhad (“Bursa Securities”) mengikut syarat-syarat yang dianggap olehPengarah-Pengarah sesuai dan wajar demi kepentingan Syarikat tertakluk kepada jumlah sahamyang dibeli melalui resolusi ini tidak melebihi anggaran 3.59% dari jumlah modal saham terbitandan berbayar Syarikat (bersamaan dengan 10,369,000 saham Syarikat berdasarkan modal sahamterbitan dan berbayar yang telah diubahsuai [tidak termasuk saham perbendaharaan] sebanyak289,152,000 saham bernilai RM1 setiap satu pada 8 Disember 2006) dan amaun yang tidakmelebihi jumlah keuntungan terkumpul Syarikat yang telah diaudit akan diperuntukkan untukCadangan Memberi Kuasa Membeli Balik Saham (pada 30 September 2006, keuntunganterkumpul Syarikat adalah sebanyak RM335,736,000) DAN BAHAWA Pengarah-Pengarah bolehmeresolusikan untuk membatalkan saham yang dibeli dan/atau menyimpan saham yang dibelisebagai saham perbendaharaan dimana ianya boleh diagih sebagai dividen kepada pemegang-pemegang saham Syarikat dan/atau dijual semula melalui Bursa Securities dan/atau dibatalkan;

DAN BAHAWA Pengarah-Pengarah diberi kuasa membuat segala tindakan dan perkara yangperlu untuk melaksanakan dengan penuh Cadangan Memberi Kuasa Membeli Balik Sahamdengan penuh kuasa untuk menyetujui sebarang syarat, ubahsuaian, nilaian semula, perubahandan/atau pindaan (jika ada) yang dikuatkuasakan oleh pihak berkuasa berkenaan;

DAN BAHAWA kuasa tersebut akan bermula apabila resolusi ini diluluskan dan akan tamat padapenghabisan Mesyuarat Agung Tahunan Syarikat tahun hadapan berikutan dengan kelulusanresolusi biasa ini atau penamatan jangkamasa dalam tempoh dimana Mesyuarat Agung Tahunanhadapan yang dikehendaki oleh undang-undang perlu diadakan (kecuali dibatalkan ataudiubahsuai melalui resolusi biasa pemegang-pemegang saham Syarikat dalam Mesyuarat Agung)tetapi tidak menjejaskan penyempurnaan pembelian oleh Syarikat sebelum tarikh tamat dan,dalam keadaan apa pun, seharusnya mengikut peruntukan dalam garis panduan yang dikeluarkanoleh Bursa Securities atau mana-mana pihak berkuasa berkenaan.”

(Resolusi 1).

(Resolusi 2)

(Resolusi 3)(Resolusi 4)

(Resolusi 5)(Resolusi 6)

(Resolusi 7)

(Resolusi 8)

(Resolusi 9)

Notis Mesyuarat Agung Tahunan

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BATU KAWAN BERHAD

Notis Mesyuarat Agung Tahunan (Sambungan)

(b) CADANGAN PEMEGANG-PEMEGANG SAHAM MEMBERI MANDAT UNTUK MELULUSKANTRANSAKSI DAGANGAN SERING BERULANG DENGAN PIHAK-PIHAK YANG BERKAITAN

“BAHAWA, tertakluk kepada Akta Syarikat, 1965, Tatacara dan Tataurus Syarikat dan PeraturanBursa Malaysia Securities Berhad, kelulusan diberikan kepada Syarikat dan/atau subsidiari-subsidiarinya untuk mementerai perjanjian atau menangani transaksi dengan pihak-pihak yangberkaitan seperti yang tertera di BAHAGIAN B Seksyen 2.2(b) dalam Surat Pekeliling kepadapemegang-pemegang saham bertarikh 19 Disember 2006 yang melibatkan kepentinganPengarah-pengarah atau pemegang saham utama atau pihak-pihak yang berkaitan denganPengarah-pengarah atau pemegang-pemegang saham utama (“Pihak-pihak berkaitan”) syarikatdan/atau subsidiari-subsidiarinya sekiranya transaksi-transaksi tersebut adalah:-

(i) sering berulang dan bersifat dagangan;(ii) merupakan keperluan untuk urusan perniagaan harian;(iii) dilaksanakan secara perniagaan biasa seumpama transaksi dijalankan dengan pihak

umum dan tidak memberikan kelebihan kepada pihak-pihak berkaitan; dan(iv) tidak merugikan atau menjejaskan kepentingan pemegang-pemegang saham minoriti;(“Mandat”);

DAN BAHAWA, mandat tersebut akan berkuatkuasa sebaik sahaja resolusi ini diluluskan danberkuatkuasa sehingga:-

(i) penamatan Mesyuarat Agung Tahunan Syarikat selepas Mesyuarat Agung Tahunan padamana mandat tersebut diluluskan bila mana ia akan luput, melainkan resolusi diluluskanuntuk memperbaharui mandat, diperolehi dalam mesyuarat tersebut;

(ii) tamatnya tempoh bilamasa Mesyuarat Agung Tahunan perlu diadakan mengikut seksyen143(1) Akta Syarikat, 1965 (tetapi tidak dilanjutkan kepada lanjutan yang dibenarkandibawah seksyen 143(2) Akta Syarikat, 1965 tersebut); atau

(iii) dimansuhkan atau diubah oleh suatu resolusi yang diluluskan oleh pemegang-pemegangsaham dalam mesyuarat agung;

yang mana lebih terdahulu;

DAN BAHAWA, Pengarah-pengarah Syarikat diberi kuasa untuk melengkapkan danmelaksanakan apa jua (termasuk menyempurnakan dokumen yang diperlukan) untukmembolehkan Mandat tersebut dikuatkuasakan.”

8. Menguruskan perkara-perkara biasa lain.

Dengan Perintah Lembaga PengarahJ. C. LIMLEONG SEA FOOK(Setiausaha-Setiausaha)

Ipoh,Perak Darul Ridzuan,Malaysia.

19 Disember 2006

(Resolusi 10)

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BATU KAWAN BERHAD

Notis Mesyuarat Agung Tahunan (Sambungan)

NOTA-NOTA:-

(1) Seorang pemegang saham Syarikat yang berhak menghadiri dan mengundi di mesyuarat ini adalah berhak melantik seorang proksiatau tidak lebih dari dua proksi untuk menghadiri dan mengundi bagi pihaknya. Seorang proksi tidak semestinya seorang pemegangsaham Syarikat.

(2) Suratcara perlantikan proksi, supaya ianya sah, hendaklah sampai ke Pejabat Berdaftar Syarikat di Wisma Taiko, 1, Jalan S. P.Seenivasagam, 30000 Ipoh, Perak Darul Ridzuan, tidak kurang daripada 48 jam sebelum mesyuarat ini diadakan.

(3) Dividen Akhir dan Dividen Khas, jika diluluskan, akan dibayar pada 15 Mac 2007 kepada semua pemegang-pemegang saham yangdidaftarkan dalam Buku Pendaftaran Ahli seperti pada 16 Februari 2007.

Seseorang pendeposit dengan Bursa Malaysia Depository Sdn Bhd hanya layak untuk menerima dividen-dividen berhubungdengan:-

(i) saham yang didepositkan ke dalam akaun sekuriti pendeposit sebelum pukul 12.30 petang pada 14 Februari 2007 berhubungdengan saham yang dikecualikan daripada deposit mandatori;

(ii) saham yang dipindahkan ke dalam akaun sekuriti pendeposit sebelum pukul 4.00 petang pada 16 Februari 2007 berhubungdengan pindahan; dan

(iii) saham yang dibeli di Bursa Malaysia Securities Berhad pada dasar bersama kelayakan menurut Peraturan Bursa MalaysiaSecurities Berhad.

(4) Profil para pengarah (bersama dengan kehadiran mereka dalam Mesyuarat Lembaga Pengarah) yang akan dipilih atau dilantik semulasebagai pengarah-pengarah syarikat untuk resolusi-resolusi 3 hingga 6 tertera pada mukasurat 8 hingga 10 dalam Laporan Tahunan2006.

(5) Cadangan Resolusi Biasa 9 dibawah perenggan 7(a) jika diluluskan bertujuan memberi kuasa kepada para pengarah untuk membelibalik saham Syarikat pada satu masa bila mana terma dan syarat-syarat pengarah-pengarah mendapati sesuai dengan kepentinganSyarikat. Bidang kuasa ini akan luput pada Mesyuarat Agung Tahunan yang akan datang melainkan sekiranya diimansuhkan ataudiubah melalui resolusi biasa Syarikat dalam suatu mesyuarat umum.

(6) Cadangan Resolusi Biasa 10 dibawah perenggan 7(b) jika diluluskan akan membenarkan Kumpulan menjalankan transaksi-transaksisering berulang bersifat dagangan dengan pihak-pihak berkaitan dalam transaksi perniagaan biasa atas syarat-syarat komersil yangtidak memberikan apa-apa kelebihan kepada pihak berkaitan dan tidak merugikan atau menjejaskan kepentingan pemegang-pemegangsaham minoriti.

Dengan mendapatkan mandat pemegang saham yang dicadangkan dalam Resolusi Biasa 10 dan memperbaharuinya setiap tahun,keperluan untuk mengadakan mesyuarat-mesyuarat yang berasingan dari masa ke semasa untuk mendapatkan kelulusan pemegangsaham bila mana berlakunya transaksi demikian, akan dapat dielakkan. Dengan memperolehi mandat ini, masa pentadbiran, kesulitandan perbelanjaan berkaitan dengan mengadakan mesyuarat akan dijimatkan tanpa menjejaskan objektif Korporat Kumpulan danpeluang perniagaan yang sedia ada kepada Kumpulan.

Untuk Resolusi Biasa 9 dan 10, penerangan lanjut berkenaan dengan perkara-perkara tersebut di atas adalah terkandung di dalam SuratPekeliling kepada Pemegang Saham dimana ianya telah disertakan bersama dengan Laporan Tahunan Syarikat ini untuk tahun 2006.

(Sesalinan borang proksi dikembarkan bersama Laporan Tahunan ini).

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BATU KAWAN BERHAD

Profile of the Directors

The Board of Directors comprises a Non-Executive Chairman, a Managing Director and six (6) Non-Executive Directors, four(4) of whom are independent.

The Board meets quarterly and additional Board Meetings are held as and when required. The Board met four (4) timesduring the financial year ended 30 September 2006.

Particulars of the Directors are as follows:-

DATO’ SERI LEE OI HIAN

Malaysian, aged 55, joined the Board on 1 June 1979 and is the Non-Independent Non-Executive Chairman of Batu KawanBerhad (“BKB”). He is also the Chairman/CEO of Kuala Lumpur Kepong Berhad and a director of Yule Catto & Co. plc, whichis listed on the London Stock Exchange. He is the current Chairman of the Malaysian Palm Oil Council. He also serves asa trustee of Yayasan Tuanku Bainun, Perdana Leadership Foundation, Star Foundation, Yayasan KLK and Tan Sri Lee LoySeng Foundation and as a director of Royal Perak Golf Club Berhad.

He graduated from the University of Malaya with a Bachelor of Agricultural Science (Honours) degree and obtained hisMasters in Business Administration from Harvard Business School, U.S.A.

Dato’ Lee Hau Hian and Dato’ Lee Soon Hian, who are also Directors of BKB, are his brothers. He is deemed connected withArusha Enterprise Sdn Bhd, a substantial shareholder of BKB. He is deemed interested in various related parties transactionswith the BKB Group. He attended all the four (4) Board of Directors’ meetings held during the financial year ended 30September 2006. He has not been convicted of any offence.

DATO’ LEE HAU HIAN

Malaysian, aged 53, Managing Director of BKB, joined the Board on 20 December 1993.

Dato’ Lee Hau Hian is a director of Kuala Lumpur Kepong Berhad and Yule Catto & Co. plc, a company listed on the LondonStock Exchange. He is the President of the Perak Chinese Maternity Association and the Treasurer of the Perak Entrepreneur& Skills Development Centre. He also serves as a director of Yayasan De La Salle and is a trustee of Yayasan KLK and TanSri Lee Loy Seng Foundation.

He graduated with a Bachelor of Science (Economics) degree from the London School of Economics and has a MBA degreefrom Stanford University, U.S.A.

He is the brother of Dato’ Seri Lee Oi Hian and Dato’ Lee Soon Hian, who are also Directors of BKB, and is deemedconnected with Arusha Enterprise Sdn Bhd, a substantial shareholder of BKB. He is deemed interested in various relatedparties transactions with the BKB Group. He attended all the four (4) Board of Directors’ meetings held during the financial yearended 30 September 2006. He has not been convicted of any offence.

YM TENGKU ROBERT HAMZAH

Malaysian, aged 67, Independent Non-Executive Director, joined the Board on 1 May 1976. He is the Chairman of the AuditCommittee and a member of the Nomination Committee of the Board.

He is also a director of Kuala Lumpur Kepong Berhad. An architect by profession, he graduated from AA School ofArchitecture, and is a member of Persatuan Arkitek Malaysia and Lembaga Arkitek Malaysia. He is the Chairman of T.R.Hamzah & Yeang Sdn Bhd since 1976.

He has no family relationship with any director/major shareholder of BKB. He is deemed interested in various transactionsbetween the BKB Group and certain companies carried out in the ordinary course of business by virtue of his commondirectorships in these companies. He attended all the four (4) Board of Directors’ meetings held during the financial yearended 30 September 2006. He has not been convicted of any offence.

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BATU KAWAN BERHAD

Profile of the Directors (Continued)

R.M. ALIAS

Malaysian, aged 74, Independent Non-Executive Director, has served on the Board since 1 December 1979. He is theChairman of the Remuneration Committee of the Board.

He holds a Bachelor of Arts (Honours) degree from the University of Malaya, Singapore, a Certificate of Public Administrationfrom the Royal Institute of Public Administration, London and has attended the Advanced Management Program at HarvardBusiness School, U.S.A.

He is currently the Chairman of Highlands and Lowlands Berhad, a public listed company. In addition, he is a director of five(5) other listed companies, namely, Kuala Lumpur Kepong Berhad, Kumpulan Guthrie Berhad, Malayan Banking Berhad,Sime Darby Berhad and Cerebos Pacific Limited (Singapore). He is also a director of Mayban Fortis Holdings Berhad anda trustee of Yayasan KLK and Tan Sri Lee Loy Seng Foundation.

He has no family relationship with any director/major shareholder of BKB. He is deemed interested in various transactionsbetween the BKB Group and certain companies carried out in the ordinary course of business by virtue of his commondirectorships in these companies. He attended all the four (4) Board of Directors’ meetings held during the financial yearended 30 September 2006. He has not been convicted of any offence.

TAN SRI DATO’ THONG YAW HONG

Malaysian, aged 76, Independent Non-Executive Director, joined the Board on 23 January 1987. He is the Chairman of theNomination Committee of the Board and a member of the Audit Committee and Remuneration Committee.

Tan Sri Thong is the Co-Chairman of Public Bank Berhad and Public Mutual Berhad, Chairman of Berjaya Land Berhad andBerjaya Sports Toto Berhad. He is also a director of Kuala Lumpur Kepong Berhad, Glenealy Plantations (Malaya) Bhd, HHBHolding Bhd, Malaysian South-South Corporation Bhd, Berjaya General Insurance Berhad, Public Merchant Bank Berhadand Public Islamic Bank Berhad. He had served in the Economic Planning Unit in the Prime Minister’s Department since1957 and became its Director-General from 1971 to 1978 and served as Secretary-General, Ministry of Finance from 1979until his retirement in 1986. He was formerly the Chairman of the Employees Provident Fund Board. He currently serves asa member on the Boards of Trustees of Program Pertukaran Fellowship Perdana Menteri Malaysia, Tun Razak Foundation,Malaysian Institute of Economic Research and Yayasan Wah Seong. He is also a member of the Working Group of theExecutive Committee for the National Economic Action Council, now renamed as National Implementation Task Force, anda member of the Investment Committee for the Unit Trust Funds managed by Public Mutual Berhad.

He graduated with a Bachelor of Arts (Honours) degree in Economics from University of Malaya and a Masters degree inPublic Administration from Harvard University, and has attended the Advanced Management Program from Harvard BusinessSchool. Tan Sri was the Pro-Chancellor of Universiti Putra Malaysia until June 2006. He was conferred the HonoraryDoctorate of Economics by Universiti Putra Malaysia on 17 September 2006.

He has no family relationship with any director/major shareholder of BKB. He is deemed interested in transactions between theBKB Group and certain companies carried out in the ordinary course of business by virtue of his common directorships inthese companies. He attended all the four (4) Board of Directors’ meetings held in the financial year ended 30 September2006. He has not been convicted of any offence.

DATO’ MUSTAFA BIN MOHD ALI

Malaysian, aged 69, a Non-Independent Non-Executive Director, joined the Board on 31 October 1994. He is a member ofthe Remuneration Committee of the Board.

He is a Cambridge University Economics graduate and has attended the Harvard Business School’s Advanced ManagementProgram. He served 26 years with the Malaysian Tobacco Company including a 21/2 years’ assignment as CorporatePlanning Officer at British-American Tobacco Co. London, and was its Managing Director prior to joining Sime Darby Berhadon 1 July 1988. He worked for some six years with Sime Darby in various senior management positions before his retirementin February 1994. He was a Business Adviser to Kumpulan Guthrie Bhd from April 1994 to June 2002. He is also a directorof two (2) other listed companies, namely, Sime UEP Properties Berhad and Affin Holdings Berhad.

He is a nominee director of Permodalan Nasional Berhad. Save as disclosed, he has no family relationship with any director/major shareholder of BKB and does not have any conflict of interest with BKB. He attended all the four (4) Board of Directors’meetings held during the financial year ended 30 September 2006. He has not been convicted of any offence.

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BATU KAWAN BERHAD

Profile of the Directors (Continued)

DATO’ LEE SOON HIAN

Malaysian, aged 49, Non-Independent Non-Executive Director, joined the Board on 17 February 1998. He is a member ofthe Nomination Committee of the Board.

He brings along to BKB his wide experience in manufacturing and marketing.

He is the brother of Dato’ Seri Lee Oi Hian and Dato’ Lee Hau Hian who are also Directors of BKB. He is deemed interestedin various related parties transactions with the BKB Group. He attended all the four (4) Board of Directors’ meetings held duringthe financial year ended 30 September 2006. He has not been convicted of any offence.

YEOH ENG KHOON

Malaysian, aged 59, Independent Non-Executive Director, was appointed to the Board on 24 February 2005. He is a memberof the Audit Committee of the Board.

He is also a director of Kuala Lumpur Kepong Berhad and a trustee of Yayasan KLK. He has previous work experience inbanking, manufacturing and the retail business.

He obtained a degree of Bachelor of Arts (Honours) in Economics (Business Administration) from the University of Malayain 1968 and was called to the Bar of England and Wales at Lincoln’s Inn in 1979.

He has no family relationship with any director/major shareholder of BKB. He is deemed interested in various transactionsbetween the BKB Group and certain companies carried out in the ordinary course of business by virtue of his commondirectorships in these companies. He has attended all the four (4) Board of Directors’ Meetings held during the financial yearended 30 September 2006. He has not been convicted of any offence.

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BATU KAWAN BERHAD

It is pleasing to report that the Group achieved a 10% higher pre-tax profit of RM348.9 million for the financial year ended30 September 2006 than the previous year. Significantly higher dividends and capital gains received on our investmentsaccounted for this improvement. Our main associated company, Kuala Lumpur Kepong Berhad (“KLK”), while benefitingfrom favourable rubber and palm oil prices, reported a similar level of overall profits to last year’s due to lower contributionfrom its manufacturing sector.

Profit after tax and minority interests attributable to shareholders is RM266.5 million with net earnings per share of 92.2 senachieved for the year compared to last year’s net earnings per share of 79.6 sen, a 16% increase.

Your Board is recommending increased dividends for shareholders’ approval, comprising a final dividend of 13 sen gross,less tax and a special dividend of 30 sen gross, less tax. Together with the interim dividend of 12 sen gross paid earlier, thetotal dividends paid/payable in respect of the 2006 financial year will be 55 sen, a 37.5% increase over last year’s totalgross dividends.

In addition, to reward shareholders’ loyalty, your Board is also recommending a Bonus Issue of 1 new share for every 2existing shares held at an entitlement date to be announced later. The bonus shares will however not be entitled to thedividends declared for the 2006 financial year.

MAIN ASSOCIATED COMPANY – KLK

KLK reported a slight increase in pre-tax profit of RM596.3 million compared to a restated profit of RM585.8 million for theprevious year. The restatement of FY 2005 year’s results was due to the early adoption of the revised Accounting Standard(FRS 121) this year. Our company’s share of KLK’s pre-tax profit is RM275.2 million, slightly higher than the RM268.3million for last year.

With higher rubber and palm oil prices, KLK’s plantation profits reached a new record of RM469.9 million, 10% higher thanthe RM426.7 million achieved last year. Due to a sharp rise in rubber prices, the Company’s 16,259 hectares of maturerubber was a star performer contributing RM111 million in profits, before replanting expenditure, or an increase of RM44million. Among the plantation companies, KLK has one of the largest rubber hectares remaining. Average CPO sellingprice achieved was RM10/tonne higher at RM1,401 per tonne ex-mill, but there was a sharp decrease of RM114/tonne forpalm kernels which resulted in a lower average selling price of RM872/tonne. Thus despite a 7.6% increase in total FFBproduction to 2.4 million tonnes, a lower profit contribution from the oil palm sector was reported. Unusually wet weatheralso caused a lower oil extraction rate of 20.5% for the year. With the strong contribution from rubber, the Peninsular estateshas replaced the Sabah plantations as the largest profit contributor while contributions from the Indonesian plantations areimproving due to increasing mature areas lowering their average production costs. Overall, prime age oil palms still forma relatively low 29.6% of its total planted hectarage for the KLK group, a ratio that will improve in the next few years withincreasing maturity of its younger areas.

Profit from the manufacturing sector was sharply lower at RM19.3 million due to several factors. There were increasedcompetitive conditions in the oleochemical sector due to capacity increases in the industry. The newly commissionedChina oleochemical subsidiary also incurred start-up losses as it needs to develop and establish a customer base there.A new start-up subsidiary involved in extraction of value-added nutrients from palm oil also incurred start-up losses. Theloss-making examination glove operations were closed resulting in some write-offs on assets and stocks. Meanwhile,early next year KLK’s new fatty alcohol plant, located in Port Klang, will be commissioned, moving the Group further downthe value chain for oleochemicals.

Property profits were higher as several phases of the housing development in Desa Coalfields were successfully completed.

INDUSTRIAL OPERATIONS

Overall, our chemical subsidiaries contributed pre-tax profits of RM32.0 million, slightly higher than the RM30.2 millionachieved last year. Increased fuel and energy costs impacted operating margins while costs of some raw materialsremained high.

The Malay-Sino Chemical Industries group reported 10% better profits due to higher plant utilisation at our Lahat plant andstable product prices. The Kemaman plant continues to operate satisfactorily. The methyl chloride subsidiary has beenable to develop some new export sales to supplement stagnant domestic demand for its product.

Chairman’s Review

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BATU KAWAN BERHAD

Chairman’s Review (Continued)

In contrast, See Sen Chemical Berhad reported lower profits due to lower prices in the second half of the year. Withcontinued high metals prices, there has been strong refining activity at the smelters, which resulted in high production ofsulphuric acid as a by-product. Such smelter acid when imported into the country has a depressing effect on domesticprices. Meanwhile sales of sulphur powder have increased in line with growing customer acceptance and development ofnew sales outlets.

Our transport subsidiaries, despite higher fuel costs, managed to increase their turnover and their overall profit contributiondue to higher demand for their services. Progressively over the last few years, the number of transport trips and tankersowned has increased significantly.

INVESTMENTS

During the year, we received good dividends from our 15% shareholding in Bard Sdn Bhd, a manufacturer of rubbercatheters. This together with capital repayment from the on-going liquidation of a former stock-broking company investmentand capital gains from disposal of an overseas investment, mentioned last year, has resulted in a sharp increase in ourinvestment income to some RM48.1 million for the year.

The conditional purchase of a 75% equity stake in PT Satu Sembilan Delapan, an Indonesia company, applying for finaltitles to 20,000 hectares of land in East Kalimantan, announced earlier, remains outstanding. Negotiations are ongoing toseek a higher participation in this company but based on a smaller eventual hectarage due to elimination of hilly areas.Meanwhile an oil palm nursery has been set up and clearing of part of the areas is in progress.

COMMERCIAL OFFICE BUILDING

Construction of the basement and ground level structure of our 11-storey commercial building in Mutiara Damansara,Selangor, is on-going though with delayed progress. On completion, construction of the building’s main superstructure willcommence. We expect completion of the building to be in late 2008.

GENERAL

The outlook for palm oil and rubber prices remain very encouraging and positive, with palm oil prices remaining buoyantsustained by strong interest from developments in the biodiesel sector. Therefore prospects for the new financial year aregood.

On your behalf, I would thank my fellow Board members and all group employees for their contributions during the past year.

Dato’ Seri Lee Oi HianChairman

29 November 2006

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BATU KAWAN BERHAD

Ulasan Pengerusi

Dengan sukacitanya kami melaporkan keuntungan sebelum cukai Kumpulan untuk tahun kewangan berakhir 30 September2006 yang mencatatkan jumlah yang membanggakan iaitu sebanyak RM348.9 juta, 10% lebih tinggi daripada keuntungantahun lepas. Pendapatan yang diterima dari dividen dan perolehan modal yang diterima telah menyumbang kepadakenaikan keuntungan Kumpulan. Syarikat sekutu utama kita, Kuala Lumpur Kepong Berhad (“KLK”) yang turut mendapatmanfaat dari harga getah dan minyak sawit yang memberangsangkan, telah melaporkan tahap keuntungan yang samapada keseluruhannya disebabkan oleh sektor pengilangannya yang tidak banyak membantu merangsang keuntungankumpulannya.

Keuntungan selepas cukai dan kepentingan minoriti yang boleh dibahagi kepada pemegang saham adalah berjumlahRM266.5 juta dan keuntungan sesaham meningkat 16% kepada 92.2 sen berbanding dengan keuntungan sesahamsebanyak 79.6 sen tahun lepas.

Lembaga Pengarah anda telah mengesyorkan untuk kelulusan para pemegang saham dividen akhir sebanyak 13 senkasar ditolak cukai dan dividen khas sebanyak 30 sen kasar ditolak cukai. Bersama dividen interim 12 sen kasar yangtelah dibayar terdahulu, jumlah keseluruhan dividen yang dibayar/boleh dibayar bagi tahun kewangan 2006 adalah 55sen kasar ditolak cukai yakni peningkatan sebanyak 37.5% berbanding dengan dividen kasar yang dibayar tahun lepas.

Sebagai menghargai kesetiaan para pemegang saham, Lembaga Pengarah anda juga telah mengesyorkan SahamTerbitan Bonus 1 saham baru untuk setiap 2 saham yang dimiliki sekarang pada tarikh hak penerimaan terbitan yangakan diumumkan kelak. Saham terbitan bonus ini walau bagaimanapun tidak berhak untuk mendapat dividen yang telahdiisytiharkan pada tahun kewangan 2006.

SYARIKAT SEKUTU UTAMA – KLK

Syarikat sekutu utama kita, KLK telah mencatatkan keuntungan sebelum cukai sebanyak RM596.3 juta bagi tahun tinjauan,naik sedikit dari keuntungan yang dicatat semula RM585.8 juta tahun lepas. Penyataan semula keputusan tahun laluadalah disebabkan oleh penggunaan awal Piawaian Perakaunan yang disemak semula (FRS 121). Bahagian keuntunganSyarikat kita dalam keuntungan KLK adalah RM275.2 juta, menunjukkan sedikit peningkatan dari RM268.3 juta yangdicapai tahun lepas.

Dengan meningkatnya harga getah dan minyak sawit, keuntungan perladangan KLK telah mencatat rekod keuntunganRM469.9 juta, 10% lebih tinggi dari RM426.7 juta yang dicapai tahun lalu. Dengan kenaikan mendadak harga getah,ladang matang kepunyaan KLK seluas 16,259 hektar adalah merupakan penyumbang utama dengan sumbangan sebanyakRM111 juta keuntungan sebelum perbelanjaan penanaman semula, atau peningkatan sebanyak RM44 juta. Di antarasyarikat-syarikat perladangan, KLK merupakan salah satu syarikat yang mempunyai baki keluasan ladang getah yangterbesar. Purata harga minyak sawit mentah adalah RM10/tan lebih tinggi pada RM1,401/tan selepas dikilang tetapi hargaisirong sawit menurun sebanyak RM114/tan yang mengakibatkan harga jualan susut sehingga RM872/tan. Walaupunpengeluaran buah tandan basah meningkat sebanyak 7.6% kepada 2.4 juta tan, sektor kelapa sawit kurang memberisumbangan dari segi keuntungan. Cuaca yang kerap hujan telah menyebabkan pengurangan dalam kadar penyariankepada 20.5%. Dengan sumbangan cukup memberangsangkan dari hasil getah, ladang-ladang dari Semenanjung telahmengambilalih kedudukan ladang-ladang dari Sabah sebagai penyumbang utama keuntungan KLK. Manakala sumbangandari ladang-ladang di Indonesia pula telah menunjukkan peningkatan berikutan dengan bertambahnya kawasan matangyang sekaligus menurunkan purata kos pengeluaran. Secara keseluruhan, nisbah pohon matang kelapa sawit masih ditahap rendah pada kadar 29.6% dari jumlah hektar kawasan tanaman kumpulan KLK. Nisbah ini akan bertambah apabilakawasan tanaman baru menjadi matang dalam masa beberapa tahun lagi.

Keuntungan dari sektor pengilangan KLK menjunam kepada RM19.3 juta disebabkan oleh beberapa faktor. Persainganyang cukup sengit dalam sektor oleokimia berpunca dari peningkatan kapasiti pengeluaran dalam industri. Kilang oleokimiasyarikat subsidiari KLK di China telah mengalami kerugian pada peringkat awal operasinya memandangkan ianya perlumembangunkan satu asas pelanggan yang kukuh di sana. Satu lagi subsidiari yang terlibat dengan pengekstrakannutrien nilai tambah dari minyak sawit turut mengalami kerugian. Manakala operasi sarung tangan getah yang mengalamikerugian kini telah ditutup mengakibatkan beberapa aset dan stok perlu dihapuskira. Sementara itu, pada awal tahundepan, kilang pati alkohol KLK yang terletak di Pelabuhan Kelang akan bermula operasi dan ini akan membawa KumpulanKLK lebih berdaya saing ke arah penambahan nilai produk-produknya dalam hiliran sektor industri oleokimia.

Keuntungan dari sektor hartanah telah meningkat berikutan beberapa projek di Desa Coalfields telah siap dibina.

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BATU KAWAN BERHAD

Ulasan Pengerusi (Sambungan)

OPERASI INDUSTRI

Secara keseluruhannya, subsidiari-subsidiari dalam industri kimia menyumbangkan keuntungan sebelum cukai sebanyakRM32.0 juta, sedikit peningkatan berbanding RM30.2 juta yang dicapai tahun lepas. Kos tenaga dan bahan api yang telahmeningkat telah membawa kesan negatif ke atas margin-margin keuntungan operasi manakala kos beberapa bahanmentah turut kekal tinggi.

Kumpulan Malay-Sino Chemical Industries melaporkan peningkatan keuntungan sebanyak 10% disebabkan peningkatandalam kecekapan penggunaan loji Lahat dan harga-harga produk yang stabil. Loji Kemaman kami terus beroperasi secaramemuaskan. Subsidiari yang mengeluarkan klorida methil telah berjaya menghasilkan jualan eksport baru untukmengimbangi permintaan domestik yang lembab dan kurang giat.

Sebaliknya, See Sen Chemical Berhad melaporkan keuntungan yang lebih rendah disebabkan penurunan harga produkdalam pertengahan kedua tahun tinjauan. Dalam keadaan harga dunia logam yang tinggi, aktiviti pengilangan pesat yangdijalankan oleh pelebur-pelebur logam telah menjanakan pengeluaran asid sulfurik secara besar-besaran sebagai produksampingan. Asid sulfurik yang sedemikian apabila diimport masuk ke dalam negara telah mengakibatkan harga domestikproduk tersebut mengalami tekanan dan turun. Pada masa yang sama, jualan serbuk sulfur telah meningkat sejajardengan penerimaan pelanggan yang semakin meluas dan perkembangan aliran jualan baru.

Subsidiari-subsidiari pengangkutan kita, walaupun menghadapi kos bahan api yang lebih tinggi, berjaya meningkatkanpendapatan dan sumbangan keuntungan mereka secara keseluruhannya. Ini adalah disebabkan peningkatan dalampermintaan untuk perkhidmatan mereka. Semenjak beberapa tahun kebelakangan, jumlah perjalanan penghantaran dankenderaan yang dimiliki telah meningkat dari tahun ke tahun.

PELABURAN

Dalam tahun tinjauan, Syarikat kita menerima pendapatan dividen yang cukup baik daripada pegangan saham 15%dalam Bard Sdn Bhd, pengeluar saluran getah katheter. Pendapatan ini bersama pemulangan semula modal atas pelaburandahulu daripada pembubaran syarikat pembrokeran saham serta keuntungan modal daripada pelupusan pelaburandalam sebuah syarikat luar negeri, sepertimana yang dinyatakan tahun lepas, telah membawa kepada peningkatanmendadak dalam pendapatan pelaburan syarikat dalam lingkungan RM48.1 juta dalam tahun tinjauan.

Cadangan untuk membeli suatu kepentingan ekuiti 75% dalam PT Satu Sembilan Delapan, sebuah syarikat Indonesiayang sedang memohon geran tanah untuk 20,000 hektar tanah di Kalimantan Timur, yang diumumkan suatu ketika dahulu,masih belum dapat disempurnakan. Namun demikian, perundingan masih berjalan untuk meningkatkan tahap pelaburandalam syarikat ini tetapi asas perundingan kini adalah berdasarkan keluasan tanah yang lebih kecil setelah mengetepikankawasan berbukit. Pada masa yang sama, satu tapak semaian anak pokok kelapa sawit telah didirikan dan pembersihanhutan sedang dijalankan.

BANGUNAN PEJABAT KOMERSIL

Kerja-kerja pembinaan tingkat-tingkat bawah tanah dan tingkat bawah bangunan komersil 11 tingkat di Mutiara Damansara,Selangor sedang dijalankan walaupun mengalami penangguhan. Setelah kerja-kerja tersebut siap, pembinaan strukturutama bangunan akan dimulakan. Adalah dijangkakan bahawa bangunan ini akan siap dibina pada akhir tahun 2008.

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BATU KAWAN BERHAD

Ulasan Pengerusi (Sambungan)

UMUM

Berdasarkan ramalan terkini, harga minyak kelapa sawit dan getah akan terus positif dan menggalakkan. Harga minyakkelapa sawit pula akan kekal tinggi ekoran dari perkembangan positif dalam sektor bio-diesel. Maka, prospek syarikat kitadalam tahun kewangan baru adalah dijangka terus memberangsangkan.

Bagi pihak anda sekalian, saya merakamkan ucapan ribuan terima kasih kepada ahli-ahli Lembaga Pengarah sertakakitangan Kumpulan atas sumbangan mereka sepanjang tahun tinjauan.

Dato’ Seri Lee Oi HianPengerusi

29 November 2006

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BATU KAWAN BERHAD

The Board of Batu Kawan Berhad (“BKB”) is pleased to report to shareholders on the manner the Group has applied theprinciples, and the extent of compliance with the Best Practices of good governance as set out in Part 1 and Part 2 respectivelyof the Malaysian Code on Corporate Governance (“the Code”) pursuant to Paragraph 15.26 of the Listing Requirements ofBursa Malaysia Securities Berhad (“the Listing Requirements”). These principles and best practices have been appliedthroughout the financial year ended 30 September 2006.

THE BOARD OF DIRECTORS

The Board has the overall responsibility for corporate governance, strategic direction, formulation of policies and overseeingthe investment and business of the Company.

The Board meets at least four (4) times a year, with additional meetings convened as necessary. During the financial yearended 30 September 2006, four (4) Board meetings were held and all Directors in office attended 100% of the meetings.Details on the attendance of the Directors at Board meetings can be found in their respective profiles set out on pages 8 to 10.

BOARD BALANCE

The Board currently has eight (8) members, comprising seven (7) Non-Executive Directors (including the Chairman) and one(1) Executive Director, with four (4) of the eight (8) Directors being Independent Directors. Together, the Directors have a widerange of business, financial and technical experience. This mix of skills and experience is vital for the successful direction ofthe Group. A brief profile of each Director is presented on pages 8 to 10.

The respective roles of the Chairman and the Managing Director are clearly defined, so as to ensure that there is a balance ofpower and authority. The Chairman is responsible for ensuring Board effectiveness and conduct, whilst the Managing Directorhas overall responsibility for the operating units, organisational effectiveness and implementation of Board policies anddecisions. The presence of four (4) Independent Non-Executive Directors fulfils a pivotal role in corporate accountability.Although all the Directors have an equal responsibility for the Group’s operations, the role of these Independent Non-ExecutiveDirectors is particularly important as they provide unbiased and independent views, advice and judgement.

SUPPLY OF INFORMATION

All Directors are provided with an agenda and a set of Board papers prior to Board Meetings. They are issued in sufficient timeto enable the Directors to obtain further explanation/clarification, where necessary, in order to be properly briefed before themeeting. The Board papers include, among others, the following:-(i) quarterly financial report and a report on the Group’s cash and borrowings position;(ii) a current review of the operations of the Group; and(iii) minutes of meetings of all Board Committees.

Directors may obtain independent professional advice in furtherance of their duties.

All Directors have access to the advice and services of the Company Secretaries.

AUDIT COMMITTEE

The Audit Committee reviews issues of accounting policies and presentation for external financial reporting, monitors the workof the internal audit function and ensures an objective and professional relationship is maintained with the external auditors.The Audit Committee has full access to the auditors both internally and externally who, in turn, have access at all times to theChairman of the Audit Committee.

The report of the Audit Committee may be found on pages 27 to 29.

NOMINATION COMMITTEE

The Nomination Committee currently consists of two Independent Non-Executive Directors and one Non-Independent Non-Executive Director as follows:-

Independent Non-Executive Non-Independent Non-ExecutiveTan Sri Dato’ Thong Yaw Hong (Chairman) Dato’ Lee Soon HianYM Tengku Robert Hamzah

Statement of Corporate Governance

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BATU KAWAN BERHAD

The Committee is authorised to propose new nominees to the Board and to assess the contribution of each individualDirector and overall effectiveness of the Board on an on-going basis. The actual decision as to who shall be appointed aDirector remains the responsibility of the full Board after considering the recommendations of the Committee.

As an integral element of the process of appointing new Directors, the Committee provides an orientation and educationprogramme for new recruits to the Board.

REMUNERATION COMMITTEE

The Remuneration Committee consists of two Independent Non-Executive Directors and one Non-Independent Non-ExecutiveDirector with R.M. Alias as Chairman. The Committee is responsible for setting the policy framework and for makingrecommendations to the Board on remuneration and other terms of employment for the Board and senior employees.

The members of the Remuneration Committee are as follows:-

Independent Non-Executive Non-Independent Non-ExecutiveR.M. Alias (Chairman) Dato’ Mustafa bin Mohd AliTan Sri Dato’ Thong Yaw Hong

The aggregate Directors’ remuneration paid or payable or otherwise made to all Directors of the Company who servedduring the financial year are as follows:-

Category Fees Salaries Incentive Other Emoluments (RM’000) (RM’000) (RM’000) (RM’000)

1 Executive Director - 543 546 42

7 Non-Executive Directors 534 - - 31

The number of Directors whose total remuneration falls within the following bands is as follows:-

Range of Remuneration Executive Director Non-Executive Directors

RM60,001 to RM100,000 - 7

RM1,000,001 to RM1,200,000 1 -

The Board has considered disclosure details of the remuneration of each Director. The Board is of the view that the transparencyand accountability aspects of corporate governance as applicable to Directors’ Remuneration are appropriately served by the“range disclosure” as required by the Listing Requirements.

RE-ELECTION OF THE DIRECTORS

In accordance with the Company’s Articles of Association, all Directors who are appointed by the Board are subject to re-electionby shareholders at the next Annual General Meeting immediately after their appointment.

In accordance with the Articles, one-third of the remaining Directors, including the Managing Director, is required to submitthemselves for re-election by rotation at each Annual General Meeting.

Directors over seventy (70) years of age are required to submit themselves for re-appointment annually in accordance withSection 129(6) of the Companies Act, 1965.

Statement of Corporate Governance (Continued)

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BATU KAWAN BERHAD

DIRECTORS’ TRAINING

All the Directors have attended and completed the Mandatory Accreditation Programme prescribed by Bursa MalaysiaSecurities Berhad (“Bursa Securities”). They have also complied with the training requirements, under the Bursa SecuritiesContinuing Education Programme(“CEP”), as at 31 December 2005.

During the financial year under review, all Directors have attended a number of training and seminar programmes, other thanto fulfill the CEP requirements, which they have individually or collectively considered as relevant and useful in contributingto the effective discharge of their duties as Directors. The areas of the training and seminar attended include corporategovernance, risk management, financial reporting and statutory rules and regulations.

INVESTOR RELATIONS AND SHAREHOLDER COMMUNICATION

The Board acknowledges the need for shareholders to be informed of all material business matters affecting the Company.Announcements and release of financial results on a quarterly basis provide the shareholders and the investing public withan overview of the Group’s performance and operations. Summaries of the BKB Group’s financial results are advertised in amajor daily and copies of the full announcement are provided on request.

The Annual General Meeting which is held in February each year, provides a means of communication with shareholders.Shareholders who are unable to attend are allowed to appoint proxies to attend and vote on their behalf. Members of theBoard as well as the Auditors of the Company are present to answer questions raised at the meeting. The Board hasappointed YM Tengku Robert Hamzah as Senior Independent Director to which any queries with regards to the BKB Groupmay be conveyed. At all times shareholders may contact the Company Secretaries for information.

FINANCIAL REPORTING

In presenting the annual financial statements and quarterly announcement of results to shareholders, the Directors aim topresent a balanced and understandable assessment of the Group’s position and prospects.

The Directors consider that in preparing the financial statements, the Group has used appropriate accounting policies,consistently applied and supported by reasonable and prudent judgements and estimates. All accounting standards whichthe Board considers to be applicable have been followed, subject to any explanations and material departures disclosed inthe notes to the financial statements.

INTERNAL CONTROLS

The Directors acknowledge the responsibility of maintaining a good system of internal controls, including risk assessments,and the need to review its effectiveness regularly in order to safeguard the Group’s assets and therefore shareholders’investments in the Group. This system, by its nature, can however only provide reasonable but not absolute assuranceagainst misstatement, fraud or loss.

The Board is of the view that the current system of internal controls in place throughout the Group is sufficient to safeguard theGroup’s interests.

The Board and management have formulated and adopted a formal approach towards risk management which is in compliancewith the guidance issued by the relevant authorities.

RELATIONSHIP WITH THE AUDITORS

The role of the Audit Committee in relation to the external auditors is stated on pages 27 to 29.


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BATU KAWAN BERHAD


CORPORATE SOCIAL RESPONSIBILITY

As a responsible corporate citizen, the Company is committed to ensuring that its actions not only benefit its shareholders butalso its employees, society and the environment.

The Group has long maintained safe and healthy working conditions for all employees and workers and continuouslyinculcated safety and health consciousness in them through various programmes conducted throughout the financial year.

OTHER INFORMATION

Material Contracts

There was no material contract other than in the ordinary course of business entered into by the Company or its subsidiarycompanies involving Directors’ and major shareholders’ interest during the financial year.

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BATU KAWAN BERHAD

Recurrent Related Party Transactions of a Revenue or Trading Nature

Pursuant to Practice Note 12/2001 issued by the Bursa Malaysia Securities Berhad, the aggregate value of the recurrenttransactions of a revenue or trading nature conducted for the year under review between the Company and/or its subsidiarycompanies with related parties is set out below:-

Related Party and TransactionsCompany Type of transactions nature of relationship aggregate value

RM’000

Malay-Sino Chemical Purchase of raw materials See Sen Chemical Berhad (“SSCB”) 397Industries Sendirian and other productsBerhad and services Interested Directors(“MSCI”) Group Dato’ Seri Lee Oi Hian (“LOH”)

Dato’ Lee Hau Hian (“LHH”),Dato’ Lee Soon Hian (“LSH”)and Yeoh Eng Khoon (“YEK”)

Interested major shareholders #

MSCI Group Sale of finished goods SSCB 368and other productsand services Interested Directors

LOH, LHH, LSH, YEK


MSCI Group Purchase of electricity SSCB 14,223

Interested DirectorsLOH, LHH, LSH, YEK


MSCI Group Purchase and sale of Taiko Marketing Sdn Bhd (“TMK”) Group 16,466products and serviceswhich relate to core Interested Directorschemical business LOH, LHH, LSH


MSCI Group Purchase and sale of Taiko Marketing (Singapore) Pte Ltd 4,514products and services (“TMK(S)”)which relate to corechemical business Interested Directors

LOH, LHH, LSH


MSCI Group Sale of finished products TMK Group 96,104

Interested DirectorsLOH, LHH, LSH


MSCI Group Purchase of storage and Paragon Yield Sdn Bhd (“PYSB”) Group 1,120packing materials



Persons connected @


21

BATU KAWAN BERHAD


Related Party and Transactions Company Type of transactions nature of relationship aggregate value

RM’000

MSCI Group Provision of transport Taiko Clay Chemicals Sdn Bhd 4,154and haulage services (“TCC”) Group



MSCI Group Purchase and sale of Siam Taiko Marketing Co. Pte. Ltd 32products and serviceswhich relate to core Interested Directorschemical business LOH, LHH, LSH


SSCB Group Purchase of raw materials MSCI Group 368and other products andservices Interested Directors

LOH, LHH, LSH, YEK


SSCB Group Commission given for sale TMK Group 1,162of products



SSCB Group Sale of finished goods TMK Group 35,496and products and serviceswhich relate to core Interested Directorschemical business LOH, LHH, LSH


SSCB Group Sale of finished goods MSCI Group 397and other products andservices Interested Directors

LOH, LHH, LSH, YEK


SSCB Group Purchase of products and TMK Group 3,686services which relate tocore chemical business Interested Directors

LOH, LHH, LSH


SSCB Group Sale of electricity MSCI 14,223

Interested DirectorsLOH, LHH, LSH, YEK


22

BATU KAWAN BERHAD


Related Party and Transactions Company Type of transactions nature of relationship aggregate value

RM’000

SSCB Group Purchase and sale of TMK(S) 4,547products and serviceswhich relate to core Interested Directorschemical business LOH, LHH, LSH


SSCB Group Purchase and sale of TCC Group 710products and serviceswhich relate to core Interested Directorschemical business LOH, LHH, LSH


Persons connected @

SSCB Group Purchase of storage and PYSB Group 209packing materials



Persons connected @

SSCB Group Sale of finished goods TCC Group 2,388and provision of wastetreatment services Interested Directors

LOH, LHH, LSH


Persons connected @

SSCB Group Sale of electricity and BASF See Sen Sdn Bhd 2,817provision of other productsand services Interested Directors

LOH, LHH, LSH


The above recurrent related party transactions of a revenue or trading nature were undertaken on terms not more favourableto the related party than those generally available to the public and are not detrimental to the minority shareholders of BKB.

Note:-

# Arusha Enterprise Sdn Bhd, Kampar Rubber and Tin Co. Sdn Bhd, Wan Yuen Mining Kongsi Sdn Bhd, Malay RubberPlantations (Malaysia) Sdn Bhd, Wan Hin Investments Sdn Berhad, High Quest Holdings Sdn Bhd, Elionai Sdn Bhd,Congleton Holdings Sdn Bhd, Cengal Emas Sdn Bhd, Malay-Sino Formic Acid Sdn Bhd and Di-Yi Sdn Bhd are personsconnected with LOH, LHH and LSH, who are Directors of BKB. LOH and LHH are also deemed major shareholders ofBKB. LOH, LHH and LSH are brothers.

@ Taiko Clay Chemicals Sdn Bhd, Taiko Chemical Industries Sdn Bhd, Paragon Yield Sdn Bhd and Lee Oi Loon arepersons connected with LOH, LHH and LSH, who are Directors of BKB. LOH and LHH are also deemed majorshareholders of BKB. LOH, LHH and LSH are brothers while Lee Oi Loon is their sister.

23

BATU KAWAN BERHAD


Details of the nature of relationship with Related Parties are as follows:-

1. SSCB Group

a) A 61% subsidiary company of BKB.b) BKB Directors namely, LHH, who is also a deemed major shareholder of BKB, and YEK are Directors of this company.c) Wan Hin Investments Sdn Berhad, a company in which LOH and LHH have interests, is a major shareholder of

this company. Wan Hin Investments Sdn Berhad is also a deemed major shareholder of BKB.

2. TCC Group

TCC is a company in which LSH, who is a Director of BKB, together with a person connected with him, Lee Oi Loon, aredeemed major shareholders through Taiko Chemical Industries Sdn Bhd (“TCI”). TCC is a 62% subsidiary company ofTCI.

3. TMK Group

TMK is a company in which LSH, together with persons connected with him namely, Lee Oi Loon and Lee Oi Kum, aremajor shareholders.

4. TMK(S)

TMK(S) is a company in which LSH is a deemed major shareholder.

5. PYSB Group

PYSB is a company in which LSH is a deemed major shareholder.

6. MSCI Group

a) MSCI is a 76% subsidiary company of BKB.b) BKB Directors, namely LHH and YEK are also Directors of this company.c) Wan Hin Investments Sdn Berhad, a company in which LOH and LHH have interests, is a major shareholder of

this company. Wan Hin Investments Sdn Berhad is also a deemed major shareholder of BKB.

7. BASF See Sen Sdn Bhd

a) A 30% associated company of SSCB which in turn is a subsidiary company of BKB.b) BKB Directors, namely LHH (is also a deemed major shareholder of BKB) and YEK are also Directors of SSCB.c) Wan Hin Investments Sdn Berhad, a company in which LOH and LHH have interests, is a major shareholder of

SSCB. Wan Hin Investments Sdn Berhad is also a deemed major shareholder of BKB.

8. Siam Taiko Marketing Co. Pte Ltd

Siam Taiko Marketing Co. Pte Ltd is a company in which LSH is a deemed major shareholder.

Share Buybacks

During the financial year, there was no share buyback by the Company.

Options, Warrants or Convertible Securities

No options, warrants or convertible securities were issued by the Company during the financial year.

Imposition of Sanctions/Penalties

There was no material sanction and/or penalty imposed on the Company and its subsidiary companies, Directors ormanagement by the relevant regulatory bodies.

24

BATU KAWAN BERHAD

Non-audit Fees

Non-audit fee of RM3,000 was paid to the external auditors by the Group during the financial year.

Profit Guarantees

During the financial year, there was no profit guarantee given by the Company.

Revaluation of Landed Properties

The Company’s policy is to revalue landed properties as and when the Directors deem necessary. There was no revaluation oflanded properties in the last five years.

American Depository Receipt (ADR) or Global Depository Receipt (GDR) Programme

During the financial year, the Company did not sponsor any ADR or GDR programme.


25

BATU KAWAN BERHAD

INTRODUCTION

The Board, in compliance with the Bursa Malaysia Securities Berhad Listing Requirements and in adopting the MalaysianCode of Corporate Governance’s best practices, is pleased to provide the following Statement on Internal Control (“theStatement”). Preparation of the Statement, which outlines the nature and scope of internal control of the Group during theyear, is guided by The Institute of Internal Auditors Malaysia’s “Statement on Internal Control: Guidance for Directors of PublicListed Companies”.

BOARD RESPONSIBILITY

The Board of Directors recognises the importance of sound internal controls and risk management practices. The Boardacknowledges that it is responsible to maintain sound systems of internal control, for reviewing their adequacy and integrityand for the proper management of risks of the Group.

As there are limitations inherent to any system of internal control, it should be noted that the systems designed for the Groupare to manage risks that the Group’s businesses are exposed to, rather than to eliminate these risks of failure to achievebusiness objectives. It can only provide reasonable and not absolute assurance against material misstatement or loss.

For purposes of preparing this statement, associated companies are not dealt with as part of the Group.

RISK MANAGEMENT

The Board regards risk management as an integral part of the business operations. The Group has, since April 2002,implemented a formal risk assessment approach towards identifying, evaluating, monitoring and managing the significantrisks relating to the business environment which the Group operates in.

The Group’s Enterprise Risk Management (“ERM”) Framework provides an organised, integrated and disciplined approachfor the Group’s business operations to systematically manage the risks and opportunities to achieve the set businessobjectives.

This is an on-going process and is regularly reviewed by the Board. A proactive risk management approach is adopted withthe aim of minimising the potential for undesired risk exposures.

A summary highlighting the above and management’s actions was presented to the Audit Committee and to the Boardduring the financial year ended 30 September 2006.

The Group Risk Management Committee which was set up in 2002, assists the Board of Directors in the discharge of its riskmanagement and control responsibilities. The Group Risk Management Committee’s functions are to coordinate andmonitor the implementation and effectiveness of the Group’s risk management activities, coordinate the identification of theGroup’s key business risks through the Enterprise Risk Management Process together with the mitigating action plans.

During the year, all subsidiary companies and their functional units had progressively followed through on the implementationof various controls activities and action plans formulated since the last reporting period. The Group Risk Management Committee,having reviewed the progress of the implementation of the controls, was satisfied with the efforts made by the management. As aresult, the risk profiles of the Group’s subsidiary companies have been updated timely and well documented to reflect the changesthat had taken place during the financial year.

SYSTEM OF INTERNAL CONTROL

The Board is committed to maintain a sound system of Internal Control and the proper management of risks throughout itsoperations to achieve the following objectives:-

· safeguard shareholders’ investments and assets of the Group,

· achieve operational objectives,

· comply with regulatory requirements, and

· protect the environment, employees, markets, reputation and earnings of the Group.

Statement on Internal Control

26

BATU KAWAN BERHAD

Outlined below are the key elements of the system and scope of internal control practised by the Group:-

· The full Board meets regularly to discuss matters of the Group to ensure full and effective supervision.

· Existence of a management structure with clear delegation of responsibilities to Committees of the Board and to theManagement of our Operating Centres from whom the Board receives regular reports.

· Documented internal procedures are set out in circulars, the Standard Operating Manuals and the Standard Policy ProceduresManual. The Group periodically reviews and updates the Standard Operating Manuals and the Standard Policy ProceduresManual.

· Budgeting process where Operating Centres of Group subsidiary companies prepare budgets approved by theirrespective Boards and a monthly monitoring of results against budget with major variances being highlighted andmanagement action taken where necessary.

· Regular financial reviews and reports from the management of our Group subsidiary companies.

· Regular visits to Operating Centres by senior management whenever appropriate.

· Regular internal audit visits to assess the effectiveness of internal controls, to monitor compliance with procedures, toreview and assess risks the Group’s operations are exposed to, and to assess the integrity and reliability of financialinformation. The Group’s Internal Auditor reports to the Audit Committee.

· The Audit Committee reviews the internal audit plan for the year, reviews and holds discussions on the actions takenon internal control issues identified in reports prepared by the Internal Auditor.

INTERNAL AUDIT FUNCTIONS

The Group has an Internal Audit Department, independent of the activities or operations of other Operating Centres in theGroup, which provides the Audit Committee and the Board with much of the assurance it requires regarding the adequacyof the system of Internal Control.

Its principal responsibility is to undertake regular and systematic reviews of the system of internal control so as to providereasonable assurance that such system operates satisfactorily and effectively in the Group and reports to the Audit Committeeon a quarterly basis. Internal audit strategy and a detailed annual internal audit plan are presented to the Audit Committee eachyear for approval. The internal audit function adopts a risk-based approach and prepares its audit strategy and plan based onthe risk profiles of the key business units of the Group.

The activities that are carried out are as follows:-

· Undertake internal audit function based on the audit plan that has been reviewed and approved by the Audit Committeewhich includes the review of operational compliance with established internal control procedures and reliability offinancial records.

· Participate in meetings of group senior management to keep abreast with the strategic and operational plans and ondevelopment issues.

· Manage formalised approach for risk assessment and management in compliance with the guidance on the “Statementon Internal Control: Guidance for Directors of Public Listed Companies” issued by the Institute of Internal AuditorsMalaysia.

· Assess key business risks at each of the Group subsidiary companies’ operations, which were identified by riskanalysis.

· Prepare internal audit reports to the Audit Committee on the Group subsidiary companies’ operations, includingidentification and assessment of their key operational and business risks.

This statement is made in accordance with a resolution of the Board of Directors dated 22 November 2006.

Statement on Internal Control (Continued)

27

BATU KAWAN BERHAD

Report of the Audit Committee

The Board of Directors of Batu Kawan Berhad (“BKB”) is pleased to present the report of the Audit Committee of the Board forthe financial year ended 30 September 2006.

The Audit Committee (“the Committee”) was established in 1993.

MEMBERS AND MEETINGS

The composition of the Committee is as listed below. The Committee held meetings on 22 November 2005, 8 December2005, 21 February 2006, 23 May 2006 and 22 August 2006 respectively, a total of five (5) meetings.

Name Status of directorship Attendance of meetings

YM Tengku Robert Hamzah (Chairman) Independent Attended all meetingsNon-Executive Director

Tan Sri Dato’ Thong Yaw Hong Independent Attended all meetingsNon-Executive Director

Yeoh Eng Khoon Independent Attended all meetingsNon-Executive Director

MEMBERSHIP

The Committee is appointed by the Board from amongst their members and shall consist of not less than three (3) members,a majority of whom shall be independent. The Chairman of the Committee shall be an Independent Non-Executive Directorappointed by the Board.

MEETINGS AND MINUTES

The Committee meets regularly and the Group Financial Controller, the Internal Auditor and occasionally, a representative ofthe external auditors, normally attend these meetings. Other members of the Board may attend the meetings upon theinvitation of the Committtee. At least once a year, the Committee meets with the external auditors without the ExecutiveDirector present. The quorum for Committee meetings is two (2) members present and a majority of the members presentmust be independent Directors. Minutes of each meeting are kept and distributed to each member of the Committee and theBoard. The Chairman of the Committee reports on the outcome of each meeting to the Board. The Secretary to the Committeeis, but need not be, the Company Secretary.

AUTHORITY

The Committee is authorised by the Board to investigate any matter within its terms of reference. In discharging its duties, theCommittee shall have full access to information, may obtain external professional advice and may invite outsiders withrelevant experience to attend its meetings, if necessary.

TERMS OF REFERENCE

The terms of reference of the Audit Committee are as follows:-

(a) To consider and recommend the appointment of external auditors, the audit fee and any questions of resignation,dismissal or re-appointment;

(b) To discuss with the external auditors before the audit commences, the audit plan, the nature and scope of the audit, andensure co-ordination when more than one audit firm is involved;

28

BATU KAWAN BERHAD

Report of the Audit Committee (Continued)

(c) To review and discuss with the external auditors the following:-

- his evaluation of the system of internal controls;- his audit report;- the assistance given by the employees to him;- problems and reservations arising from the interim and final audits, and any matter he may wish to discuss (in the

absence of management where necessary);- his management letter and management’s response;

(d) To review and discuss with the internal auditor the following:-

- the adequacy of the scope, functions and resources of the internal audit function;- the internal audit programme and results of the internal audit process and where necessary ensure that appropriate

action is taken on the recommendations of the internal audit function;- approve any appointment or termination of senior staff members of the internal audit function;- inform itself of resignations of internal audit staff and provide the resigning staff member an opportunity to submit

reasons for resigning;

(e) To review the quarterly and year-end financial statements of the Group, prior to submission to the Board of Directors,focusing particularly on:-

- any changes in accounting policies and practices;- compliance with accounting standards and other legal requirements;- significance of an unusual event;- the going concern assumption;

(f) To consider any related party transactions and conflict of interest situation that may arise within the Company or Groupincluding any transaction, procedure or course of conduct that raises questions of management’s integrity;

(g) To consider the major findings of internal investigations and management’s response; and

(h) To consider any topics as defined by the Board.

REVIEW OF COMPOSITION OF THE COMMITTEE

The Board of Directors of BKB shall review the terms of office and performance of the Committee and that of each member atleast once in every three (3) years to determine whether the Committee and its members have carried out their duties inaccordance with their terms of reference.

ACTIVITIES OF THE COMMITTEE DURING THE YEAR

In line with the terms of reference of the Committee, the following activities were carried out by the Committee during thefinancial year ended 30 September 2006 in the discharge of its functions and duties:-

(a) review of the audit plans for the Company and the Group for the year which were prepared by both the external andinternal auditors;

(b) review of the audit reports for the Company and the Group prepared by the external and internal auditors andconsideration of the major findings by the auditors and management’s response thereto;

(c) review of the quarterly and annual reports of the Company and the Group prior to submission to the Board for theirconsideration and approval;

(d) review of related party transactions entered into by the Company and/or its subsidiary companies;

(e) consideration and recommendation to the Board for approval of the audit fees payable to the external auditors;

(f) recommendations to management on improvement in internal control procedures and risk management;

(g) review of the adequacy of resources for the internal audit function including the appointment of the internal auditor; and

(h) review the risk management activities of the Company and its subsidiary companies.

29

BATU KAWAN BERHAD

Report of the Audit Committee (Continued)

INTERNAL AUDIT FUNCTIONS

The Company has an Internal Audit Department whose principal responsibility is to undertake regular and systematicreviews of the systems of financial and operational controls so as to provide reasonable assurance that such systemscontinue to operate satisfactorily and effectively. The attainment of such objectives involves the following activities beingcarried out by the Department:-

(a) reviewing and appraising the soundness, adequacy and application of accounting, financial and other controls promotingeffective control in the Company and Group at reasonable cost;

(b) ascertaining the extent of compliance with established policies, procedures and statutory requirements;

(c) ascertaining the extent to which the Company and the Group’s assets are accounted for and safeguarded from lossesof all kinds;

(d) appraising the reliability of information developed within the Company and the Group for management;

(e) recommending improvements to the existing system of controls;

(f) carrying out investigations and special reviews requested by management and/or Audit Committee; and

(g) coordinate risk identification and risk management activities.

30

BATU KAWAN BERHAD

Report of the Directors

The Directors have pleasure in submitting their Report together with the audited financial statements of the Group and of theCompany for the financial year ended 30 September 2006.

PRINCIPAL ACTIVITIES

The principal activity of the Company is investment holding. The principal activities of the subsidiary and associatedcompanies are as disclosed in the notes to the financial statements. There have been no significant changes in the natureof these activities during the financial year.

SUMMARY OF RESULTS Group CompanyRM’000 RM’000

Profit before taxation 348,909 187,983

Taxation (75,144) (41,872)

Profit after taxation 273,765 146,111

Minority shareholders’ interests (7,243) -

Profit attributable to shareholders 266,522 146,111

DIVIDENDS

The amounts paid or declared by way of dividends by the Company since the end of the previous financial year were:-

(a) a final dividend of 9 sen gross per share less 28% income tax and a special dividend of 25 sen gross per share less 28%income tax totalling RM70,784,410 in respect of the financial year ended 30 September 2005 paid on 23 March 2006;and

(b) an interim dividend of 12 sen per share less 28% income tax, amounting to RM24,982,733 in respect of the financial yearended 30 September 2006 paid on 11 August 2006.

The Directors recommend the payment of a final dividend of 13 sen gross per share less 27% income tax and a specialdividend of 30 sen gross per share less 27% income tax totalling RM90,764,813 which, subject to approval at the forthcomingAnnual General Meeting of the Company, will be paid on 15 March 2007 to shareholders on the Company’s register at theclose of business on 16 February 2007.

RESERVES AND PROVISIONS

All material transfers to and from reserves and provisions during the year have been disclosed in the financial statements.

ISSUED AND PAID-UP CAPITAL

During the financial year ended 30 September 2000, the Company implemented a share buyback scheme which had beenapproved by shareholders at the Annual General Meeting (“AGM”) held on 3 February 1999. The mandate was subsequentlyrenewed annually by shareholders at every AGM of the Company. There was no share buyback during the year.

The mandate given by shareholders will expire at the forthcoming AGM and an ordinary resolution will be tabled at theforthcoming AGM for shareholders to renew the mandate for another year.

DIRECTORS OF THE COMPANY

The Directors in office since the date of the last report are shown on page 7.

Dato’ Lee Hau Hian and Dato’ Lee Soon Hian retire at the forthcoming AGM in accordance with the Company’s Articles ofAssociation and, being eligible, offer themselves for re-election.

31

BATU KAWAN BERHAD

Report of the Directors (Continued)

R.M. Alias and Tan Sri Dato’ Thong Yaw Hong retire at the forthcoming AGM pursuant to Section 129(2) of the CompaniesAct, 1965, and resolutions will be proposed for their re-appointments as Directors under the provision of Section 129(6)of the said Act to hold office until the following AGM of the Company.

DIRECTORS’ SHAREHOLDINGS

Particulars of Directors’ shareholdings in the Company during the financial year, according to the register required to be keptunder Section 134 of the Companies Act, 1965, are as follows:-

Number of shares of RM1 eachBalance as Balance as

Name at 1.10.2005 Bought (Sold) at 30.9.2006

Dato’ Seri Lee Oi Hian- Held directly 569,000 - - 569,000- Deemed interested 141,425,620 - - 141,425,620

Dato’ Lee Hau Hian- Held directly 416,250 - - 416,250- Deemed interested 140,653,870 - - 140,653,870

YM Tengku Robert Hamzah- Held directly 10,000 - - 10,000- Deemed interested - - - -

Tan Sri Dato’ Thong Yaw Hong- Held directly 15,000 - - 15,000- Deemed interested - - - -

Dato’ Lee Soon Hian- Held directly 429,500 - - 429,500- Deemed interested 146,768,870 - (140,463,370) 6,305,500

Yeoh Eng Khoon- Held directly 200,000 - - 200,000- Deemed interested 10,010,000 100,000 - 10,110,000

Other than the abovementioned Directors, no other Director in office during the financial year held any shares in theCompany.

32

BATU KAWAN BERHAD


By virtue of their deemed interests in the shares of the Company, Dato’ Seri Lee Oi Hian and Dato’ Lee Hau Hian are deemedto have an interest in the shares of the subsidiary companies of the Company to the extent of the Company’s interest in therespective subsidiary companies as disclosed in the notes to the financial statements. In addition, they also have an interestin the shares held by other companies in related corporations of the Company as detailed below:-

Number of shares of RM1 eachBalance as Balance as

Name at 1.10.2005 Bought (Sold) at 30.9.2006See Sen Chemical Berhad

Dato’ Seri Lee Oi Hian- Held directly - - - -- Deemed interested 2,126,236 - - 2,126,236

Dato’ Lee Hau Hian- Held directly - - - -- Deemed interested 2,126,236 - - 2,126,236

Dato’ Lee Soon Hian- Held directly - - - -- Deemed interested 2,126,236 - (2,126,236) -

Malay-Sino Chemical IndustriesSendirian Berhad

Dato’ Seri Lee Oi Hian- Held directly - - - -- Deemed interested 1,971,000 - - 1,971,000

Dato’ Lee Hau Hian- Held directly - - - -- Deemed interested 1,971,000 - - 1,971,000

Dato’ Lee Soon Hian- Held directly - - - -- Deemed interested 1,971,000 - (1,971,000) -

Dato’ Seri Lee Oi Hian and Dato’ Lee Hau Hian are also deemed to have an interest in the shares of the wholly-ownedsubsidiary companies of See Sen Chemical Berhad and Malay-Sino Chemical Industries Sendirian Berhad by virtue oftheir interests in the shares held by other companies in See Sen Chemical Berhad and Malay-Sino Chemical IndustriesSendirian Berhad.

Other than the abovementioned, no other Director in office has any beneficial interest in the shares of related corporationsof the Company during the financial year.

DIRECTORS’ BENEFITS

Since the end of the previous financial year, no Director of the Company has received or become entitled to receive anybenefits (other than those disclosed as Directors’ remuneration in the financial statements) by reason of a contract made bythe Company or a related corporation with any Director or with a firm of which a Director is a member or with a company inwhich a Director has a substantial financial interest except for any benefit, which may be deemed to have arisen to certainDirectors by virtue of normal trading transactions by the Group and the Company with related parties as disclosed in thenotes to the financial statements.

Neither during nor at the end of the financial year was the Company a party to any arrangement with the object of enablingthe Directors to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other bodycorporate.

33

BATU KAWAN BERHAD


OTHER STATUTORY INFORMATION

Before the income statements and balance sheets of the Group and of the Company were made out, the Directors tookreasonable steps:-

(i) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance fordoubtful debts and had satisfied themselves that all known bad debts had been written off and that adequate allowancehad been made for doubtful debts; and

(ii) to ensure that any current assets which were unlikely to realise their values as shown in the accounting records in theordinary course of business were written down to an amount which they might be expected to realise.

At the date of this report, the Directors are not aware of any circumstances:-

(i) that would render the amount written off for bad debts or the amount of the allowance for doubtful debts in the Group andthe Company inadequate to any substantial extent;

(ii) that would render the values attributed to current assets in the financial statements of the Group and of the Companymisleading;

(iii) which have arisen which render adherence to the existing methods of valuation of assets or liabilities of the Group andof the Company misleading or inappropriate; and

(iv) not otherwise dealt with in this report or financial statements of the Group and of the Company which would render anyamount stated in the financial statements misleading.

At the date of this report, there does not exist:-

(i) any charge on the assets of the Group or of the Company which has arisen since the end of the financial year whichsecures the liabilities of any other person; or

(ii) any contingent liabilities in respect of the Group or of the Company which have arisen since the end of the financial year.

No contingent liability or other liability has become enforceable or is likely to become enforceable within the period of twelvemonths after the end of the financial year which will or may affect the ability of the Group or of the Company to meet theirobligations as and when they fall due.

In the opinion of the Directors, the results of the operations of the Group and of the Company for the financial year ended 30September 2006 have not been substantially affected by any item, transaction or event of a material and unusual nature norhas any such item, transaction or event occurred in the interval between the end of that financial year and the date of thisreport.

SUBSEQUENT EVENT

On 22 November 2006, the Company has proposed a Bonus Issue of one bonus share for every two existing shares heldto be credited as fully paid-up to shareholders of the Company, at an entitlement date to be determined later. This proposedBonus Issue will be implemented by capitalising RM144,576,000 from the retained profits of the Company.

This proposal is subject to approval from Bursa Malaysia Securities Berhad and the shareholders at an ExtraordinaryGeneral Meeting to be held on 14 February 2007.

AUDITORS

The auditors, Messrs. Ernst & Young, have expressed their willingness to accept re-appointment.

Signed in accordance with a resolution of the Directors,

DATO’ LEE HAU HIAN YEOH ENG KHOON(Managing Director) (Director)

11 December 2006

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BATU KAWAN BERHAD

The Board of Directors is required under Paragraph 15.27(a) of the Bursa Malaysia Securities Berhad Listing Requirementsto issue a statement, which follows, explaining their responsibility for preparing the annual audited financial statements.

The Directors are required by law to prepare financial statements for each financial year which give a true and fair view ofthe financial position of the Group and of the Company as at the financial year end and of the results and the cash flows ofthe Group and of the Company for that financial year.

The Directors consider that, in preparing the financial statements of Batu Kawan Berhad for the financial year ended 30September 2006, the Group has used appropriate accounting policies, consistently applied and supported by reasonableand prudent judgements and estimates. The Directors also consider that all applicable MASB Approved AccountingStandards in Malaysia have been followed and confirm that the financial statements have been prepared on a goingconcern basis.

The Directors are responsible for ensuring that the Group and the Company keep accounting records which disclose withreasonable accuracy the financial position of the Group and of the Company at any time and which enable them to ensurethat the financial statements comply with the provisions of the Companies Act, 1965.

The Directors are also responsible for taking such steps that are reasonably open to them to safeguard the assets of theGroup.

Directors’ Responsibility Statement

35

BATU KAWAN BERHAD

Group Company2006 2005 2006 2005

Note RM’000 RM’000 RM’000 RM’000(Restated)

Revenue 2 231,858 213,029 168,410 116,887

Cost of sales (164,385) (146,859) - -

Gross profit 67,473 66,170 168,410 116,887

Other operating income 12,070 4,257 7,782 3,117

Surplus on voluntary liquidation of an associated company 27,000 - 19,556 -

Distribution costs (15,116) (12,340) - -

Administration expenses (17,683) (10,544) (7,765) (2,473)

Other operating expenses (169) (291) - -

Operating profit 3 73,575 47,252 187,983 117,531

Finance cost 4 - (3) - -

Share of results of associated companies 275,334 269,938 - -

Profit before taxation 348,909 317,187 187,983 117,531

Taxation 5 (75,144) (80,430) (41,872) (25,057)

Profit after taxation 273,765 236,757 146,111 92,474

Minority shareholders’ interests (7,243) (6,732) - -

Profit attributable to shareholders 266,522 230,025 146,111 92,474

Sen Sen Sen SenBasic earnings per share 6 92.2 79.6 50.5 32.0

Gross dividend per share 7 Sen Sen Sen Sen

- interim (paid) 12 6 12 6- final (proposed) 13 9 13 9- special (proposed) 30 25 30 25

Total 55 40 55 40

The annexed notes form an integral part of these financial statements.

Income Statementsfor the year ended 30 September 2006

36

BATU KAWAN BERHAD

Group Company2006 2005 2006 2005

Note RM’000 RM’000 RM’000 RM’000(Restated)

PROPERTY, PLANT AND EQUIPMENT 8 142,813 144,731 26 31

SUBSIDIARY COMPANIES 9 - - 60,597 60,597

ASSOCIATED COMPANIES 10 2,004,803 1,884,214 493,008 487,303

OTHER INVESTMENTS 11 27,138 32,631 23,021 35,867

DEFERRED TAX ASSETS 12 472 - - -

2,175,226 2,061,576 576,652 583,798

CURRENT ASSETSInventories 13 23,837 28,645 - -Trade receivables 14 53,314 50,459 - -Other receivables, deposits and prepayments 15 19,172 13,326 122 50Amounts owing by subsidiary companies 16 - - 59,072 76,541Tax recoverable 770 506 672 212Term deposits 17 152,250 80,000 75,000 400Cash and bank balances 17 2,345 1,526 97 71

251,688 174,462 134,963 77,274

CURRENT LIABILITIESTrade payables 18 6,949 7,030 - -Other payables and accruals 19 14,798 13,214 1,526 1,298Provision for retirement benefits 23 53 11 - -Taxation 721 207 - 38

22,521 20,462 1,526 1,336

NET CURRENT ASSETS 229,167 154,000 133,437 75,938

GOODWILL ON CONSOLIDATION 20 11,999 11,999 - -

2,416,392 2,227,575 710,089 659,736

Financed by:-

SHARE CAPITAL 21 291,375 291,375 291,375 291,375

RESERVES 22 2,041,733 1,854,666 418,655 368,311

TOTAL SHAREHOLDERS’ FUNDS 2,333,108 2,146,041 710,030 659,686

MINORITY SHAREHOLDERS’ INTERESTS 67,628 64,659 - -

LONG TERM LIABILITIES

Deferred tax liabilities 12 13,897 15,287 - -

Provision for retirement benefits 23 1,759 1,588 59 50

15,656 16,875 59 50

2,416,392 2,227,575 710,089 659,736


Balance Sheetsat 30 September 2006

37

BATU KAWAN BERHADStatement of Changes in Equity of the Group

for the year ended 30 September 2006

ExchangeShare Revaluation Capital General fluctuation Negative Retained Treasury

capital reserve reserve reserve reserve goodwill profits shares TotalRM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 October 2005 291,375 715 510,348 86,842 (39) 13,113 1,243,229 (9,492) 2,136,091

Prior year adjustment (Note 24) - - - 47,872 - - (37,922) - 9,950

291,375 715 510,348 134,714 (39) 13,113 1,205,307 (9,492) 2,146,041

Share of reserves of associated companies - - (3,449) 19,877 - - - - 16,428

Currency translation differences - - - - (116) - - - (116)

Net gains/(losses) not recognised in the income statement - - (3,449) 19,877 (116) - - - 16,312

Profit for the year - - - - - - 266,522 - 266,522

Dividends paid (Note 7) - - - - - - (95,767) - (95,767)

At 30 September 2006 291,375 715 506,899 154,591 (155) 13,113 1,376,062 (9,492) 2,333,108

At 1 October 2004 291,375 716 496,578 100,237 - 13,113 1,096,475 (9,492) 1,989,002

Prior year adjustment (Note 24) - - - 54,141 - - (42,885) - 11,256

291,375 716 496,578 154,378 - 13,113 1,053,590 (9,492) 2,000,258

Share of reserves of associated companies - - 13,770 (19,664) - - (13,770) - (19,664)

Currency translation differences - - - - (39) - - - (39)

Net gains/(losses) not recognised in the income statement - - 13,770 (19,664) (39) - (13,770) - (19,703)

Profit for the year - - - - - - 230,025 - 230,025

Dividends paid (Note 7) - - - - - - (64,539) - (64,539)

Transfer of reserves - (1) - - - - 1 - -

At 30 September 2005 291,375 715 510,348 134,714 (39) 13,113 1,205,307 (9,492) 2,146,041


38

BATU KAWAN BERHADStatement of Changes in Equity of the Holding Company

for the year ended 30 September 2006

Share Revaluation Capital General Retained Treasurycapital reserve reserve reserve profits shares Total

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000

At 1 October 2005 291,375 25 85,647 6,739 285,392 (9,492) 659,686

Profit for the year - - - - 146,111 - 146,111

Dividends paid (Note 7) - - - - (95,767) - (95,767)

At 30 September 2006 291,375 25 85,647 6,739 335,736 (9,492) 710,030

At 1 October 2004 291,375 26 85,647 6,739 257,456 (9,492) 631,751

Profit for the year - - - - 92,474 - 92,474

Dividends paid (Note 7) - - - - (64,539) - (64,539)

Transfer of reserves - (1) - - 1 - -

At 30 September 2005 291,375 25 85,647 6,739 285,392 (9,492) 659,686


39

BATU KAWAN BERHAD

2006 2005Note RM’000 RM’000

(Restated)Cash flows from operating activitiesProfit before taxation 348,909 317,187Adjustments for:-

Depreciation/amortisation of property, plant and equipment 21,590 23,205Gain on disposal of property, plant and equipment (45) -Gain on government acquisition of land - (83)Gain on disposal of quoted investments (7,782) (3,018)Surplus on voluntary liquidation of an associated company (27,000) -Share of results of associated companies (275,334) (269,938)Dividend income (12,354) (15,771)Interest income (3,911) (1,528)Interest expense - 3Plant and equipment written off 704 96Provision for retirement benefits 270 232Allowance for diminution in value of investment 4,814 -

Operating profit before working capital changes 49,861 50,385Changes in working capital

Inventories 4,809 (2,901)Receivables (8,495) (17,461)Payables 1,503 2,491Associated company’s account (153) (154)

Cash generated from operations 47,525 32,360Interest received 3,857 1,508Interest paid - (3)Retirement benefits paid (57) (86)Tax paid (4,545) (3,165)

Net cash generated from operating activities 46,780 30,614

Cash flows from investing activitiesProceeds from disposal of property, plant and equipment 63 -Compensation from government on land acquired - 84Proceeds from disposal of quoted investments 8,370 3,345Capital distribution from an associated company in voluntary liquidation 27,000 -Investment in an associated company (5,705) (24,808)Purchase of other investments - (1,120)Purchase of plant and equipment 25(a) (20,393) (20,191)Dividends received 117,020 89,209

Net cash generated from investing activities 126,355 46,519

Cash flows from financing activitiesDividends paid to shareholders (95,767) (64,539)Dividends paid to minority shareholders (4,274) (2,167)Repayment of bank borrowing - (2,850)

Net cash used in financing activities (100,041) (69,556)

Net increase in cash and cash equivalents 73,094 7,577

Effects of exchange rate changes (25) (75)

Cash and cash equivalents at beginning of year 81,526 74,024

Cash and cash equivalents at end of year 25(b) 154,595 81,526


Consolidated Cash Flow Statementfor the year ended 30 September 2006

40

BATU KAWAN BERHAD

2006 2005Note RM’000 RM’000

Cash flows from operating activitiesProfit before taxation 187,983 117,531Adjustments for:-

Depreciation of property, plant and equipment 9 9Provision for retirement benefits 34 3Dividend income (167,197) (116,669)Interest income (1,213) (218)Surplus on voluntary liquidation of an associated company (19,556) -Gain on disposal of quoted investments (7,782) (3,018)Gain on government acquisition of land - (83)Allowance for diminution in value of investment 4,814 -

Operating loss before working capital changes (2,908) (2,445)Changes in working capital

Receivables 17 (8)Payables 228 55Subsidiary companies’ accounts 17,469 (19,627)

Cash generated from/(used in) operations 14,806 (22,025)Interest received 1,125 227Retirement benefits paid (25) (17)Tax paid (7) (33)

Net cash generated from/(used in) operating activities 15,899 (21,848)

Cash flows from investing activitiesInvestment in an associated company (5,705) (24,808)Purchase of other investments - (1,120)Purchase of plant and equipment 25(a) (4) (7)Dividends received 124,833 91,570Compensation from government on land acquired - 84Proceeds from disposal of quoted investments 8,370 3,345Capital distribution from an associated company in voluntary liquidation 27,000 -

Net cash generated from investing activities 154,494 69,064

Cash flows from financing activitiesDividends paid (95,767) (64,539)

Net cash used in financing activities (95,767) (64,539)

Net increase/(decrease) in cash and cash equivalents 74,626 (17,323)

Cash and cash equivalents at beginning of year 471 17,794

Cash and cash equivalents at end of year 25(b) 75,097 471


Cash Flow Statement of the Holding Companyfor the year ended 30 September 2006

41

BATU KAWAN BERHAD

1. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Preparation

The financial statements of the Group and of the Company are prepared under the historical cost convention,unless otherwise indicated in this summary of significant accounting policies, modified to include the revaluation ofcertain property, plant and equipment. The Group has applied certain transitional provisions in InternationalAccounting Standard 16 (Revised) - Property, Plant and Equipment issued by the Malaysian Accounting StandardsBoard (“MASB”), by virtue of which a reporting enterprise is allowed to retain revalued amounts on the basis of theirprevious revaluations (subject to continuity in depreciation policy and the requirement to write down an asset to itsrecoverable amount) if it does not further revalue its property, plant and equipment. The financial statementscomply with applicable MASB Approved Accounting Standards in Malaysia and the provisions of the Companies Act,1965.

The accounting policies adopted by the Group and the Company for the financial year ended 30 September 2006are consistent with those adopted in previous years, except for the early adoption of FRS 121 - The Effects ofChanges in Foreign Exchange Rates.

The adoption of FRS 121 has not given rise to any adjustment to the opening balances of retained profits of theprior and current year, except as disclosed in Note 24.

(b) Basis of Consolidation

(i) Subsidiary Companies

The consolidated financial statements include the financial statements of the Company and all its subsidiarycompanies made up to the end of the financial year.

Subsidiary companies are those companies in which the Group has a long-term equity interest and where ithas power to exercise control, directly or indirectly, to govern the financial and operating policies so as toobtain benefits from its activities. The financial statements of subsidiary companies are included in theconsolidated financial statements from the date that control effectively commences until the date thatcontrol effectively ceases.

Subsidiary companies are consolidated using the acquisition method of accounting. Under the acquisitionmethod of accounting, the results of subsidiary companies acquired or disposed of during the year areincluded in the consolidated income statement from the effective date of acquisition or up to the effective dateof disposal, as appropriate. The assets and liabilities of a subsidiary company are measured at their fairvalues at the date of acquisition and these values are reflected in the consolidated balance sheet. Thedifference between the cost of an acquisition and the fair value of the Group’s share of the net assets of theacquired subsidiary company at the date of acquisition is included in the consolidated balance sheet asgoodwill or negative goodwill.

Intragroup transactions, balances and resulting unrealised gains are eliminated on consolidation and theconsolidated financial statements reflect external transactions only. Unrealised losses are eliminated onconsolidation unless costs cannot be recovered.

The gain or loss on disposal of a subsidiary company is the difference between net disposal proceeds and theGroup’s share of its net assets together with any balance of goodwill and exchange differences which were notpreviously recognised in the consolidated income statement.

Minority interests in the consolidated balance sheet consist of the minorities’ share of the fair value of theidentifiable assets and liabilities of the acquiree as at acquisition date and the minorities’ share of movementsin the acquiree’s equity since then.

The Company’s investments in subsidiary companies are stated at cost less impairment losses whereapplicable. At each balance sheet date, the Company assesses whether there is any indication of impairment.The policy for the recognition and measurement of impairment losses is in accordance with Note 1(e).

(ii) Associated Companies

Associated companies are those companies in which the Group has long-term equity interest of between20% and 50% of their issued equity capital and in which it exercises significant influence over the financialand operating policies through Board representation.

Notes to the Financial Statements

42

BATU KAWAN BERHAD

Investments in associated companies are accounted for in the consolidated financial statements by theequity method of accounting. Goodwill or discount on acquisition of associated companies is includedwithin the carrying amount of investments in associated companies. The Group’s share of post acquisitionresults and reserves of associated companies are included in the consolidated financial statementsbased on the latest audited or management financial statements of the associated companies.

The Company’s investments in associated companies are stated at cost less impairment losses whereapplicable. At each balance sheet date, the Company assesses whether there is any indication of impairment.The policy for the recognition and measurement of impairment losses is in accordance with Note 1(e).

(c) Goodwill and Negative Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in thefair value of the identifiable assets and liabilities of a subsidiary company at the date of acquisition. Goodwill isrecognised as an asset and is not amortised but is reviewed annually for impairment in value and written downwhere it is considered necessary. The policy for the recognition and measurement of impairment losses is inaccordance with Note 1(e).

Negative goodwill which represents the excess of the fair value of the identifiable assets and liabilities of asubsidiary company over the cost of acquisition is taken to reserve.

On disposal of a subsidiary company, the attributable amount of goodwill or negative goodwill is included in thedetermination of the profit or loss on disposal.

(d) Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses whereapplicable. The policy for the recognition and measurement of impairment losses is in accordance with Note 1(e).

Certain freehold and leasehold land and buildings are stated at valuation, being the fair value on the basis oftheir existing use at the date of revaluation, less any subsequent accumulated depreciation and impairmentlosses. These properties have since not been revalued. The Directors have not adopted a policy of regularrevaluations of such assets. As permitted under the transitional provisions of International Accounting Standard16 (Revised) - Property, Plant and Equipment, these assets continue to be stated at their original valuation lessaccumulated depreciation and impairment loss.

Surpluses arising from revaluation are dealt with in the property revaluation reserve account. Any deficit arisingis offset against the revaluation reserve to the extent of a previous increase for the same property. In all othercases, a decrease in carrying amount is charged to the income statement.

Freehold land is not amortised. The cost of leasehold properties with unexpired lease periods ranging from 23 to97 years at the date of acquisition or revaluation or the remaining period of the lease upon issuance of the landtitle, are amortised by equal instalments over these periods.

Capital work-in-progress is stated at cost and not depreciated. Capital work-in-progress comprises land cost,contractors’ payments, finance costs and directly attributable costs incurred in preparing these assets for theirintended use. Depreciation on assets under construction commences when the assets are ready for theirintended use.

Depreciation of other property, plant and equipment of the Company and that of its subsidiary companies isprovided to write off the cost of these property, plant and equipment in equal instalments over their expecteduseful lives at the following principal annual rates:-

Buildings 2 - 10%Plant and machinery 61/4 - 331/3 %Vehicles 16 - 20%Furniture and equipment 10 - 20%

Fully depreciated property, plant and equipment are retained in the financial statements at a nominal value ofRM1 each until they are no longer in use.

Notes to the Financial Statements (Continued)

43

BATU KAWAN BERHAD

(e) Impairment of Assets

Inventories, financial assets, deferred tax assets and assets arising from employee benefits are reviewed inaccordance with the relevant accounting policies stated. In addition, the carrying amounts of the Group’s and theCompany’s other assets are reviewed at each balance sheet date to determine whether there is any indication ofimpairment. If any such indication exists, impairment is measured by comparing the carrying amounts of the assetswith their recoverable amounts. An impairment loss is recognised whenever the carrying amount of an asset exceedsits recoverable amount. Recoverable amount is the higher of the asset’s net selling price and value in use, whichis measured by reference to discounted future cash flows. Recoverable amounts are estimated for individualassets or, if it is not possible, for the cash-generating unit to which the asset belongs.

Any impairment loss is charged to the income statement immediately, unless the asset is carried at revaluedamount. Any impairment loss of a revalued asset is treated as a revaluation decrease to the extent of any availablepreviously recognised revaluation surplus for the same asset.

Reversal of an impairment loss recognised in prior years is recorded when there is an indication that the impairmentloss recognised for the asset no longer exists or has decreased. The reversal is recognised to the extent of thecarrying amount of the asset that would have been determined (net of amortisation and depreciation) had noimpairment loss been recognised. The reversal is recognised in the income statement immediately, unless theasset is carried at revalued amount. A reversal of an impairment loss on a revalued asset is credited directly to therevaluation surplus. However, to the extent that an impairment loss on the same revalued asset was previouslyrecognised as an expense in the income statement, a reversal of that impairment loss is recognised as incomein the income statement.

Any impairment loss in respect of goodwill is not reversed unless the loss was caused by a specific external eventof an exceptional nature that is not expected to recur, and subsequent external events have occurred that reversedthe effect of the specific event. In respect of other assets, an impairment loss is reversed if there has been a changein estimates used to determine the recoverable amount.

(f) Inventories

Inventories of finished goods and work-in-progress are valued at the lower of cost and net realisable value. Costis determined on the weighted average cost basis and includes related charges to bring the inventories to theirpresent condition and location.

Cost of finished goods and work-in-progress comprises raw materials, labour and a proportion of the relevantoverheads.

Raw materials, stores and consumables are valued at the lower of cost and net realisable value determined on theweighted average cost basis and include related charges incurred to bring the inventories to their present location.

Net realisable value represents the estimated selling price less all estimated costs to completion and costs to beincurred in marketing, selling and distribution.

(g) Foreign Currencies

(i) Functional and Presentation Currency

These financial statements of the Group and of the Company are presented in Ringgit Malaysia, which is thefunctional currency of the Company.

(ii) Foreign Currency Transactions

Transactions in foreign currencies are translated to the respective functional currency of the Company and thesubsidiary companies at the rates of exchange ruling on the transaction dates. Monetary assets and liabilitiesdenominated in foreign currencies at the ablance sheet date are translated to functional currency at theexchange rates at balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies,which are stated at historical cost, are translated to the funcional currency at exchange rates ruling on thetransaction dates. Foreign currency differences arising on translation are recognised in the income statement.


44

BATU KAWAN BERHAD

(iii) Operations Denominated in Functional Currencies Other Than Ringgit Malaysia

The assets and liabilities of foreign operations in functional currency other than Ringgit Malaysia, includinggoodwill and fair value adjustments arising on acquisition, are translated into Ringgit Malaysia at the exchangerates at balance sheet date. The income and expenses of the foreign operations are translated at theaverage exchange rates for the year. All resulting exchange differences are recognised in the ExchangeFluctuation Reserve. On disposal of a foreign operation, the cumulative amount of the exchange differencesin the Exchange Fluctuation Reserve are recognised in profit or loss when the gain or loss on disposal isrecognised.

(iv) Net Investment in a Foreign Operation

Exchange differences arising on a monetary item that forms part of the Company’s net investment in aforeign operation are recognised in the Company’s income statement. Such exchange differences arereclassified to the Exchange Fluctuation Reserve in the consolidated financial statements when the monetaryitem is denominated in either the functional currency of the Company or the foreign operation. The deferredexchange differences are recognised in the income statement upon disposal of the investment.

The principal closing rates used in the translation of foreign currency assets and liabilities and the financialstatements of foreign operations are as follows:-

2006 2005RM RM

USD1 3.68 3.77SGD1 2.32 2.23

(h) Income Tax

Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected amountof income taxes payable in respect of the taxable profit for the year and is measured using the tax rates that havebeen enacted at the balance sheet date.

Deferred tax is provided for, using the liability method, on temporary differences at the balance sheet date betweenthe tax bases of assets and liabilities and their carrying amounts in the financial statements. In principle, deferredtax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for alldeductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable thattaxable profit will be available against which the deductible temporary differences, unused tax losses and unusedtax credits can be utilised. Deferred tax is not recognised if the temporary difference arises from goodwill ornegative goodwill or from the initial recognition of an asset or liability in a transaction which is not a businesscombination and at the time of the transaction, affects neither accounting profit nor taxable profit.

Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or theliability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date.Deferred tax is recognised in the income statement, except when it arises from a transaction which is recogniseddirectly in equity, in which case the deferred tax is also charged or credited directly in equity, or when it arises froma business combination that is an acquisition, in which case the deferred tax is included in the resulting goodwillor negative goodwill.

(i) Provisions for Liabilities

Provisions for liabilities are recognised when the Group has a present obligation as a result of a past event and itis probable that an outflow of resources embodying economic benefits will be required to settle the obligation, anda reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjustedto reflect the current best estimate.

(j) Employee Benefits

(i) Short-Term Benefits

Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in whichthe associated services are rendered by employees of the Group and the Company. Short-term accumulatingcompensated absences such as paid annual leave are recognised when services are rendered by employees


45

BATU KAWAN BERHAD

that increase their entitlement to future compensated absences. Short-term non-accumulating compensatedabsences such as sick leave are recognised when the absences occur.

(ii) Defined Contribution Plans

As required by law, the Group and the Company make contributions to the Employees Provident Fund(“EPF”). Such contributions are recognised as an expense in the income statement as incurred.

(iii) Defined Benefit Plans

The Group and the Company provide for retirement benefits for eligible employees on an unfunded definedbenefit basis in accordance with the terms of the Unions’ Collective Agreements and/or employmentagreements. Full provision has been made for retirement benefits payable to all eligible employees whohave completed their qualifying period of between 5 to 10 years of service, based on the length of servicetodate and rates set out in the said agreements. Should an employee leave after completing the qualifyingperiod of service but before attaining the retirement age, the provision made for the employee is writtenback. No actuarial valuation has been conducted on the retirement benefits provision, as the Directorsare of the opinion that the amount is insignificant to the Group and the Company.

(k) Revenue Recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Company and when revenuecan be measured reliably.

Revenue on sale of goods is recognised when the significant risks and rewards of ownership have been transferredto the customers.

Freight charges are recognised upon acceptance of delivery.

Management fees are recognised over the period where such services are provided.

Rental is recognised over the period of the tenancy.

Dividend from investments is recognised when the right to receive payment is established.

Interest income is recognised on a time proportion basis that takes into account the effective yield on the asset.

(l) Treasury Shares

Shares repurchased by the Company are held as treasury shares and are stated at the cost of repurchases.

(m) Financial Instruments

Financial instruments are recognised in the balance sheet when the Group has become a party to the contractualprovisions of the instruments.

Financial instruments are classified as liabilities or equity in accordance with the substance of the contractualarrangement. Interest, dividends, gains and losses relating to a financial instrument classified as a liability, arereported as expense or income. Distributions to holders of financial instruments classified as equity are chargeddirectly to equity. Financial instruments are offset when the Group has a legally enforceable right to offset andintends to settle either on a net basis or to realise the asset and settle the liability simultaneously.

(i) Other Non-Current Investments

Non-current investments (other than investments in subsidiary companies, associated companies and investmentproperties) are stated at cost less allowance for diminution in value. Allowance for any diminution in value ismade as and when the Directors are of the opinion that the diminution is of a permanent nature. On disposalof an investment, the difference between the net disposal proceeds and its carrying amount is recognised inthe income statement.


46

BATU KAWAN BERHAD

(ii) Trade Receivables

Trade receivables are recognised and stated at original invoiced amounts and carried at anticipated realisablevalues. Bad debts are written off when it is established that they are irrecoverable. Specific allowance is madefor known doubtful debts. An estimate is made for doubtful debts based on a review of all outstandingamounts as at the balance sheet date.

(iii) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash at bank, deposits on call and short-term highly liquidinvestments that are readily convertible to known amounts of cash and which are subject to an insignificant riskof changes in value, net of outstanding bank overdraft.

(iv) Trade Payables

Trade payables are stated at cost which approximates the fair value of the consideration to be paid in the futurefor goods and services rendered.

(v) Interest-Bearing Borrowings

Interest-bearing bank loans and overdrafts are recorded at the amount of proceeds received, net of transactioncosts.

Borrowing costs directly attributable to the acquisition and construction of plant and equipment are capitalisedas part of the cost of those assets, until such time as the assets are ready for their intended use. All otherborrowing costs are charged to the income statement as an expense in the period in which they are incurred.

(vi) Equity Instruments

Ordinary shares are classified as equity. Dividends payable on ordinary shares are recognised in equity in theperiod in which they are declared.

The transaction costs of an equity transaction, other than in the context of a business combination, areaccounted for as a deduction from equity, net of tax. Equity transaction costs comprise only those incrementalexternal costs directly attributable to the equity transaction which would otherwise have been avoided. Cost ofissuing equity securities in connection with a business combination is included in the cost of acquisition.

When the share capital of the Company is repurchased, the consideration paid, including any attributabletransaction costs, is presented as a change in equity. Repurchased shares are classified as treasury sharesand presented as a deduction from equity. No gain or loss is recognised in the income statement on the sale,re-issuance or cancellation of treasury shares. Consideration received is presented in the financial statements asa change in equity.

(vii) Derivative Financial Instruments

The Group uses derivative financial instruments in the form of forward exchange contracts to hedge its exposureto foreign exchange arising from operating, financing and investing activities. In accordance with its treasurypolicy, the Group does not hold or issue derivative financial instruments for trading purposes.

Derivative financial instruments are not recognised in the financial statements on inception.

The underlying foreign currency assets or liabilities are translated at their respective hedged exchange ratesand all exchange gains or losses are recognised as income or expense in the income statement in the sameperiod as the exchange differences on the underlying hedged items. Exchange gains and losses arising oncontracts entered into as hedges of anticipated future transactions are deferred until the date of such transaction, atwhich time they are included in the measurement of such transactions.


47

BATU KAWAN BERHAD

2. REVENUE

Revenue represents the net invoiced value of goods sold, investment income, management fees and freight andhaulage fees received as follows:-

Group Company2006 2005 2006 2005

RM’000 RM’000 RM’000 RM’000

Chemicals 198,274 182,828 - -Freight & haulage 17,283 12,868 - -Dividends (gross) 12,354 15,771 167,197 116,669Interest 3,911 1,528 1,213 218Management fees 36 34 - -

231,858 213,029 168,410 116,887

3. OPERATING PROFITGroup Company

2006 2005 2006 2005RM’000 RM’000 RM’000 RM’000

(a) This is arrived at after charging:-

Auditors’ remuneration- current year 96 93 18 18- non-audit fee 3 3 3 3

Directors’ remuneration- fees - Directors of the Company 559 559 534 535 - other directors 13 13 - -- other emoluments - Directors of the Company 1,310 1,073 1,162 951 - other director 286 255 - -

Amortisation and depreciation of property, plant and equipment 21,590 23,205 9 9Obsolete inventories written off 138 - - -Plant and equipment written off 704 96 - -Loss on foreign exchange

- realised 23 563 - -- unrealised 192 98 192 -

Rental of premises 141 222 96 96Rental of equipment 210 57 - -Provision for retirement benefits 270 232 34 3Allowance for diminution in value of investment 4,814 - 4,814 -

and crediting:-Gross dividend from subsidiary companies:-

Unquoted - - 9,378 3,790Gross dividends from associated companies:-

Quoted in Malaysia - - 145,465 98,537Gross dividends from other investments:-

Quoted in Malaysia - 8 - 8Quoted outside Malaysia 191 314 191 314Unquoted 12,163 15,449 12,163 14,020

Interest income 3,911 1,528 1,213 218Gain on disposal of property, plant and equipment 45 - - -Rental income 116 58 - 16Gain on government acquisition of land - 83 - 83Gain on foreign exchange

- realised 224 505 - -- unrealised 23 26 - -

Gain on disposal of quoted investments 7,782 3,018 7,782 3,018Surplus on voluntary liquidation of an associated company 27,000 - 19,556 -


48

BATU KAWAN BERHAD

Group Company2006 2005 2006 2005

RM’000 RM’000 RM’000 RM’000(b) Employee information

Staff costsWages, salaries and other staff costs 22,655 18,283 1,611 1,373Socso contributions 226 192 4 3EPF contributions 2,124 1,758 154 141Retirement benefits 270 232 34 3Annual leave pay 138 61 18 44

25,413 20,526 1,821 1,564

Included in staff costs of the Group and of the Company are Executive Directors’ remuneration amounting toRM1,566,000 (2005 : RM1,314,000) and RM1,131,000 (2005 : RM937,000) respectively.

2006 2005 2006 2005

Total number of employees at the end of the year 536 516 10 10

(c) The number of Directors of the Company whose total remuneration during the year fell within the following bandsis analysed below:-

Number of Directors2006 2005

Executive DirectorRM900,001 to RM950,000 - 1RM1,000,001 to RM1,200,000 1 -

Non-Executive DirectorsRM20,001 to RM40,000 - 3RM60,001 to RM100,000 7 6

4. FINANCE COSTGroup

2006 2005RM’000 RM’000

Term loan interest - 3

5. TAXATIONGroup Company

2006 2005 2006 2005RM’000 RM’000 RM’000 RM’000

(Restated)Current tax- Malaysian income tax 4,939 6,535 41,947 25,056- Foreign income tax 23 - 23 -- (Over)/Under-provision in previous year (1) (16) - 1- Over-provision of RPGT in prior years (98) - (98) -

4,863 6,519 41,872 25,057Deferred tax (Note 12)- Relating to origination and reversal of temporary differences (820) 644 - -- Relating to changes in tax rates (1,058) - - -- Under/(Over)-provision in prior years 16 (49) - -

(1,862) 595 - -Share of taxation of associated companies 72,143 73,316 - -

75,144 80,430 41,872 25,057


49

BATU KAWAN BERHAD

Income tax is calculated at the Malaysian statutory tax rate of 28% of the estimated assessable profit for the year.Malaysian statutory tax rate on all assessable profit will be reduced to 27% from the current year’s rate of 28%, effectiveyear of assessment 2007 and to 26% effective year of assessment 2008. The computation of deferred tax as at 30September 2006 has reflected these changes. Subsidiary companies with paid-up capital of RM2.5 million and belowat the beginning of the basis period for the year of assessment are subject to a corporate tax rate of 20% on chargeableincome of up to RM500,000 and a corporate tax rate of 28% for chargeable income in excess of RM500,000.

A reconciliation of income tax expense applicable to profit before taxation at the statutory income tax rate to income taxexpense at the effective income tax rate of the Group and of the Company is as follows:-

Group Company2006 2005 2006 2005

RM’000 RM’000 RM’000 RM’000(Restated)

Profit before taxation 348,909 317,187 187,983 117,531

Taxation at Malaysian statutory tax rate of 28% 97,695 88,812 52,635 32,908Effects of income subject to income tax rate of 20% (4,474) (4,286) - -Effects of different tax rates on foreign dividend income (9) - (9) -Effects of different tax rates in foreign jurisdictions (298) 390 - -Effects of reduction in tax rate on opening deferred tax balances (1,067) - - -Deferred tax recognised at different tax rates 9 - - -Income not subject to tax (22,849) (6,623) (10,750) (8,437)Expenses not deductible for tax purposes 5,994 5,582 95 585Utilisation of previously unrecognised tax losses and unabsorbed capital allowances (234) (86) (1) -Tax incentives (11,897) (11,497) - -Deferred tax assets not recognised during the year 8,889 6,551 - -(Over)/Under-provision of income tax in prior years - Company and subsidiary companies (1) (16) - 1 - share of associated companies 1,627 (623) - -Under/(Over)-provision of deferred tax in prior years - subsidiary companies 16 (49) - - - share of associated companies 112 - - -Over-provision of RPGT in prior years (98) - (98) -Others 1,729 2,275 - -

75,144 80,430 41,872 25,057

6. EARNINGS PER SHARE

Earnings per share has been calculated based on earnings attributable to shareholders of RM266,522,000 (2005 :RM230,025,000) for the Group and RM146,111,000 (2005 : RM92,474,000) for the Company and on 289,152,000shares in issue during the year which is net of shares bought back in prior years (2005 : 289,152,000 shares).

7. DIVIDENDS Group and Company

2006 2005RM’000 RM’000

Dividends PaidInterim 12% (2005 : 6%) less Malaysian income tax @ 28% 24,983 12,492Final 9% (2005 : 9%) less Malaysian income tax @ 28% 18,737 18,737Special 25% (2005 : 16%) less Malaysian income tax @ 28% 52,047 33,310

95,767 64,539Dividends ProposedFinal 13% (2005 : 9%) less Malaysian income tax @ 27% (2005 : 28%) 27,441 18,737Special 30% (2005 : 25%) less Malaysian income tax @ 27% (2005 : 28%) 63,324 52,047

90,765 70,784

The proposed dividends have not been accounted for in the financial statements.


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BATU KAWAN BERHAD

8. PROPERTY, PLANT AND EQUIPMENT

Long-Term Short-Term Plant Furniture CapitalFreehold Leasehold Leasehold And And Work-in-

Land Land Land Buildings Machinery Vehicles Equipment progress Total

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000GroupCost/ValuationAt 1 October 2005 12,684 13,421 3,630 31,308 239,093 11,017 4,435 2,461 318,049Additions - - - 113 8,436 988 305 10,551 20,393Transfers - - - - 2,444 - 356 (2,800) -Disposals/written off - - - - (4,204) (181) (283) - (4,668)

At 30 September 2006 12,684 13,421 3,630 31,421 245,769 11,824 4,813 10,212 333,774

Accumulateddepreciation

At 1 October 2005 - 1,660 587 14,383 146,904 6,944 2,840 - 173,318Current depreciation - 198 153 1,647 18,241 967 384 - 21,590Written back - - - - (3,616) (155) (176) - (3,947)

At 30 September 2006 - 1,858 740 16,030 161,529 7,756 3,048 - 190,961

Net book valueAt 30 September 2006 12,684 11,563 2,890 15,391 84,240 4,068 1,765 10,212 142,813

At 30 September 2005 12,684 11,761 3,043 16,925 92,189 4,073 1,595 2,461 144,731

Depreciation chargefor the year ended30 September 2005 - 198 153 1,663 19,885 1,007 299 - 23,205

CompanyCost/ValuationAt 1 October 2005 9 - - - - 573 66 - 648Additions - - - - - - 4 - 4Disposals/written off - - - - - - (5) - (5)

At 30 September 2006 9 - - - - 573 65 - 647

Accumulateddepreciation

At 1 October 2005 - - - - - 572 45 - 617Current depreciation - - - - - - 9 - 9Written back - - - - - - (5) - (5)

At 30 September 2006 - - - - - 572 49 - 621

Net book valueAt 30 September 2006 9 - - - - 1 16 - 26

At 30 September 2005 9 - - - - 1 21 - 31

Depreciation chargefor the year ended30 September 2005 - - - - - - 9 - 9


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BATU KAWAN BERHAD


Analysis of cost & valuation Cost Valuation TotalRM’000 RM’000 RM’000

Group2006Freehold land 12,675 9 12,684Long-term leasehold land 7,621 5,800 13,421Short-term leasehold land 3,630 - 3,630Buildings 27,391 4,030 31,421Plant and machinery 245,769 - 245,769Vehicles 11,824 - 11,824Furniture and equipment 4,813 - 4,813Capital work-in-progress 10,212 - 10,212

323,935 9,839 333,7742005Freehold land 12,675 9 12,684Long-term leasehold land 7,621 5,800 13,421Short-term leasehold land 3,630 - 3,630Buildings 27,278 4,030 31,308Plant and machinery 239,093 - 239,093Vehicles 11,017 - 11,017Furniture and equipment 4,435 - 4,435Capital work-in-progress 2,461 - 2,461

308,210 9,839 318,049Company2006Freehold land - 9 9Vehicles 573 - 573Furniture and equipment 65 - 65

638 9 6472005Freehold land - 9 9Vehicles 573 - 573Furniture and equipment 66 - 66

639 9 648

The carrying amounts of the following property, plant and equipment shown at valuation that would have been includedin the financial statements had these assets been carried at cost less depreciation are:

Group Company2006 2005 2006 2005

RM’000 RM’000 RM’000 RM’000

Freehold land 1 1 1 1Long-term leasehold land 1,283 1,288 - -Factory and office buildings 1,852 1,958 - -

3,136 3,247 1 1

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BATU KAWAN BERHAD


(a) The freehold land of the Company shown at valuation was revalued by its Directors based on an opinion of valueexpressed by a firm of professional valuers on the investment basis on 14 July 1980.

Certain land and buildings of subsidiary companies were revalued by its Directors in 1982 and 1996 based onindependent professional valuations using the open market value basis.

As allowed by the transitional provisions of International Accounting Standard 16 (Revised) - “Property, Plant andEquipment”, these assets have continued to be stated on the basis of their 1980 and 1996 valuations respectively.

The ownership of certain property, plant and equipment of subsidiary companies with a carrying amount ofRM807,039 (2005 : RM998,445) are held in trust by third parties.

The land title to a freehold land of a subsidiary company is in the process of being transferred to the subsidiarycompany’s name.

(b) Rental expense capitalised during the financial year under capital work-in-progress of a subsidiary companyamounted to RM25,000 (2005 : Nil).

(c) All subsequent additions to property, plant and equipment are recorded at cost and deletions at cost or valuationwhere applicable.

(d) The description and location of the Group’s properties are shown on page 72.

9. SUBSIDIARY COMPANIESCompany

2006 2005RM’000 RM’000

Unquoted shares at cost 60,597 60,597

Details of the subsidiary companies are as follows:-

Percentage ofCountry of Group Principal

Name of Company Incorporation Equity Held Activities2006 2005

See Sen Chemical Berhad Malaysia 61 61 Chemicals manufacturingSee Sen Bulking Installation Sdn Bhd Malaysia 61 61 Provision of

bulking servicesMalay-Sino Chemical Industries Malaysia 76 76 Chemicals manufacturing Sendirian BerhadMalay-Sino Agro-Chemical Products Malaysia 76 76 Manufacture and sale of Sdn Bhd methyl chlorideCircular Agency Sdn Bhd Malaysia 76 76 General transport and

haulage servicesNorth-South Transport Sdn Bhd Malaysia 76 76 General transport and

haulage servicesMalay-Sino Properties Sdn Bhd Malaysia 76 76 Letting of storage

warehouse facilitiesMalay-Sino Chemical Holdings Berhad Malaysia 76 76 DormantOmega Network Sdn Bhd Malaysia 76 76 Trading of liquid chlorineBatu Kawan Holdings Sdn Bhd Malaysia 100 100 Investment holdingCaruso Enterprises Sdn Bhd Malaysia 100 100 Money lendingWhitmore Holdings Sdn Bhd Malaysia 100 100 Investment holdingEnternal Edge Sdn Bhd Malaysia 100 100 Investment holdingForever Green Venture Limited * Mauritius 100 100 Investment holding

* The financial statements of this subsidiary company are not audited by Messrs. Ernst & Young.

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BATU KAWAN BERHAD


10. ASSOCIATED COMPANIES Group Company

2006 2005 2006 2005RM’000 RM’000 RM’000 RM’000

(Restated)Shares in Malaysian quoted corporation At cost 418,839 413,134 418,839 413,134 At valuation 74,169 74,169 74,169 74,169

493,008 487,303 493,008 487,303

Unquoted shares at cost 2,130 2,130 - -

495,138 489,433 493,008 487,303Group’s share of retained reserves 1,509,665 1,394,781 - -

2,004,803 1,884,214 493,008 487,303

Market value of quoted shares 3,603,551 2,556,579 3,603,551 2,556,579

As at 30 September 2006, the carrying values of the investments in associated companies are represented by:-

Group2006 2005

RM’000 RM’000(Restated)

Group’s share of aggregate net tangible assets 1,939,530 1,842,022Group’s share of aggregate intangible assets 57,915 36,256Goodwill on acquisition 7,358 5,936

2,004,803 1,884,214

Details of the associated companies are as follows:-

Percentage ofCountry of Group Principal

Name of Company Incorporation Equity Held Activities2006 2005

Quoted:-Kuala Lumpur Kepong Berhad Malaysia 47 46 Plantations

Unquoted:-BASF See Sen Sdn Bhd Malaysia 30 30 Manufacturer and

dealer in high puritysulphuric acid and

chemicals

54

BATU KAWAN BERHAD

11. OTHER INVESTMENTSGroup Company

2006 2005 2006 2005RM’000 RM’000 RM’000 RM’000

Quoted shares at cost In overseas corporation 11,401 11,989 11,401 11,989

Unquoted shares at cost 20,951 21,042 16,434 23,878

32,352 33,031 27,835 35,867Less : Allowance for diminution in value of investment

- Quoted shares in overseas corporation (4,814) - (4,814) -- Unquoted shares (400) (400) - -

27,138 32,631 23,021 35,867Market value of quoted shares

In overseas corporation 6,568 13,538 6,568 13,538

12. DEFERRED TAX Group2006 2005

RM’000 RM’000

Balance brought forward 15,287 14,692Recognised in the income statement (Note 5) (1,862) 595

Balance carried forward 13,425 15,287

Presented after appropriate offsetting as follows:-

Deferred tax assets (472) -Deferred tax liabilities 13,897 15,287

13,425 15,287

The components and movements of deferred tax assets and liabilities during the financial year are as follows:-

Deferred Tax Assets of the GroupProvision

Property, Unabsorbed Provision forplant and capital for retirement

equipment allowances liabilities benefits TotalRM’000 RM’000 RM’000 RM’000 RM’000

At 1 October 2004 (2,291) (557) (92) (389) (3,329)Recognised in the income statement (99) 533 57 (40) 451

At 30 September 2005 (2,390) (24) (35) (429) (2,878)Recognised in the income statement (269) (19) (17) (40) (345)

At 30 September 2006 (2,659) (43) (52) (469) (3,223)

Deferred Tax Liabilities of the GroupProperty,plant and Revaluation

equipment surplus Receivables TotalRM’000 RM’000 RM’000 RM’000

At 1 October 2004 17,394 625 2 18,021Recognised in the income statement 151 (8) 1 144

At 30 September 2005 17,545 617 3 18,165Recognised in the income statement (1,465) (49) (3) (1,517)

At 30 September 2006 16,080 568 - 16,648


55

BATU KAWAN BERHAD

The following deferred tax assets of subsidiary companies have not been recognised in the financial statements as amatter of prudence:-

Group2006 2005

RM’000 RM’000Unutilised tax losses 43 -

The Group has unutilised reinvestment allowances of approximately RM12,805,000 (2005 : RM22,588,000) for set-offagainst future taxable income as at balance sheet date.

13. INVENTORIESGroup

2006 2005At Cost RM’000 RM’000

Finished goods 3,951 3,290Work-in-progress 320 264Raw materials 8,467 11,623Stores and consumables 9,067 9,433

21,805 24,610At Net realisable value

Finished goods 2,008 4,015Work-in-progress 24 20

2,032 4,035

23,837 28,645

The cost of inventories recognised as an expense during the financial year in the Group amounted to approximatelyRM148,592,000 (2005 : RM135,306,000).

14. TRADE RECEIVABLESGroup

2006 2005RM’000 RM’000

Included herein are:-

Trade receivables from companies in which certain Directors have significant interests 38,762 35,454

The above are balances in connection with related party transactions disclosed in Note 26. The amounts owing areunsecured and non-interest bearing.

The Group’s normal trade credit term ranges from 30 to 90 days. Other credit terms are assessed and approved on acase by case basis.

The Group has no significant concentration of credit risk that may arise from exposures to a single debtor or to groups ofdebtors except that certain subsidiary companies trades only with two major customers.


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BATU KAWAN BERHAD


15. OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTSGroup

2006 2005RM’000 RM’000


Amounts owing by companies in which certain Directors have significant interests - 1Amount owing by an associated company 551 398

The above are balances in connection with related party transactions disclosed in Note 26. The amounts owing areunsecured, non-interest bearing and with no fixed terms of repayment.

The Group has no significant concentration of credit risk that may arise from exposures to a single debtor or to groups ofdebtors.

16. AMOUNTS OWING BY SUBSIDIARY COMPANIESCompany

2006 2005RM’000 RM’000

These comprise:-Current accounts 191 155Unsecured, interest-free advances 58,881 76,386

59,072 76,541

All amounts owing by subsidiary companies are unsecured, non-interest bearing and with no fixed terms of repayment.

17. CASH AND CASH EQUIVALENTSGroup Company

2006 2005 2006 2005RM’000 RM’000 RM’000 RM’000

Deposits with licensed banks 152,250 78,000 75,000 400Deposits with licensed finance companies - 2,000 - -

152,250 80,000 75,000 400Cash and bank balances 2,345 1,526 97 71

154,595 81,526 75,097 471

The effective interest rates of deposits at the balance sheet date are as follows:-

Group Company2006 2005 2006 2005

% % % %

Licensed banks 2.60 - 3.60 2.30 - 3.00 2.70 - 3.60 2.30 - 3.00Licensed finance companies - 3.00 - -

The maturities of deposits as at the end of the financial year are as follows:-

Group Company2006 2005 2006 2005Days Days Days Days

Licensed banks 2 - 31 4 - 60 7 - 30 11 - 30Licensed finance companies - 30 - -

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BATU KAWAN BERHAD


18. TRADE PAYABLESGroup

2006 2005RM’000 RM’000


Amounts owing to companies in which certain Directors have significant interests 1,794 1,964

The above are balances in connection with related party transactions disclosed in Note 26. The amounts owing areunsecured and non-interest bearing.

The normal trade credit terms granted to the Group range from 30 to 90 days.

19. OTHER PAYABLES AND ACCRUALSGroup

2006 2005RM’000 RM’000


Amounts owing to companies in which certain Directors have significant interests 176 226

The above are balances in connection with related party transactions disclosed in Note 26. The amounts owing areunsecured, non-interest bearing and with no fixed terms of repayment.

20. GOODWILL ON CONSOLIDATIONGroup

2006 2005RM’000 R� ’000

Balance brought forward/carried forward 11,999 11,999

21. SHARE CAPITAL Group and Company

2006 2005No of shares No of shares

(’000) RM’000 (’000) RM’000

Ordinary shares of RM1 each

Authorised 1,000,000 1,000,000 1,000,000 1,000,000

Issued and fully-paid 291,375 291,375 291,375 291,375

The shareholders of the Company have first granted the authority to the Directors to buy back its own shares at theAnnual General Meeting held on 3 February 1999. The mandate was subsequently renewed annually by shareholdersat every Annual General Meeting of the Company. The Directors of the Company are committed to enhancing the valueof the Company to its shareholders and believe that the buyback plan can be applied in the best interests of the Companyand its shareholders.

During the year ended 30 September 2000, the Company bought back a total of 2,223,000 of its issued shares from theopen market for a total cost of RM9,492,435. The average cost paid for the shares bought back was RM4.24 per share.The share buyback transactions were financed by internally generated funds. These shares are held as treasury shares.

Of the total 291,375,000 issued and fully-paid shares, 2,223,000 are held as treasury shares by the Company. As at 30September 2006, the number of outstanding shares issued and fully-paid, after deducting treasury shares held, is289,152,000 shares of RM1 each.

58

BATU KAWAN BERHAD


22. RESERVESGroup Company

2006 2005 2006 2005RM’000 RM’000 RM’000 RM’000

(Restated)Total reserves are analysed as follows:-

Non-distributable:Revaluation reserve 715 715 25 25Negative goodwill 13,113 13,113 - -Exchange fluctuation reserve (155) (39) - -Capital reserve 271,072 271,072 - -

284,745 284,861 25 25Distributable:Capital reserve 235,827 239,276 85,647 85,647Revenue reserve

General reserve 154,591 134,714 6,739 6,739Retained profits 1,376,062 1,205,307 335,736 285,392

Share buyback (9,492) (9,492) (9,492) (9,492)

1,756,988 1,569,805 418,630 368,286

Total 2,041,733 1,854,666 418,655 368,311

The Group’s and Company’s revaluation reserve arose from revaluations of share investments and properties whilethe capital reserve and general reserve arose from surpluses on disposals of properties and share investments. Inaddition, the Group’s capital reserve and general reserve also include the share of associated companies’ reserves.

Of the Company’s retained profits at year end of RM335,736,000, RM9,492,000 was utilised for the purchase of thetreasury shares in prior years and is considered as non-distributable.

The Company has sufficient tax credit under Section 108 of the Income Tax Act, 1967 to frank the payment of netdividends of approximately RM153.8 million (2005 : RM146.0 million) out of its distributable reserves withouthaving to incur additional taxation. In addition, the Company has available approximately RM99.7 million (2005 :RM83.4 million) in tax exempt income that can be distributed as tax exempt dividends.

If the balance of the distributable reserves of approximately RM165.1 million (2005 : RM138.9 million) were to bedistributed as dividends prior to there being sufficient tax credit, the Company would have a Section 108 shortfall ofapproximately RM64.2 million (2005 : RM54.0 million).

23. PROVISION FOR RETIREMENT BENEFITSGroup Company

2006 2005 2006 2005RM’000 RM’000 RM’000 RM’000

Balance brought forward 1,599 1,453 50 64Provision during the year 270 232 34 3Payments (57) (86) (25) (17)

Balance carried forward 1,812 1,599 59 50

Represented by:-

Payable not later than 1 year 53 11 - -Payable later than 1 year 1,759 1,588 59 50

1,812 1,599 59 50

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BATU KAWAN BERHAD


24. PRIOR YEAR ADJUSTMENT

The prior year adjustment is in respect of the early adoption of Financial Reporting Standard (“FRS”) 121 - The Effectsof Changes in Foreign Exchange Rates.

The effect of the prior year adjustment is as follows:-Group

2006 2005RM’000 RM’000

Effect on general reserve:-

As at 1 October, as previously stated 86,842 100,237Effect of adopting FRS 121 47,872 54,141

As at 1 October, as restated 134,714 154,378

Effect on retained profits:-

As at 1 October, as previously stated 1,243,229 1,096,475Effect of adopting FRS 121 (37,922) (42,885)

As at 1 October, as restated 1,205,307 1,053,590

Effect on net profit for the year:-

Net profit before change in accounting policy 267,358 225,062Effect of adopting FRS 121 (836) 4,963

Net profit for the year 266,522 230,025

25. NOTE TO THE CASH FLOW STATEMENTS

(a) Plant and equipment purchases during the year were fully paid for in cash.

(b) Cash and cash equivalents consist of:-Group Company

2006 2005 2006 2005RM’000 RM’000 RM’000 RM’000

Term deposits 152,250 80,000 75,000 400Cash and bank balances 2,345 1,526 97 71

Cash and cash equivalents 154,595 81,526 75,097 471

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BATU KAWAN BERHAD


26. RELATED PARTY TRANSACTIONS

The Company has a controlling related party relationship with its subsidiary companies as disclosed in Note 9 to thefinancial statements.

The Directors who are major shareholders and close members of their families including companies where they have asignificant influence are also considered as related parties.

The following transactions have been entered into in the ordinary course of business at prices mutually agreed uponbetween the parties on terms not more favourable to the related party than those generally available to the public and arenot detrimental to the minority shareholders of Batu Kawan Berhad:-

Group Company2006 2005 2006 2005

RM’000 RM’000 RM’000 RM’000

(a) Transactions with an associated company

BASF See Sen Sdn Bhd- Processing fee received 600 600 - -- Sale of finished goods 1,705 1,043 - -- Sale of electricity 416 268 - -- Supply of manpower 96 96 - -- Freight income received - 56 - -

(b) Transactions with companies in which certainDirectors have significant interests

Project management fees paid to- Taiko Properties Sdn Bhd 291 238 - -

Manpower charges paid to- KL-Kepong Edible Oils Sdn Bhd 1 2 - -

Purchase of raw materials and finished goods from- Taiko Marketing Sdn Bhd 20,137 17,134 - -- Taiko Drum Industries Pte Ltd - 14 - -- Taiko Acid Works Sdn Bhd 710 130 - -- Taiko Drum Industries Sdn Bhd 1,329 1,060 - -- Taiko Alumina Sdn Bhd - 5 - -- Hydro-K Management (M) Sdn Bhd 15 16 - -

Rental of warehouse paid to- Taiko Marketing Sdn Bhd 3 45 - -

Rental of premises received from- Taiko Marketing Sdn Bhd 46 42 - -

Management fees and handling charges received from- Taiko Marketing Sdn Bhd 39 - - -

Freight charges received from- Taiko Acid Works Sdn Bhd 800 374 - -- Taiko Clay Marketing Sdn Bhd 3,354 1,875 - -- Taiko Marketing Sdn Bhd 1,477 - - -- Oriken Chemicals Sdn Bhd 111 - - -- Chlor-Al Chemical Pte Ltd 18 - - -- Hydro-K Management (M) Sdn Bhd 1 - - -

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BATU KAWAN BERHAD

Group Company2006 2005 2006 2005

RM’000 RM’000 RM’000 RM’000Rental of office paid to- Taiko Plantations Sdn Bhd 96 96 96 96

Guarantee expense for tanker operation paid to- Taiko Bleaching Earth Sdn Bhd 259 256 - -- Taiko Alumina Sdn Bhd 40 23 - -

Sale of indirect materials and finished goods to- Taiko Marketing Sdn Bhd 115,499 110,140 - -- Taiko Marketing (S) Pte Ltd 9,061 7,401 - -- Chlor-Al Chemical Pte Ltd 16,012 9,540 - -- Taiko Acid Works Sdn Bhd 472 - - -- Taiko Bleaching Earth Sdn Bhd 38 - - -- Premier Bleaching Earth Sdn Bhd 1,878 1,781 - -- Siam Taiko Marketing Pte Ltd 32 106 - -- Hydro-K Management (M) Sdn Bhd 89 52 - -

Sales commissions paid to- Taiko Marketing Sdn Bhd 911 831 - -- Taiko Marketing (S) Pte Ltd 188 - - -- Chlor-Al Chemical Pte Ltd 250 - - -

Aircraft hire costs paid to- Smooth Route Sdn Bhd - 80 - -

27. CAPITAL COMMITMENTSGroup

2006 2005RM’000 RM’000

Authorised and contracted for 9,625 3,064Authorised but not contracted for 37,756 46,434

47,381 49,498

28. SEGMENT INFORMATION

Group

Segment information is presented in respect of the Group’s business and geographical segments.

Segment results, assets and liabilities include items directly attributable to segment as well as those that can beallocated on a reasonable basis. Unallocated items mainly comprise interest-earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses. Revenues are attributed to geographicareas based on the location of the customers.

Inter-segment sales are determined based on current market prices.

The main business segments of the Group comprise the following:-Investment holding - Investment holding and money lending.Chemicals - Manufacture and sale of chemicals, general transport and haulage services.

The accounting polices of the segments are the same as those disclosed in Note 1.

Carrying amount of segment assets and cost to acquire property, plant and equipment by location of assets are notdisclosed as all the assets are located principally in Malaysia.


62

BATU KAWAN BERHAD


2006

(a) Information on Business SegmentsInvestment

Holding Chemicals Adjustments ConsolidatedRevenue RM’000 RM’000 RM’000 RM’000

External salesChemicals - 199,015 (741) 198,274Freight & haulage - 17,708 (425) 17,283

Dividend - subsidiary companies 14,744 - (14,744) -Dividend - associated companies - quoted in Malaysia 145,464 - (145,464) -Dividend - other investments - quoted in Malaysia - - - -

- quoted outside Malaysia 191 - - 191- unquoted 12,163 - - 12,163

172,562 - (160,208) 12,354Interest income - deposits 2,263 1,648 - 3,911Management fees - 36 - 36

174,825 218,407 (161,374) 231,858Inter-segment sales - - - -

174,825 218,407 (161,374) 231,858

Results

Segment result 194,311 31,709 (152,445) 73,575Finance cost - - - -Share of results of associated companies 275,162 172 - 275,334

Profit before taxation 469,473 31,881 (152,445) 348,909

Taxation (75,144)

Profit after taxation 273,765

Other Information

Segment assets 306,926 278,110 (152,169) 432,867Associated companies 493,008 1,332 1,510,463 2,004,803Unallocated corporate assets 673 244 326 1,243

Consolidated assets 800,607 279,686 1,358,620 2,438,913

Segment liabilities 63,202 20,916 (60,559) 23,559Unallocated corporate liabilities 20 14,829 (231) 14,618

Consolidated liabilities 63,222 35,745 (60,790) 38,177

Capital expenditure 7,680 12,713 - 20,393Depreciation/Amortisation 9 21,917 (336) 21,590Other non-cash expenses: Plant and equipment written off - 704 - 704 Provision for retirement benefits 34 236 - 270 Allowance for diminution in value of investment 4,814 - - 4,814

(b) Revenue by geographical location of customersRM’000

Malaysia 192,790Asia 18,240Europe and America 20,828

231,858

63

BATU KAWAN BERHAD

2005 (Restated)

(a) Information on Business SegmentsInvestment

Holding Chemicals Adjustments ConsolidatedRevenue RM’000 RM’000 RM’000 RM’000

External salesChemicals - 183,465 (637) 182,828Freight & haulage - 12,952 (84) 12,868

Dividend - subsidiary companies 5,229 - (5,229) -Dividend - associated companies - quoted in Malaysia 98,537 - (98,537) -Dividend - other investments - quoted in Malaysia 8 - - 8

- quoted outside Malaysia 314 - - 314- unquoted 15,449 - - 15,449

119,537 - (103,766) 15,771Interest income - deposits 756 772 - 1,528Management fees - 34 - 34

120,293 197,223 (104,487) 213,029Inter-segment sales - - - -

120,293 197,223 (104,487) 213,029

Results

Segment result 120,853 29,829 (103,430) 47,252Finance cost (3) - - (3)Share of results of associated companies 270,098 (160) - 269,938

Profit before taxation 390,948 29,669 (103,430) 317,187

Taxation (80,430)

Profit after taxation 236,757

Other Information

Segment assets 273,475 266,815 (176,973) 363,317Associated companies 487,303 1,272 1,395,639 1,884,214Unallocated corporate assets 212 294 - 506

Consolidated assets 760,990 268,381 1,218,666 2,248,037

Segment liabilities 78,799 20,642 (77,598) 21,843Unallocated corporate liabilities 76 16,070 (652) 15,494

Consolidated liabilities 78,875 36,712 (78,250) 37,337

Capital expenditure 1,706 18,485 - 20,191Depreciation/Amortisation 9 23,532 (336) 23,205Other non-cash expenses: Plant and equipment written off - 96 - 96 Provision for retirement benefits 3 229 - 232

(b) Revenue by geographical location of customersRM’000

Malaysia 175,698Asia 11,149Europe and America 26,182

213,029


64

BATU KAWAN BERHAD

29. FINANCIAL INSTRUMENTS

(a) Financial Risk Management Objectives and Policies

The Group’s financial risk management policy seeks to ensure that adequate financial resources are available forthe development of the Group’s businesses whilst managing its interest rate, foreign exchange, liquidity and creditrisks. The Group operates within clearly defined guidelines that are approved by the Board and the Group’s policyis not to engage in speculative transactions.

(i) Interest Rate Risk

The Group’s primary interest rate risk relates to interest-bearing debt. The Group has no substantial long-terminterest-bearing assets as at 30 September 2006. The investments in financial assets are mainly short-termin nature and they are not held for speculative purposes but have been mostly placed in fixed deposits oroccasionally, in short-term commercial papers which yield better returns than cash at bank.

The Group manages its interest rate exposure by maintaining a prudent mix of fixed and floating rate borrowings.The Group actively reviews its debt portfolio, taking into account the investment holding period and nature of itsassets. This strategy allows it to capitalise on cheaper funding in a low interest rate environment and achievea certain level of protection against rate hikes. As at 30 September 2006, the Group has no interest-bearingborrowings.

The information on maturity dates and effective interest rates of financial assets and liabilities are disclosedin their respective notes. As at 30 September 2006, the Group has not entered into any hedging instrumentsarrangement such as interest rate swaps to minimise its exposure to interest rate volatility.

(ii) Credit Risk

Credit risks, or the risk of counterparties defaulting, are controlled by the application of credit approvals, limitsand monitoring procedures. Credit risks are minimised and monitored via strictly limiting the Group’s associationsto business partners with high credit worthiness. Trade receivables are monitored on an ongoing basis via Groupmanagement reporting procedures.

The Group does not have any significant exposure to any individual customer or counter-party nor does ithave any major concentration of credit risk related to any financial instruments except that certain subsidiarycompanies trade only with two major customers.

(iii) Foreign Exchange Risk

The Group operates internationally and is exposed to various currencies, mainly United States Dollar andSingapore Dollar. Foreign currency denominated assets and liabilities together with expected cash flows fromhighly probable purchases and sales give rise to foreign exchange exposures.

The Group maintains a natural hedge, whenever possible, by borrowing in the currency of the country inwhich the property or investment is located or by borrowing in currencies that match the future revenuestream to be generated from its investments.

Foreign exchange exposures in transactional currencies other than functional currencies of the operatingentities are kept to an acceptable level. Material foreign currency transaction exposures are hedged, mainlywith derivative financial instruments such as forward foreign exchange contracts.


65

BATU KAWAN BERHAD

The net unhedged financial assets and financial liabilities of the Group that are not denominated in theirfunctional currencies are as follows:-

Funtional currency of the groupUnited States Singapore

Dollar Dollar TotalRM’000 RM’000 RM’000

As at 30 September 2006:-

Ringgit Malaysia:-Cash and bank balances 364 2 366Trade receivables 3,892 6,953 10,845Other receivables - 12 12Trade payables 1,205 - 1,205Other payables 25 52 77

5,486 7,019 12,505

As at 30 September 2005:-

Ringgit Malaysia:-Cash and bank balances 204 - 204Trade receivables 518 3,800 4,318Trade payables 1,277 - 1,277

1,999 3,800 5,799

As at 30 September 2006, the Group has not entered into any forward foreign exchange contracts.

MaturesWithin 1

Year TotalAs at 30 September 2005:- Currency RM’000 RM’000

Forwards used to hedge trade receivables United States Dollar 11,775 11,775Forwards used to hedge other payables Euro 1,119 1,119

(iv) Liquidity Risk

The Group actively manages its debt maturity profile, operating cash flows and the availability of funding soas to ensure that all refinancing, repayment and funding needs are met. As part of its overall prudent liquiditymanagement, the Group maintains sufficient levels of cash or cash convertible investments to meet itsworking capital requirements. In addition, the Group strives to maintain available banking facilities of areasonable level to its overall debt position. As far as possible, the Group raises committed funding from bothcapital markets and financial institutions and prudently balances its portfolio with some short-term funding soas to achieve overall cost effectiveness.


66

BATU KAWAN BERHAD

(b) Fair Values

The fair values of all financial assets and liabilities of the Group and of the Company as at 30 September 2006 arenot materially different from their carrying values.

The carrying amounts of cash and cash equivalents, trade and other receivables, trade and other payables andshort-term borrowings approximate their fair values due to the relatively short-term nature of these financialinstruments.

The following methods and assumptions are used to estimate the fair values of the following classes of financialinstruments:-

(i) Cash and Cash Equivalents, Trade and Other Receivables/Payables, Borrowings

The carrying amounts approximate fair values due to the relatively short-term maturity of these financialinstruments.

(ii) Non-Current Unquoted Investments

It is not practicable to estimate the fair value of the Group’s non-current unquoted investments because of thelack of quoted market prices and the inability to estimate fair value without incurring excessive costs.However, the Group believes that the carrying amount represents the recoverable value.

(iii) Amounts Due From Related Corporations

It is also not practicable to determine the fair values of amounts owing from subsidiary companies, associatedcompanies and related corporations due principally to a lack of fixed repayment terms entered into by the partiesinvolved and without incurring excessive costs. However, the Group and the Company do not anticipate thecarrying amounts recorded at the balance sheet date to be significantly different from the values that wouldeventually be received or settled.

(iv) Derivative Financial Instruments

The fair value of a forward foreign currency contract is the amount that would be payable or receivable ontermination of the outstanding position arising and is determined by reference to the difference between thecontracted rate and forward exchange rate as at the balance sheet date applied to a contract of similarquantum and maturity profile. However, the Group believes that the notional amounts approximate their fairvalues due to the relatively short-term maturity of the financial instruments as disclosed in Note 29 (a) (iii) to thefinancial statements.

30 COMPARATIVE FIGURES

The following comparative figures have been reclassified to conform with current year’s presentation:-

GroupAs As previously

restated reportedRM’000 RM’000

Arising from change in accounting policy on adoption of FRS 121 - The Effects of Changes in Foreign Exchange Rates by an associated company

INCOME STATEMENTS

Share of results of associated companies 269,938 263,671Taxation (80,430) (79,126)

BALANCE SHEETS

Associated companies 1,884,214 1,874,264Reserves 1,854,666 1,844,716

Sen SenEARNINGS PER SHARE 79.6 77.8


67

BATU KAWAN BERHAD


31 SUBSEQUENT EVENT

On 22 November 2006, the Company has proposed a Bonus Issue of one bonus share for every two existing sharesheld to be credited as fully paid-up to shareholders of the Company, at an entitlement date to be determined later. Thisproposed Bonus Issue will be implemented by capitalising RM144,576,000 from the retained profits of the Company.

This proposal is subject to approval from Bursa Malaysia Securities Berhad and the shareholders at an ExtraordinaryGeneral Meeting to be held on 14 February 2007.

68

BATU KAWAN BERHAD

Statement by the Directors and Statutory Declaration

Statement by the Directors

We, Dato’ Lee Hau Hian and Yeoh Eng Khoon, being two of the Directors of Batu Kawan Berhad, do hereby state that in theopinion of the Directors, the accompanying financial statements together with the notes thereto, are drawn up in accordancewith applicable MASB Approved Accounting Standards in Malaysia and the provisions of the Companies Act, 1965 so as togive a true and fair view of the financial position of the Group and of the Company as at 30 September 2006 and of the resultsand the cash flows of the Group and of the Company for the year ended on that date.

The Board of Directors authorised these financial statements for issue on 11 December 2006.

Signed on behalf of the Board in accordance with a resolution of the Directors,

DATO’ LEE HAU HIAN YEOH ENG KHOON(Managing Director) (Director)

11 December 2006

Statutory Declaration

I, Leong Sea Fook, being the officer primarily responsible for the financial management of Batu Kawan Berhad, dosolemnly and sincerely declare that the accompanying financial statements together with the notes thereto, are in myopinion, correct, and I make this solemn declaration conscientiously believing the same to be true, and by virtue of theprovisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declaredby the abovenamed in Ipoh,Perak Darul Ridzuanon 11 December 2006. LEONG SEA FOOK

Before me,

M. SIVAPALANCommissioner for Oaths,Ipoh,Perak Darul Ridzuan,Malaysia.

69

BATU KAWAN BERHAD

Report of the Auditors to the Members

We have audited the financial statements set out on pages 35 to 67. These financial statements are the responsibilityof the Company’s Directors.

It is our responsibility to form an independent opinion, based on our audit, on the financial statements and to report ouropinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do notassume responsibility to any other person for the content of this report.

We conducted our audit in accordance with applicable Approved Standards on Auditing in Malaysia. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used and significantestimates made by the Directors, as well as evaluating the overall presentation of the financial statements. We believe thatour audit provides a reasonable basis for our opinion.

In our opinion:-

(a) the financial statements have been properly drawn up in accordance with the provisions of the Companies Act,1965 and applicable MASB Approved Accounting Standards in Malaysia, so as to give a true and fair view of:-

(i) the financial position of the Group and of the Company as at 30 September 2006 and of the results and the cashflows of the Group and of the Company for the year then ended; and

(ii) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements of theGroup and of the Company; and

(b) the accounting and other records and the registers required by the Act to be kept by the Company and by itssubsidiary companies of which we have acted as auditors, have been properly kept in accordance with theprovisions of the Act.

We have considered the financial statements and the Auditors’ Reports thereon of the subsidiary company of which wehave not acted as auditors, as indicated in Note 9 to the financial statements, being financial statements that have beenincluded in the consolidated financial statements.

We are satisfied that the financial statements of the subsidiary companies that have been consolidated with the financialstatements of the Company are in form and content appropriate and proper for the purposes of the preparation of theconsolidated financial statements and we have received satisfactory information and explanations required by us forthose purposes.

The Auditors’ Reports on the financial statements of the subsidiary companies were not subject to any qualification anddid not include any comment required to be made under Section 174(3) of the Companies Act, 1965.

ERNST & YOUNG LEONG CHOOI MAYAF : 0039 1231/03/07 (J)Chartered Accountants Partner

21 & 23 Jalan Hussein,30250 Ipoh,Perak Darul Ridzuan,Malaysia.

11 December 2006

70

BATU KAWAN BERHADShareholding Statistics

at 22 November 2006

AUTHORISED SHARE CAPITAL - RM1,000,000,000ISSUED & FULLY PAID-UP CAPITAL - RM291,375,000 (including 2,223,000 Treasury Shares)CLASS OF SHARES - Ordinary shares of RM1 each fully paidVOTING RIGHTS - One vote per RM1 share

Breakdown of Shareholdings

Range of No. of % of No. of % of Issued Shareholdings Shareholders Shareholders Shares Share Capital ^

1 - 99 33 0.89 1,116 0.00100 - 1,000 1,185 31.96 961,525 0.33

1,001 - 10,000 1,817 49.00 7,060,614 2.4410,001 - 100,000 545 14.70 17,023,711 5.89

100,001 - less than 5% of issued shares 126 3.40 120,022,089 41.515% and above of issued shares 2 0.05 144,082,945 49.83

TOTAL 3,708 100.00 289,152,000 100.00

Thirty Largest Securities Accounts Holders No. of % of Issued

Name Shares Share Capital ^

1. Arusha Enterprise Sdn Bhd 125,836,445 43.522. Lembaga Kemajuan Tanah Persekutuan (FELDA) 18,246,500 6.313. Yeoh Chin Hin Investments Sdn Berhad 10,110,000 3.504. Permodalan Nasional Berhad 10,000,000 3.465. Wan Hin Investments Sdn Berhad 8,821,125 3.056. HSBC Nominees (Tempatan) Sdn Bhd - A/C Heah Seok Yeong Realty Sdn Bhd 7,650,000 2.647. Lee Chan Investments Sdn Berhad 6,061,250 2.108. Yeoh Kean Hua 5,500,000 1.909. Amanah Raya Nominees (Tempatan) Sdn Bhd - Skim Amanah Saham Bumiputera 4,732,400 1.6410. Yeoh Chin Hin 4,207,500 1.4511. Puan Sri Leong Wan Chin 4,206,250 1.4512. Teoh Guat Eng 4,060,125 1.4013. Elionai Sdn Bhd 4,005,500 1.3814. HSBC Nominees (Tempatan) Sdn Bhd - A/C Nomura Asset Management SG for

Employees Provident Fund 3,562,500 1.2315. Elionai Sdn Bhd 2,300,000 0.8016. HSBC Nominees (Tempatan) Sdn Bhd - A/C Heah Seok Yeong Realty Sdn Bhd 2,250,000 0.7817. Malay Rubber Plantations (Malaysia) Sdn Berhad 1,861,500 0.6418. HSBC Nominees (Asing) Sdn Bhd - A/C HSBC SG for Chan U Seek 1,619,250 0.5619. HSBC Nominees (Asing) Sdn Bhd - A/C Exempt An for JP Morgan Chase Bank,

National Association (Jersey) 1,525,300 0.5320. Citigroup Nominees (Asing) Sdn Bhd - A/C CBNY for DFA Emerging Markets Fund 1,493,500 0.5221. Mayban Nominees (Tempatan) Sdn Bhd - A/C Mayban Trustees Berhad for

Public Ittikal Fund 1,432,000 0.5022. Employees Provident Fund Board 1,327,600 0.4623. Meng Hin Holdings Sdn Bhd 1,210,500 0.4224. Wan Yuen Mining Kongsi Sdn Bhd 1,170,000 0.4025. HSBC Nominees (Tempatan) Sdn Bhd - A/C Lee Rubber (Selangor) Sdn Bhd 1,080,000 0.3726. Arusha Enterprise Sdn Bhd 1,000,000 0.3527. Puan Sri Leong Wan Chin 1,000,000 0.3528. HSBC Nominees (Tempatan) Sdn Bhd - A/C Lyne Ching Sdn Bhd 990,000 0.3429. Malay-Sino Formic Acid Sdn Bhd 961,800 0.3330. Amanah Raya Nominees (Tempatan) Sdn Bhd - A/C Public Islamic Dividend Fund 712,100 0.25

TOTAL 238,933,145 82.63

^ Calculated based on 289,152,000 shares which do not include 2,223,000 Treasury Shares.

71

BATU KAWAN BERHADShareholding Statistics (Continued)

at 22 November 2006

Substantial Shareholders

According to the register required to be kept under Section 69L of the Companies Act, 1965, the following are the substantialshareholders of the Company:-

Othershareholdings

Holdings in which % ofregistered shareholder issued

in the name of is deemed shareshareholder interested capital ^

Name (A) (B) (A+B)

1. Wan Hin Investments Sdn Berhad 8,821,125 131,642,245 48.58

2. Arusha Enterprise Sdn Bhd* 127,036,445 4,605,800 45.53

3. Lembaga Kemajuan Tanah Persekutuan (FELDA) 18,246,500 - 6.31

* By virtue of Section 6A of the Companies Act, 1965, all the related companies of Arusha Enterprise Sdn Bhd are alsodeemed substantial shareholders of the Company.

Dato’ Seri Lee Oi Hian and Dato’ Lee Hau Hian are substantial shareholders of Di-Yi Sdn Bhd and High Quest HoldingsSdn Bhd respectively, which in turn are substantial shareholders of Wan Hin Investments Sdn Berhad. Accordingly allthese parties are also deemed substantial shareholders of the Company by virtue of their deemed interests.

^ Calculated based on 289,152,000 shares which do not include 2,223,000 Treasury shares.

Voting Rights of Shareholders

Every member of the Company present in person or by proxy shall have one vote on a show of hands and, in the case of a poll,shall have one vote for every share held.

72

BATU KAWAN BERHADProperties of the Group

at 30 September 2006

Year Age of Date of Net BookLease Buildings Titled Description/ acquisition/ Value

Location Tenure Expiring (Years) Hectareage Existing use revaluation* RM’000

Lot 113, 131, 156, 182, 805, Freehold - - 1.93 Vacant land 14.07.1980* 914109 Simpang Ampat,Seberang Perai Selatan, Penang.

PT No. 40020, Freehold - - 0.57 Construction of 24.11.2003 10,829Mutiara Damansara, office buildingPetaling Jaya, in progressSelangor Darul Ehsan.

Plot 276, Leasehold 2039 21 2.3 Chemicals 06.10.1979 604Pasir Gudang Industrial Estate, factoryPasir Gudang, Johor Darul Takzim.

Lot No 3940, Leasehold 2055 10 4.0 Chemicals 27.12.1995 2,261Kawasan Perindustrian Teluk Kalung, factoryMukim Teluk Kalung, Kemaman,Terengganu Darul Iman.


Lot No 5441, Leasehold 2056 - 0.9 Acid pipeline 03.09.2003 129Kawasan Perindustrian Teluk Kalung,Mukim Teluk Kalung, Kemaman,Terengganu Darul Iman.

Lot No 110, Freehold - - 1.23 Vacant 26.06.1995 1,846PT16769 Mukim Sentul, industrial landPhase 3, Arab-Malaysian Industrial Park,Nilai, Negeri Sembilan Darul Khusus.

Lot No 4735, Leasehold 2025 - 5.0 Vacant 01.01.1996 2,650Kawasan Perindustrian Teluk Kalung, industrial landMukim Teluk Kalung, Kemaman,Terengganu Darul Iman.

Lot 70810, 70811, Leasehold 2074 30 5.46 Chemicals 11.03.1996* 4,4724.5 Miles, Jalan Lahat, factoryIpoh, Perak Darul Ridzuan.

Lot 541, Leasehold 2087 17 1.21 Industrial land 21.03.1996* 1,442Plot 7, Kg Acheh Industrial Estate, with warehouseSitiawan, Perak Darul Ridzuan.

Lot PT 4406, Leasehold 2056 8 6.13 Chemicals 25.08.1996 12,325Kawasan Perindustrian Teluk Kalung, factoryMukim Teluk Kalung, Kemaman,Terengganu Darul Iman.


Plot 6, Kg Acheh Industrial Estate, Leasehold 2093 11 0.43 Industrial land 21.03.1996* 662Sitiawan, Perak Darul Ridzuan. with warehouse

PT. 115637-115639, Leasehold 2092 11 1.44 Land with office 21.03.1996* 1,150Zarib Industrial Park, building andOff Jalan Lahat-Simpang Pulai, workshopLahat, Ipoh, Perak Darul Ridzuan.

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BATU KAWAN BERHAD(6292-U)

(Incorporated in Malaysia)

Proxy Form

I/We .............................................................................................................................................................................................(Block Letters)

of ............................................................................................................................................................................................

being a member of BATU KAWAN BERHAD hereby appoint....................................................................................................

................................................................................................................ NRIC/Passport No: ................................................

or failing him, THE CHAIRMAN OF THE MEETING as my/our proxy to vote for me/us and on my/our behalf at the Annual GeneralMeeting of the Company to be held at Wisma Taiko, 1, Jalan S. P. Seenivasagam, 30000 Ipoh, Perak Darul Ridzuan, onWednesday, 14 February 2007 at 2.15 p.m. or at any adjournment thereof, and to vote as indicated below:-

Please indicatewith ( / ) howyou wish yourvote to be cast

Date .................................................................

No. of Shares Held ............................................

CDS A/C No. .....................................................

Notes:-

(1) A member of the Company entitled to attend and vote at the meeting is entitled to appoint a proxy or not more than twoproxies to vote in his stead. A proxy need not be a member of the Company.

(2) The instrument appointing a proxy must be deposited at the Registered Office of the Company not less than 48 hours beforethe time set for the meeting.

(3) Where this proxy form is executed by a corporation, it must be either under its seal or under the hand of an officer or attorneyduly authorised.

(4) In the case of joint holders, the proxy form signed by the first named shareholder in the register shall be accepted to theexclusion of the other registered joint holder(s) of the shares.

(5) If neither ”for” nor “against” is indicated above, the proxy will vote or abstain as he thinks fit.

Resolution

1. Adoption of Report and Financial Statements

2. Sanction the payment of a Final Dividend and a Special Dividend

Re-election of Directors:-

3. Dato’ Lee Hau Hian

4. Dato’ Lee Soon Hian

Re-appointment of Directors pursuant to Section 129(6), Companies

Act, 1965:-

5. R.M. Alias

6. Tan Sri Dato’ Thong Yaw Hong

7. Approve the payment of Directors’ fees

8. Re-appointment of Messrs. Ernst & Young as Auditors and to authorisethe Directors to fix their remuneration

9. Proposed Authority to Buy Back its Own Shares by the Company

10. Proposed Shareholders’ Mandate for Recurrent Related PartyTransactions of a Revenue or Trading Nature.

Relating to:- For Against

................................................................... Signature of Shareholder

The Company Secretaries,

Batu Kawan Berhad,

Wisma Taiko,

1, Jalan S. P. Seenivasagam,

30000 Ipoh, Perak Darul Ridzuan,

Malaysia.

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STAMP

Documents

ANNUAL REPORT FOR THE YEAR ENDED 30 … REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2006 Page Notice of Annual General Meeting 1 - 3 Notis Mesyuarat Agung Tahunan 4 - 6 Corporate Information