1 ZARFARIE BINTI ARON (195645) COMPANY: LONDON BISUITS BERHAD PART I: BACKGROUND of COMPANIES 1.1 Main Activity A home grown Malaysian company, London Biscuits Berhad Group’s main business philosophy hinges on manufacturing and marketing cakes and snack food which score high in terms of product safety and quality. The company strongly believes that this is the only way to ensure the customer satisfaction and loyalty to the product and the brand it embodies. London Biscuits’ individually packed and ready to eat products can be divided into 2 main categories namely: i. Corn based snacks ii. Cake products such as Swiss Rolls, iii. Pie Cakes and Layer Cakes In addition, London Biscuits also manufactures range assorted chocolate confectionery including chocolate-coated peanuts and biscuits, pancake cookies, jelly and puddings, wafer sticks, cup sticks and snack noodles.
2 ZARFARIE BINTI ARON (195645) 1.2 Director’s Interest According to the register of directors shareholdings, the interest of directors in office at the end of the financial year in shares of the Company and related corporations during the financial year ended 30th June, 2010 are follows:- Numbers of ordinary shares of RM1 eachShares in the company Balance at Bought Sold Balance at 1.7.2009 30.6.2010Dato Sri Liew Kuek Hin, SSAP, DIMP, PJK, JP(Chairman, Non-Executive, Non-IndependentDirector)- direct 1,510,250 - 1,510,000 250- indirect 35,892,433 1,979,300 - 37,871,733Datin Sri Lim Yook Lan(Non-Executive, Non-Independent Director)- direct 224,487 - - 224,487- indirect 37,178,196 1,979,300 1,510,000 37,647,496Dato’ Sri Liew Yew Chung, SSAP, DIMP(Group Managing Director/ Group CEO)- direct 1,631,785 - - 1,631,785- indirect 35,770,898 1,979,300 1,510,000 36,240,198Dato’ Liew Yew Cheng, DIMP(Non-Executive, Non-Independent Director)- direct 75,231 - - 75,231- indirect 37,327,452 1,979,300 1,510,000 37,796,752Liew Yet Mei(Non-Executive, Non-Independent Director)- direct 39,671 - - 39,671- indirect 37,363,012 1,979,300 1,510,000 37,832,312Dato’ Liew Yet Lee, DIMP(Non-Executive, Non-Independent Director)- direct 39,671 - - 39,671- indirect 37,363,012 1,979,300 1,510,000 37,832,312Dato Cheong Siew Kai, DJMK, AMS, JP(Independent Non-Executive Director)- direct - - - -- indirect - - - -Huang Yan Teo, PIS, PPN(Independent Non-Executive Director)- direct - - - -- indirect - - - -Leslie Looi Meng(Independent Non-Executive Director)- direct - - - -- indirect - - - -
3 ZARFARIE BINTI ARON (195645) 1.3 Boards of Director 1. Dato’ Sri Liew Kuek Hin, SSAP, DIMP, PJK, JP Malaysian, aged 71 Non-Independent Non-Executive Chairman 2. Datin Sri Lim Yook Lan Malaysian, aged 71 Non-Independent Non-Executive Director 3. Dato’ Sri Liew Yew Chung, SSAP, DIMP Malaysian, aged 40 Group Managing Director/Group CEO 4. Dato’ Liew Yew Cheng, DIMP Malaysian, aged 37 Non-Independent Non-Executive Director 5. Liew Yet Mei Malaysian, aged 43 Non-Independent Non-Executive Director 6. Dato’ Liew Yet Lee, DIMP Malaysian, aged 36 Non-Independent Non-Executive Director 7. Dato’ Cheong Siew Kai, DJMK, AMS, JP Malaysian, aged 72 Independent Non-Executive Director 8. Huang Yan Teo, PIS, PPN Malaysian, aged 63 Independent Non-Executive Director
4 ZARFARIE BINTI ARON (195645) 9. Leslie Looi Meng Malaysian, aged 40 Independent Non-Executive Director 1.4 Chairman Messages 1.4.1 Review of Performance Group’s revenue for the financial year ended 30 June 2010 surged by RM39, 131,998 to RM223,434,122, which represented a 21.23% increase over that achieved in the preceding year of RM184,302,124. The Group continues to achieve commendable progressive operating revenue. Internal targets set for management to go all out, not only to sustain our current achievements but to improve substantially on it. Profit After Income Tax attributable to the Group fell slightly by 6% to RM15, 064,018 as compared to RM16, 027,316 achieved in the previous year. This is because the Group “suffered” a slight hiccup of having had to write off certain amount against our investment in Lay Hong Berhad in the year under review. If not for this mentioned write off, the Group would have met our internal target of approximately RM20, 000,000 profits for the year under review. The Board deliberated on this writes off and are of unanimous opinion to allow for this painful stand as a matter of prudence and good accounting policy. With this behind us, we now move forward exciting. Like an old Chinese saying goes, “BITTER FIRST, SWEET TASTE LATER”. Although the world is still in midst of global economic crisis, with ever rising cost of production and against pressure from competitors and consumers pricing. Profit After Income Tax went up by 61.6% from RM8, 422,511 to RM13,610,392. The basic net earnings per share of the Group for the financial year, 2010 fell accordingly to 17.31sen (2009 – 20.54sen), based on the weighted average number of 96,031,500 ordinary shares (2009 – 78,045,000) of RM1 each, in issue as at 30 June 2010.
5 ZARFARIE BINTI ARON (195645) As at 30 June 2010, Group’s shareholders’ equity stood at RM199, 330,061 (2009 - RM168, 662,503 ) whilst Group’s net tangible assets per share fell to RM1.94 in 2010 from RM2.00 per share in 2009. 1.4.3. Dividends Difficult trading and business conditions and environment are still in year, ahead. The Board is always constantly on the workout for a solution to conserve financial resources of the Group to meet capital, operating and investing expenditure and at same time to reward our shareholders for their faith, support and loyalty to the Group. This is the stance that your Board has adopted consistently over the years. We have work out a “Win-Win” formulation that should ensure a steady cash flow for the Group’s requirements at same time, able to service our dividends to shareholders in an orderly manner in line with an improvement in our resources. The Board has already declared an interim dividend of 1.5 sen (tax-exempt) per share in respect of the financial year ended 30 June 2010, amounting to RM1,440,203, which will be paid, by month end, on 26 November 2010. 1.5 Corporate Chart London Biscuits Berhad Group of Companies 32.87% 33.65% 100% 100% 100% 100% 100% Khee San Food Teck Pimg Chan Industries Sdn. Bhd. Kinos Food Trading Agriculture Sdn. Teck Ping Chan Sdn. Bhd Bhd. (1976) 100% Sdn. Bhd. 100% 100% Khee San Marketing Sdn. Bhd. Kim Choaw Sdn. Mestika Arif Bhd, Sdn. Bhd.
6 ZARFARIE BINTI ARON (195645) 1.6 Graphs for Five Years Group Financial Highlight. 1.6.1. Profit After Income Tax Attributable to Equity Holders of the Company 25,000.00 20,000.00 15,000.00 RM 10,000.00 5,000.00 - 2010 2009 2008 2007 2006 YEAR 1.6.2. Earnings Per Share (sen) (Fully diluted) 30 25 20 RM 15 10 5 0 2010 2009 2008 2007 2006 YEAR 1.6.3. Shareholers Fund 250,000.00 200,000.00 150,000.00 100,000.00 Shareholers Fund 50,000.00 - 2010 2009 2008 2007 2006
7 ZARFARIE BINTI ARON (195645) PART II: COMPLIANCE with FRSs 2.1. FRS 3: Business Combination The consolidated financial statements of this company include the financial statements of their company and its subsidiary companies made up to the balance sheet date using the purchase method of accounting. Under this method, the results of the subsidiary companies acquired are included in the consolidated financial statements from the dates of acquisition. Any excess of the cost of the acquisition over the Group’s interest in the net fair value of identifiable assets, liabilities and contingent liabilities represents goodwill. Any excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognised immediately in income statement. All inter-company balances and transactions are eliminated on consolidation and the consolidated financial statements reflect external transactions only. This company has followed FRS 3, the consolidated financial statements and consolidated balance sheet of this company can refer to page 39 – 44 in Annual Report London Biscuits Berhad. 2.2. FRS 117: Leases i) Finance Leases If the assets acquired by way of finance leases are stated at an amount equal to the lower of their fair values and the present value of the minimum lease payments at the inception of the leases, less accumulated depreciation and impairment losses. The corresponding liability is included in the balance sheet as borrowings. In calculating the present value of the minimum lease payments, the discount factor used is the interest rate implicit in the lease, when it is practicable to determine, otherwise, the Group’s or Companys incremental borrowing rate is used. Any initial direct costs are also added to the carrying amount of such assets.
8 ZARFARIE BINTI ARON (195645) According to the company, lease payments are apportioned between the finance costs and the reduction of the outstanding liability. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are recognised in income statement over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Subsequent to recognition, property, plant and equipment are stated at cost as modified by the revaluation of certain freehold land and buildings and certain plant and machinery less accumulated depreciation and accumulated impairment loss, if any. No depreciation is provided on freehold land, freehold land and buildings-in- progress and plant and machinery under installation. All other property, plant and equipment are depreciated on a straight line basis to write off the cost of each asset to their residual value over the estimated useful lives of the assets concerned. The principal annual rates used are as follows:- Freehold buildings 1% Plant & machinery 5% Plant and machinery at group cost 6 2/3% Motor vehicles 20% Furniture & fittings 10% Office & laboratory equipment 10% Renovations & electrical fittings 10% The Group and Company adopts a policy to revalue its freehold land and buildings every 5 years from the date of last revaluation. Surplus arising from revaluation is credited directly to revaluation reserve. Deficit in excess of the revaluation reserve arising from previous revaluation is taken to the income statement.
9 ZARFARIE BINTI ARON (195645) The residual value, useful life and depreciation method are reviewed at each financial year end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. The difference between the net disposal proceeds, if any and the net carrying amount is recognised in income statement. Refer to note to the account no.3 in the page 59 – 60 in London Biscuits Berhad Annual Report, see how this company discloses depreciation of assets in their income statement and balance sheet. ii) Operating Leases Operating lease payments are recognised as an expense on a straight-line basis over the term of the relevant lease. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis. In the case of a lease of land and buildings, the minimum lease payments or the up-front payments made are allocated, whenever necessary, between the land and the buildings elements in proportion to the relative fair values for leasehold interests in the land element and buildings element of the lease at the inception of the lease. The up-front payment represents prepaid lease payments and are amortised on a straight-line basis over the lease terms. Refer to the note account no.25 Lease Commitment Group and Company 2010 2009 RM RM Within 1 year 1,526,052 - Between 1 to 5 years 4,252,844 - 5,778,896 -
10 ZARFARIE BINTI ARON (195645) Refer Note to the Account no.4 Prepaid Lease Payments Group 2010 2009 RM RM At group cost: At 1st July 6,377,900 6,373,590 Addittion 29,930 182,362 Ammortisation for the year (180,559) (178,052) At 30th June 6,227,271 6,377,900 The leasehold properties of the subsidiaries were revalued by a firm of professional valuers Messrs Colliers Jordan Lee & Jaafar in financial year ended 30th June, 2005. Had the leasehold land and buildings been carried at historical cost less accumulated amortisation the carrying amount of the revalued assets as at 30th June, 2010 would be as follows : 2010 2009 Group RM RM Leasehold land and buildings 4,046,211 4,106,365 2.3. FRS 128: Investment in Association Refer to note to the account no.7 Interest Associated CompaniesGroup 2010 2009 Cost Market Value Cost Market Value (RM) (RM) (RM) (RM)Quated shares in Malaysia, at cost 20,312,210 12,088,798 20,312,210 12,088,798
11 ZARFARIE BINTI ARON (195645) Distibution of dividend (106,614) - (106,614) - Impaiment of assets (4,545,126) - (130,424) - Share of profit in associated Companies 4,571,790 2,433,172 - - 20,232,60 14,521,970 20,075,172 12,088,798 Market value 15940,982 7,960,540 15,940,982 7,960,540 The associated companies, incorporated in Malaysia, are as follows:- EffectiveName of Company Equity Interest Principal Activities 2010 2009 % %Lay Hong Berhad 24.59 24.59 Poultry farming and related activities and liquid eggs processingTPC Plus Berhad 33.65 - Poultry farming and related activities and liquid eggs processing As disclosed in Note 29(i) to the Financial Statements, the Company had as announced on Bursa Malaysia Securities Berhad on 23rd August, 2010, the Company, had disposed of its entire equity interest in Lay Hong Berhad, its associated company in the open market and via off market transactions on a willing buyer willing seller basis for a total consideration of RM11, 851,760, resulting in an impairment on this investment of RM4, 545,126 to the Group. This company also complies with this FRS which dislose the leases in their income statement and balance sheet. 2.4. FRS 136: Impairment of Assets The carrying values of assets in London Biscuits Berhad, other than inventories, are reviewed for impairment when there is an indication that the assets might be impaired. Impairment is
12 ZARFARIE BINTI ARON (195645) measured by comparing the carrying values of the assets with their recoverable amounts. An impairment loss is charged to the income statement immediately unless the asset is carried at revalued amount. Any impairment loss of a revalued asset is treated as a revaluation decrease to the extent of previously recognised revaluation surplus for the same asset. Subsequent increase in the recoverable amount of an asset is treated as reversal of the previous impairment loss and is recognised to the extent of the carrying amount of the asset that would have been determined (net of depreciation) had no impairment loss been recognised. The reversal is recognised in the income statement immediately, unless the asset is carried at revalued amount. A reversal of an impairment loss on a revalued asset is credited directly to revaluation surplus. However, to the extent that an impairment loss on the same revalued asset was previously recognised as an expense in the income statement, a reversal of that impairment loss is recognised as income in the income statement. Refer to note to the account no.20 2.5. FRS 138: Intangible Assets (i) Goodwill on Consolidation Goodwill on consolidation represents the excess of the fair value of the purchase consideration over the Groups share of the fair values of the identifiable net assets of subsidiaries at the date of acquisition. Goodwill on consolidation is retained in the consolidated balance sheet. The carrying amount of the goodwill is reviewed annually and is written down for impairment where it is considered necessary. The impairment value of goodwill is taken to the consolidated income statement. If after reassessment, the Groups interest in the fair values of the identifiable net assets of the subsidiaries exceeds the cost of the business combinations, the excess is recognised immediately in the consolidated income statement.
13 ZARFARIE BINTI ARON (195645) Refer to note to the account no.9 (i) 2010 2009 RM RM Goodwill consolidation 11,568,174 4,714,098 Less: Accumulated amortization (508,627) (508,627) At 1st July 11,059,547 4,205,471 Add: Arising from investment in subsidiary companies - 6,854,076 At 30th June 11,059,547 11,059,547 (ii) Other Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair values as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised on a straight- line basis over the estimated economic useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each balance sheet date. Intangible assets with indefinite useful lives are not amortised but tested for impairment annually or more frequently if the events or changes in circumstances indicate that the carrying value may be impaired either individually or at the cash- generating unit level. The useful life of an intangible asset with an indefinite life is also reviewed annually to determine whether the useful life assessment continues to be supportable.
14 ZARFARIE BINTI ARON (195645) Refer to note to the account no.9 (ii) 2010 2009 Group RM RM Leasehold land and buildings 4,046,211 4,106,365 2.6. FRS 140: Investment Properties Investment properties are properties held either to earn rental income or for capital appreciation or for both. Gain or losses arising from changes in the fair values of investment properties are included in the income statement in the year in which they arise. Investment properties are derecognised when they have either been disposed of or when the investment property is permanently withdrawn from use and no future benefit is expected from its disposal. On the derecognition of an investment property, the difference between the net disposal proceeds and the carrying amount is charged to the income statement; any amount in the revaluation reserve relating to the investment property is transferred to retained earnings. Refer to note to the account no.5 Investment Properties 2010 2009 Group RM RM th Fair Value, at 30 June 3,410,000 3,410,000
15 ZARFARIE BINTI ARON (195645) Note to the account no.20 GROUP COMPANYProfit before income tax is arrived at after 2010 2009 2010 2009charging (crediting) RM RM RM RMAuditors’ remuneration 250,000 204,000 150,000 120,000Directors remuneration- Fees- current directors 290,150 280,500 118,000 108,000- past directors 10,613 - -- Salaries and allowances 1,569,700 1,541,700 1,569,700 1,541,700- Attendance allowances 69,000 65,000 69,000 65,000Rental of premises 337,796 512,054 223,376 230,404Rental of motor vehicles 607,411 - 284,536 -Rental of equipment 10,920 10,920 - -Staff costs 15,220,299 15,499,778 6,761,631 6,012,757Depreciation (Note 3) 9,865,174 8,243,295 6,283,940 6,039,299Property, plant & equipmentwritten off - 267,726 - -Unrealised loss on foreign exchange 6,509 171,143 - -Amortisation of prepaid leasepayments (Note 4) 180,559 178,052 - -Impairment loss on investments 4,774,668 3,745,501 359,966 3,790,915Allowance for doubtful debts 456,258 50,824 - -Lease rental 785,618 - 785,618 -Workers’ quarters rental 30,470 - - -Dividend paid - - 2,617,500 -Allowance for doubtful debtsno longer required - (13,992) - (13,992)Gain on disposal of investments (46,636) (53,394) - (53,394)Realised gain on foreign exchange (1,263,973) (1,727,569) (413,761) (816,682)Finance cost:Interest paid for:-- Bank overdrafts 1,216,569 1,313,761 841,368 1,012,820- Hire-purchase 2,206,022 1,350,610 1,440,580 1,069,445- Term loans 2,366,547 4,973,311 2,366,547 4,973,311- Bankers acceptances 2,037,516 2,068,774 1,188,468 1,714,203- Revolving credit 170,346 779,954 - 589,916- Others 195,781 48,849 195,781 48,849 8,192,781 10,535,259 6,032,744 9,408,544Rental income (232,800) (232,546) - -Gain on disposal of property,
16 ZARFARIE BINTI ARON (195645)plant and equipment (876,011) (1,095,667) (876,010) (1,095,667)Dividend from Malaysianquoted investments (gross) (247,404) (12,925) (247,404) (675)Interest income- Fixed and short term deposits (19,642) (67,449) (19,642) (67,449)- Other interest (19,812) (65,961) - -