Annual Report

PROTON Holdings Berhad
(Company No. 623177-A)
ANNUAL REPORT 2006
o u r H E R I TA G E
ourBRANDS
ourFUTURE
c o n t e n t s
1 2 3 4 6 8 10 12 14 22 26 36 46 Corporate Mantra & Core Values Financial Calendar Key Financial Indicators Summary of Financial Highlights for Five Years Corporate Profile Awards & Recognition Corporate Information Group Operations Profile of Directors Senior Management Chairmans Statement An Interview with the Managing Director Operations Review 74 87 88 92 94 102 177 180 187 188 190 Statement on Corporate Governance Additional Compliance Information Statement on Internal Control Risk Management Calendar of Events 2005-2006 Statutory Financial Statements Shareholdings Statistics Properties Owned by PROTON Group Share Price and Volume Traded Notice of Annual General Meeting Statement Accompanying the Notice of Annual General Meeting Form of Proxy
THE PROTON WAY

PROTON employees are dedicated to the Groups long-term success. Every PROTON employee shall operate under the Groups shared values and rely on these values to guide their behaviour with each other and the customers. These values form the foundation of how we work and conduct business.
ANNUAL REPORT 2006
Corporate Mantra & Core Values
CORE ideology
AUDACIOUS GOAL
Driving Malaysias transformation into a leader in technology and quality.
CORE values
QUALITY
We make products that work first time, every time.
TEAMWORK
We trust, respect and share knowledge to foster teamwork at the workplace.
VIVID DESCRIPTION
We deliver innovative and superior quality products and services. Our brands inspire confidence and pride.
CUSTOMER FOCUS
Customers are the source of our income. We deliver on our promises to customers satisfaction.
SPEED
We have a can-do attitude and will not rest until the problem is solved. We have an inherent sense of urgency in everything we do.
PURPOSE
We are a passionate group of people working together, creating exhilarating products and services for global markets, synonymous with great styling, innovation and leading technology.
INNOVATION
We challenge convention, always seeking new and better ways to do things. We view change as opportunity.
CARING
As a responsible corporate citizen, we invest in safety, health and the environment.
FINANCIAL CALENDAR
PROTON HOLDINGS BERHAD
EVENTS
DATE
Unaudited First (1st) Quarter results for the period ended 30 June 2005 Second (2nd) Annual General Meeting Entitlement date for the tax exempt final dividend of 10% for the financial year ended 31 March 2005 Payment of the tax exempt final dividend of 10% for the financial year ended 31 March 2005 Unaudited Second (2nd) Quarter results for the period ended 30 September 2005 Unaudited Third (3rd) Quarter results for the period ended 31 December 2005 Unaudited Fourth (4th) Quarter results for the period ended 31 March 2006 Third (3rd) Annual General Meeting Extraordinary General Meeting Entitlement date for the tax exempt final dividend of 5 sen for the financial year ended 31 March 2006 Payment of the tax exempt final dividend of 5 sen for the financial year ended 31 March 2006
30/08/2005 28/09/2005 07/10/2005 28/10/2005 29/11/2005 27/02/2006 30/05/2006 08/09/2006 08/09/2006 14/09/2006 18/10/2006
2002 78.7 87.9 93.3 137.3 54.9 2006 2005 2004 92.9 80.6 8.5 2003 197.7 216.1 2003 2004 2005 2006
2002
KEY FINANCIAL INDICATORS
DIVIDEND PAID
(RMMillion) (Sen) 2002 2003 2004 2005 2006 3,197.2 4,195.1 4,611.8 4,916.9 2002 7.73
BASIC EARNINGS PER SHARE NET ASSETS

(RM) 2003 2004 2005 9.41 10.14 10.67
RETAINED PROFITS CARRIED FORWARD

(RMMillion)
4,908.8
2006
10.69
ANNUAL REPORT 2006
SUMMARY OF FINANCIAL HIGHLIGHTS FOR FIVE YEARS

BALANCE SHEET AS AT 31 MARCH

(RM Million) 2006 2005 (restated) 2004 (restated) 2003 (restated) 2002 (restated)
Current Assets Inventories Receivables Short term investments Deposits, bank and cash balances
1,389.0 1,244.0 212.0 1,586.0 4,431.0
967.1 1,403.2 201.5 2,454.7 5,026.5
795.8 930.0 182.0 2,877.4 4,785.2
813.6 822.5 166.4 3,713.7 5,516.2
689.4 871.5 185.0 3,591.8 5,337.7
Current Liabilities Payables Taxation
2,324.2 16.9 2,341.1
2,207.4 2.6 2,210.0 2,816.5 3,313.3 162.0 255.4 6.3 (760.7) (0.3) 38.4 29.0 5,859.9
1,900.5 140.3 2,040.8 2,744.4 2,908.4 170.1 110.7 6.3 (447.4) 0.0 45.5 29.0 5,567.0
2,438.4 192.3 2,630.7 2,885.5 2,221.4 146.9 75.2 6.3 (222.3) (1.6) 25.7 29.0 5,166.1
2,231.1 272.2 2,503.3 2,834.4 1,703.1 89.3 59.0 6.3 (509.8) (1.5) (10.0) 29.0 4,199.8
Net current assets Property, plant and equipment Associated companies Jointly controlled entities Other long term investments Long term liabilities Minority interest Deferred tax assets Goodwill
2,089.9 3,330.9 155.7 249.9 10.4 (101.0) 0.0 105.8 29.0 5,870.6
Shareholders Funds Share capital Other reserves Retained profits
549.2 412.7 4,908.7 5,870.6
549.2 393.8 4,916.9 5,859.9
549.2 406.0 4,611.8 5,567.0
549.2 421.8 4,195.1 5,166.1
543.1 459.5 3,197.2 4,199.8
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ANNUAL REPORT 2006
INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH

(RM Million) Revenue 2006 7,796.9 2005 8,483.3 2004 6,361.2 2003 9,133.5 2002 10,169.2
Profit before taxation Profit after taxation Retained profit attributable to shareholders Dividend Retained profit carried forward
28.1 46.7 4,963.6 (54.9) 4,908.7
412.3 442.4 5,054.2 (137.3) 4,916.9
576.7 510.3 4,705.1 (93.3) 4,611.8
1,326.9 1,086.0 4,283.0 (87.9) 4,195.1
1,495.7 1,173.7 3,275.9 (78.7) 3,197.2
SHARE INFORMATION
2006 Per share Basic earnings (sen) Tax-exempt dividend paid Net assets Issued share capital 2005 2004 2003 2002
8.5 10.0 10.69 549,213
80.6 25.0 10.67 549,213
92.9 17.0 10.14 549,213
197.7 16.0 9.41 549,213
216.1 14.5 7.73 543,144
* Comparatives have been restated to conform with current years presentation and prior year adjustment arising from certain changes in accounting policies.
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Corporate
PROFILE
PROTON was established on 7 May 1983

as a private limited company under the name Perusahaan Otomobil Nasional Sdn. Bhd. (PONSB) and was subsequently listed on the Main Board of the then Kuala Lumpur Stock Exchange (now Bursa Malaysia Securities Berhad) on 26 March 1992 as Perusahaan Otomobil Nasional Berhad (PONB). PROTON Holdings Berhad (PHB) which was incorporated on 28 July 2003 assumed the listing status of PONB on 16 April 2004 pursuant to a Scheme of Arrangement under Section 176 of the Companies Act 1965.
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ANNUAL REPORT 2006
PROTON has three primary national policy objectives: To spear head the development of component manufacturing industries, To acquire and upgrade technology and industrial skills within the automotive manufacturing industry, and To strengthen the inter national competitiveness of Malaysias industrial capability. PROTON commands a substantial share of the domestic market for passenger cars and over the years has been building up distribution networks in key market centres across these four regions: United Kingdom, The Middle East, South-East Asia, and Australasia.
versatile Arena/Jumbuck, the fun-to-drive Savvy and the desirable sporty Satria Neo. PROTON Groups portfolio also includes the world-renown sports cars Lotus Elise, Lotus Esprit and the recently launched Lotus Europa. These cars are manufactured in Malaysia and the United Kingdom. PROTON Group conducts research in its centres in the United Kingdom and Malaysia for new technologies with the ultimate aim of putting these innovations into production through partnership with T ier One Suppliers of OEM customers. A number of these patents have been licensed to leading car manufacturers. Currently, PROTON Group has almost 11,000 employees who are involved in a spectrum of business ranging from research, design, development, testing, stamping, casting, machining and assembly to marketing, distribution and aftersales activities. Strong customer-orientation and competitively-priced products are the foundation of PROTONs business and are essential to the groups success. PROTON aims to maintain market leadership by continuing to develop innovative products and through satisfying its customers in a better and more profitable way than its competitors.
The business of the PROTON Group has been expanded to include engineering consultancy, manufacturing, distribution, financial services and property investments. With a turnover of almost RM8 billion in financial year 2005/2006, PROTON Group is one of the largest companies listed on Bursa Malaysia Securities Berhad. PROTON Group designs and produces cars for diverse consumer preferences. The portfolio of PROTON models includes the family sedan Waja, the stylish Gen.2, the
AWARDS & RECOGNITION

Recognition
Awards&
2006
2004

2002
Readers Digest Trusted Brand 2006 Gold Award for Car Category. Nanyang Siang Paus 2006 Chinese New Year Greeting Advertisement Award Full Color Category 5th Runner Up.
Malaysia Best Brand Award. National Creativity & Innovation Award 2004. *Proton WAJA 4.5 stars out of 5 star rating for being the Most Economical and Greenest Sedan in Australia.
Best Landscape Competition (Second Place Factory Category). Appreciation Award for Contribution to the development of Malaysian Motorsports for 2002. KPMG/The Edge Shareholder Value Award 2002 Sectoral Winner Industrial Market. The award measured economic profit as a percentage of invested capital. Highest Increase in Turnover Award among companies listed on the Kuala Lumpur Stock Exchange for financial year 2002-2003. Motor vehicles and transport equipment sector leader award among the top 1,000 Malaysian companies.
2005
Readers Digest Super Brand 2005 Gold Award for Car Category. Merdeka Millennium Endurance Race 2005 1st place Overall and Class O Winner. Malaysian Rally Championship 2005 Overall class Winner P10 Category.
2003
Industry Excellence Award 2003, Quality management category III. Industry Excellence Award 2003. Best Landscape Competition (First Place Factory Category).

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ANNUAL REPORT 2006
As testimony to our efforts in leading the Malaysian automotive industry as well as making inroads in branding and motor sports, PROTON received the following awards and accolades from various organisations:
Highest Increase in Net Profit Award among companies listed on the Kuala Lumpur Stock Exchange for financial year 2002-2003.
PROTON was also appreciated for its contributions to various national causes and its support of community events by the following organisations:
Special Membership Certificate to commemorate the Malaysian Industry-Government Group for High Technologys 10th Anniversary. Certificate of Appreciation in conjunction with QDay by the Ministry of Cooperation and Entrepreneur Development. Certificate of Appreciation for the support of the Karnival Kulim Hi-Tech Park. Support of the International CEOs Conference 2005 Global issues and challenges facing Asian corporations. Certificate of Appreciation for the National Anti-Drug Campaign.
2001
2006
Certificate of Merit for 2001 NACRA Award. Appreciation Award for sponsoring Le Tour de Langkawi 2001 event. Superbrand Award for Automotive sector for year 2001.
Certificate of Appreciation from the Badminton Association of Malaysia for the Badminton Melayu Malaysia Piala DYMM Sultan-Sultan ke-50 tournament.
2005
1999
Satria GTI Wheels Magazine Best Hot Hatch Buy Year 1999.
Certificate of Appreciation for the production of the Kelantan Royal Project 2005 special documentary.
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Information
BOARD OF DIRECTORS

Corporate
Dato Mohammed Azlan bin Hashim (Chairman) Syed Zainal Abidin bin Syed Mohamed Tahir Lt. Gen (R) Dato Seri Mohamed Daud bin Abu Bakar Abdul Jabbar bin Abdul Majid Badrul Feisal bin Abdul Rahim Mohammad Zainal bin Shaari Abdul Kadir bin Md Kassim Dato Ahmad bin Haji Hashim Dato Haji Abd. Rahim bin Haji Abdul Tengku Tan Sri Dr. Mahaleel bin Tengku Ariff Datuk Kisai bin Rahmat
(appointed on 26 October 2005) (resigned w.e.f. 2 September 2005) (retired w.e.f. 30 September 2005) (appointed on 1 January 2006) (resigned w.e.f. 31 July 2006) (appointed on 1 January 2006)
CORPORATE INFORMATION
ANNUAL REPORT 2006
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BOARD AUDIT COMMITTEE

Abdul Jabbar bin Abdul Majid Chairman Mohammad Zainal bin Shaari Abdul Kadir bin Md Kassim
BOARD RISK MANAGEMENT COMMITTEE

Abdul Kadir bin Md Kassim Chairman Md Ali bin Md Dewal Badrul Feisal bin Abdul Rahim
AUDITORS
PricewaterhouseCoopers (Chartered Accountants) 11th Floor, Wisma Sime Darby Jalan Raja Laut, P.O. Box 10192 50706 Kuala Lumpur Tel : 03-2693 1077 Fax : 03-2693 0997
BOARD NOMINATION COMMITTEE

Dato Mohammed Azlan bin Hashim Chairman Lt. Gen (R) Dato Seri Mohamed Daud bin Abu Bakar Abdul Jabbar bin Abdul Majid Badrul Feisal bin Abdul Rahim Abdul Kadir bin Md Kassim
Datuk Tan Kim Leong

(appointed on 29 August 2005)
Dato Michael Lim Heen Peok

REGISTERED OFFICE
HICOM Industrial Estate Batu Tiga 40000 Shah Alam Tel : 03-8026 9741 Fax : 03-8026 9744
Abdul Jabbar bin Abdul Majid

(resigned w.e.f. 29 August 2005)
Lt. Gen (R) Dato Seri Mohamed Daud bin Abu Bakar
REGISTRAR BOARD EXECUTIVE COMMITTEE BOARD REMUNERATION COMMITTEE

Badrul Feisal bin Abdul Rahim Chairman Abdul Jabbar bin Abdul Majid Ahmad Tajuddin bin Abdul Carrim
(appointed on 29 August 2005) (Established on 1 January 2006) (Disbanded w.e.f. 30 June 2006)
Dato Mohammed Azlan bin Hashim Chairman Syed Zainal Abidin bin Syed Mohamed Tahir Datuk Kisai bin Rahmat Badrul Feisal bin Abdul Rahim
Tenaga Koperat Sdn. Bhd. 20th Floor, Plaza Permata Jalan Kampar, Off Jalan Tun Razak 50400 Kuala Lumpur Tel : 03-4041 6522 Fax : 03-4042 6352
Md Ali bin Md Dewal

STOCK EXCHANGE LISTING

Main Board of Bursa Malaysia Securities Berhad
Mohammad Zainal bin Shaari

COMPANY SECRETARY
Mohd Nizamuddin bin Mokhtar (LS 006128)
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GROUP OPERATIONS
ENGINEERING SERVICES DIVISION

LOTUS ADVANCE TECHNOLOGIES SDN. BHD. (100%)
PROTON ENGINEERING RESEARCH TECHNOLOGY SDN. BHD. (100%)
Marco Acquisition Corporation (USA) (100%)
MIYAZU (MALAYSIA) SDN. BHD. (51%) LOTUS GROUP INTERNATIONAL LIMITED (100%)
MANUFACTURING DIVISION
PROTON TANJUNG MALIM SDN. BHD. (100%) PERUSAHAAN OTOMOBIL NASIONAL SDN. BHD. (100%)
Group Lotus Plc. (100%) Lotus Cars Ltd. (100%) Lotus Engineering Ltd. (100%) Lotus Engineering (M) Sdn. Bhd. (100%) Lotus Body Engineering Ltd. (100%) Lotus Motorsport Ltd. (100%) Lotus Holdings Inc. (USA) (100%) Lotus Engineering Inc. (100%) Lotus Cars USA Inc. (100%) Lotus Pension Trustees Ltd. (100%) Lotus Cars Foundation (100%) Lotus Finance Ltd. (49.9%)
PROTON AUTOMOBILES CHINA LTD. (BVI) (100%)
Goldstar PROTON Automobiles Co. Ltd (49%)
PT PROTON TRACOMA MOTORS (INDONESIA) (51%) VINA STAR MOTORS CORPORATION (VIETNAM) (25%)
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ANNUAL REPORT 2006
MARKETING DIVISION
PROTON MARKETING SDN. BHD. (100%)
PROPERTY DIVISION
PROTON HARTANAH SDN. BHD. (100%)

PROTON EDAR SDN. BHD. (100%)

PROTON PROPERTIES SDN. BHD. (100%) PROTON CITY DEVELOPMENT CORPORATION SDN. BHD. (40%)
Proton Edar Resources Sdn. Bhd. (100%) Proton Edar Ventures Sdn. Bhd. (100%) Proton Singapore Pte. Ltd. (100%) PT Proton Edar Indonesia (95%) Proton Commerce Sdn. Bhd. (50%) Netstar Advanced Systems Sdn. Bhd. (40%)
FINANCIAL DIVISION
PROTON CAPITAL SDN. BHD. (100%)
PROTON PARTS CENTRE SDN. BHD. (55%) PROTON CARS (UK) LTD. (100%)

INVESTEE & ASSOCIATE COMPANIES

EXEDY (MALAYSIA) SDN. BHD. (45%) PHN INDUSTRY SDN. BHD. (35%) ALUMINIUM ALLOY INDUSTRIES SDN. BHD. (19%) MARUTECH ELASTOMER INDUSTRIES SDN. BHD. (25%) TECHNOMEIJI RUBBER SDN. BHD. (15%) ARA BORGSTENA SDN. BHD. (6.67%) PEPS-JV SDN. BHD. (10.50%)
Smith & Sons Motors Ltd. (100%) Proton Direct Ltd. (100%) Proton Cars (Imports) Ltd. (100%) Proton Cars Direct Ltd. (100%) Proton Finance Ltd. (49.99%)
PROTON CARS (EUROPE) LTD. (55.56%) PROTON CARS AUSTRALIA PTY. LTD. (100%) PROTON CARS BENELUX NV SA (BELGIUM) (100%) AUTO COMPOUND AND DISTRIBUTION CENTRE SDN. BHD. (100%) PROTON CORPORATION SDN. BHD. (100%) LOTUS CARS ASIA PACIFIC SDN. BHD. (100%)
OTHERS
YAYASAN PROTON
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PROFILE OF DIRECTORS
DATO MOHAMMED AZLAN BIN HASHIM

Chairman Non-Independent Non-Executive Director Aged 49, Malaysian
Dato Mohammed Azlan bin Hashim was appointed as a Director on 17 December 2004 and was re-designated as Chairman on 7 February 2005. A Chartered Accountant, he graduated with a Bachelor of Economics from Monash University, Australia. He is a member of the Institute of Chartered Accountants, Australia, Malaysian Institute of Accountants, Fellow Member of Malaysian Institute of Directors and Fellow Member of the Institute of Chartered Secretaries and Administrators. He has extensive experience in the corporate sectors including in financial services and investments. Among others, he has served as Chief Executive/Executive Director of Bumiputra Merchant Bank Berhad, Group Managing Director of Amanah Capital Malaysia Berhad and Executive Chairman of Bursa Malaysia Securities Berhad (formerly known as Kuala Lumpur Stock Exchange) Group. Dato Azlan also served on various government bodies, including Finance Committee on Corporate Governance, the Second National Economic Consultative Council and Financial Reporting Foundation. He is currently a Board Member of among others, Labuan Offshore Financial Services Authority, Employees Provident Fund, Khazanah Nasional Berhad, Scomi Group Bhd., D&O Ventures Berhad and Malaysian Industry-Government Group for High Technology. He was recently appointed Chairman of Universiti Darul Iman Malaysia. Within PROTON Holdings Berhad, Dato Azlan serves as Chairman of Board Nomination Committee and Board Disciplinary Committee. He attended 20 out of 21 Board of Directors Meetings held during the Financial Year. He was nominated to the Board by Khazanah Nasional Berhad and has no conflict of interest with the Company and does not have any family relationship with any director and/or major shareholder of the Company. He has had no conviction of any offences within the past ten (10) years.
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ANNUAL REPORT 2006
Syed Zainal Abidin bin Syed Mohamed Tahir was appointed as the Managing Director of PROTON on 1 January 2006. He graduated from the University of Maryland, USA with a Bachelor of Science in Civil Engineering in 1983. Syed Zainal Abidin began his career in 1987 as a Project Engineer with Petronas Gas Sdn. Bhd. before joining Petroliam Nasional Berhad in 1992 as Senior Executive, Corporate Planning & International Business Development. In 1995, he joined HICOM Holdings Berhad and assumed various senior positions in the company. In 1999, Syed Zainal Abidin joined Perodua as Senior General Manager. In 2002, he was appointed as the Executive Director of Perodua Auto Corporation Sdn. Bhd. and was later promoted as Deputy Managing Director in October 2005. Syed Zainal Abidin also sits as a director in several subsidiary and investee/associate companies with the PROTON Group. He has attended 4 out of 4 Board of Directors Meetings held during the Financial Year. He has no conflict of interest with the Company and does not have any family relationship with any director and/or major shareholders of the Company. He has had no conviction of any offences within the past ten (10) years.
SYED ZAINAL ABIDIN BIN SYED MOHAMED TAHIR

Managing Director Aged 44, Malaysian
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Lt. Gen. (R) Dato Seri Mohamed Daud bin Abu Bakar was appointed to the Board on 12 April 2004. He graduated from the world renowned Royal Military Academy, Sandhurst; the Army Staff College, Camberley and the Royal College of Defence Studies in United Kingdom. He served the Malaysian Army with distinction for 36 years. During his military career, he was appointed to various key command and staff appointments both in the field headquarters and in the Ministry of Defence, amongst them, Director of Army Training, Commandant of Armed Forces Staff College, Brigade Commander, Division Commander, Chief of Armed Forces Logistics and Army Corps Commander cum General officer Commanding-in-Chief responsible for command and operations in Peninsular Malaysia. He has also served in various committees at national and international levels, including as Joint Chairman of the Regional Border Committee (with Thailand), Deputy Chairman of the Socio Economic Development Committee and Member, General Border Committee (with Thailand). Lt. Gen. (R) Dato Seri Mohamed Daud is currently a member of the Board Nomination Committee of the Company. He is the Chairman of Johan Ceramics Berhad and a Director of Mieco Chipboard Berhad and Bank Kerjasama Rakyat Malaysia Berhad (Bank Rakyat). He is also Chairman of the Audit Committee, member of the Nomination Committee of Mieco Chipboard Berhad; member of the Nomination Committee, the Board Risk Management Committee and the Audit Examination Committee of Bank Rakyat. He attended 19 out of 21 Board of Directors Meetings held during the Financial Year. Save for the PROTON dealership held by his son, Lt. Gen. (R) Dato Seri Mohamed Daud has no conflict of interest with the Company. He has no family relationship with any other director or major shareholders of the Company. He has had no conviction of any offences within the past ten (10) years.
LT. GEN. (R) DATO SERI MOHAMED DAUD BIN ABU BAKAR
Independent Non-Executive Director Aged 70, Malaysian
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ANNUAL REPORT 2006
Abdul Jabbar bin Abdul Majid was appointed as a Director on 12 April 2004. He is a Fellow Member of the Institute of Chartered Accountants, Australia, as well as a member of the Malaysian Institute of Accountants. He is also a member of the Executive Council of the Malaysian Institute of Certified Public Accountants (MICPA). He started his career in 1974 as Senior Manager in the Internal Audit and Organisation Department of Bank Pertanian Malaysia. In 1977, he joined KPMG Malaysia as Manager and was admitted to partnership two years later. In 1993, he was promoted to Deputy Senior Partner and was made Senior Partner in 1995, a position he held until his retirement in 2000. He joined Malaysia Derivatives Exchange Berhad in 2001 and retired as Executive Chairman on 28 February 2004. He was a past president of MICPA. He is an Adjunct Professor of the Faculty of Economics and Accounting of the International Islamic University. He was a member of the Senate of the Open University Malaysia Board. Abdul Jabbar is currently the Chairman of the Board Audit Committee and a member of Board Nomination and Board Remuneration Committees of the Company. He is also a member of Board Disciplinary Committee. Besides PROTON Holdings Berhad, he is an Independent Non-Executive Director of Malakoff Berhad and Tradewinds Corporation Berhad and also the Chairman of the Audit Committee of Tradewinds Corporation Berhad and Malakoff Berhad. He is also a Director of Opcom Holdings Berhad and Bank Muamalat Malaysia Berhad. Abdul Jabbar attended 15 out of 21 Board of Directors Meetings held during the Financial Year. He has no conflict of interest with the Company and has no family relationships with any other director or major shareholders of the Company. He has had no conviction of any offences within the past ten (10) years.
ABDUL JABBAR BIN ABDUL MAJID

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Badrul Feisal bin Abdul Rahim was appointed to the Board on 12 April 2004. He holds an American Associate Degree in Accountancy (AAD) and also a Bachelor of Science in Accountancy from University of Missouri, Columbia, USA in 1994. He started his career with Arthur Andersen & Co as an intern and thereafter held the posts of Senior Officer, Internal Audit of United Overseas Bank, Kuala Lumpur; Manager, Investment Department of Malaysian Technology Development Corporation Sdn. Bhd. and Executive Director of MTDC Private Equity Management Sdn. Bhd. He joined Khazanah Nasional Berhad in February 2001 as Senior Manager and is now a Senior Vice President, Investments. Badrul Feisal is currently the Chair man of the Board Remuneration Committee and a member of the Board Nomination and Board Risk Management Committees of the Company. Badrul Feisal attended 19 out of 21 Board of Directors Meetings held during the Financial Year. He was nominated to the Board of the Company by Khazanah Nasional Berhad and has no conflict of interest with the Company and has no family relationships with any other director or major shareholders of the Company. He has had no conviction of any offences within the past ten (10) years.
BADRUL FEISAL BIN ABDUL RAHIM

Non-Independent Non-Executive Director Aged 37, Malaysian
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ANNUAL REPORT 2006
MOHAMMAD ZAINAL BIN SHAARI

Non-Independent Non-Executive Director Aged 43, Malaysian
Mohammad Zainal bin Shaari was appointed as a Director on 17 December 2004. He is currently the Executive Director/Chief Operating Officer at Khazanah Nasional Berhad (Khazanah). He spent 18 years in the public accounting profession and has worked in the United Kingdom, USA and Malaysia. In 1997 he was made a partner in Price Waterhouse (now PricewaterhouseCoopers). In 2002 he left PricewaterhouseCoopers and joined BinaFikir Sdn. Bhd. in 2003. Mohammad Zainal is a member of the Board Audit Committee of the Company. He is a Fellow of the Institute of Chartered Accountants in England & Wales and a fellow of the Association of Chartered Certified Accountants (UK), as well as a member of the Malaysian Institute of Accountants and the Malaysian Institute of Certified Public Accountants. Mohammad Zainal has attended all Board of Directors Meetings held during the Financial Year. He is a nominee director for Khazanah Nasional Berhad and has no conflict of interest with the Company and does not have any family relationships with any director and/or major shareholder of the Company.
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Abdul Kadir bin Md Kassim was appointed to the Board of PROTON Holdings Berhad (the Company) on 10 March 2005. Kadir serves as the Chairman of the Board Risk Management Committee. He is also a member of the Board Audit Committee, Board Nomination Committee and Board Disciplinary Committee of the Company. Kadir holds a Bachelor of Laws Degree from University of Singapore. He served in the Malaysian Administrative and Diplomatic Service and in the Judicial and Legal Service between 1966 and 1973, holding various positions. He is currently the managing partner of Messrs Kadir, Andri & Partners. He is also a chairman of Ho Hup Construction Company Berhad and a director of United Engineers (Malaysia) Berhad, UEM World Berhad, Suria Capital Holdings Ber had, TIME dotCom Ber had, and a few private companies, including being chairman of the Committee of Labuan International Financial Exchange. Abdul Kadir has attended all Board of Directors Meetings held during the Financial Year. He has no conflict of interest with the Company and does not have any family relationship with any director and/or major shareholders of the Company. He has had no conviction of any offences within the past ten (10) years.
ABDUL KADIR BIN MD KASSIM

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ANNUAL REPORT 2006
Dato Ahmad bin Haji Hashim was appointed Director of PROTON on 26 October 2005. He graduated from the University of Malaya with a Bachelor of Economics (Hons) in 1974 and obtained his Master in Business Administration from City University, Washington State, USA in 1983. He has attended the Oxford Advanced Management Programme, University of Oxford, United Kingdom conducted in 2004 and also attended Leaders in Development: Managing Political and Economic Change, Harvard University, USA conducted in 2006. Ahmad began his career in 1974, as an Assistant Secretary, Implementation and Coordination Unit, in the Prime Ministers Department and has served numerous Ministries including the Ministry of Finance between 1977 and 1984, holding various positions, before joining the Ministry of International Trade and Industry as the Principal Assistant Secretary in 1985. In 1992, he joined the Foreign Investment Committee, EPU, Prime Minister's Department as Principal Assistant Secretary. In 1996, Ahmad was appointed as Deputy Secretary, Economic and International Division, Treasury in the Ministry of Finance (MoF). He was later appointed as Secretary in the Loan Management and Financial Policy Division, Treasury, MoF in 2000. He served in the Ministry of Health as Deputy Secretary General (Finance) in 2003 until he assumed his present position as the Deputy Secretary General (Operation), Treasury, MoF in September 2005. Ahmad has previously held directorships and memberships in several organisations between 1999 to 2004, such as Institut Jantung Negara, Islamic Development Bank in Jeddah, Bank Simpanan Nasional, Lembaga Tabung Haji, Perbadanan Labuan, Employees Provident Fund, Johor Corporation, Malaysian Timber Industry Board, Klang Port Management Sdn. Bhd. and Penang Regional Development Authority. Throughout his illustrious career with the Malaysian civil service, he has also represented Malaysia in APEC Economic Committee, APEC Finance Ministers/Leaders meetings, Islamic Development Bank Board of Governors meetings, Commonwealth Finance Ministers meetings, Asia-Europe (ASEM) Leaders meeting, WTO meetings, among others. Ahmad is also a Director of Telekom Malaysia Berhad and Keretapi Tanah Melayu Berhad. He has attended 6 out of 8 Board of Directors Meetings held during the Financial Year. He has no conflict of interest with the Company and does not have any family relationship with any director and/or major shareholders of the Company. He has had no conviction of any offences within the past ten (10) years.
DATO AHMAD BIN HAJI HASHIM

Director Non-Independent Non-Executive Director Aged 54, Malaysian
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SENIOR MANAGEMENT
M a n a g e m e n t
Senior
Syed Zainal Abidin bin Syed Mohamed Tahir

Managing Director
Datuk Kamarulzaman bin Darus

Director, Manufacturing
Datuk Maruan bin Mohd. Said

Director, Domestic Markets
Razif bin Ahmad

Director, Procurement
Fauzi bin Che Rus

Director, Human Resource
Abdul Wahab Mohamed Khalid

Head, Engineering
Ahmad Tifli bin Dato Mohd. Talha

Head, Exports Markets
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ANNUAL REPORT 2006
Tan Chun Weng

Head, Group Finance
Mohd. Nizamuddin Mokhtar

Head, Group Secretarial & Compliance
Low Pheng
Head, Group Internal Audit
Dato Tony Chan Kok Chuen

Head, Quality Management
Michelle Kythe Lim

Head, Group Legal
Andy Khoo Boo Teik

Chief Information Officer
Key Personnel
Abroad
Michael J.Kimberley
Brian Collier
Chief Executive Officer (Acting) Managing Director Group Lotus Plc. Proton Cars (UK) Ltd.
John Startari Managing Director

Proton Cars (Australia) Pty. Ltd.
Robert Braner
Chief Executive Officer Lotus Cars, USA
Moses Tan
Managing Director Proton Singapore Pte. Ltd.
Dwi Sasetia
Director P.T. Proton Edar Indonesia
SPEED
The attitude of being able to do everything and anything with purpose.
26
Statement
Chairmans
DATO MOHAMMED AZLAN BIN HASHIM CHAIRMAN
27
ANNUAL REPORT 2006
On behalf of the Board of Directors, I am pleased to present the Annual Report and Audited Financial Statements of the PROTON Group and Company for the financial year ended 31 March 2006.
INDUSTRY OVERVIEW
In the financial period under review, the Malaysian auto industry continued to experience significant changes brought upon by a more liberalised operating environment and challenging market conditions. The year was marked by aggressive marketing efforts by almost all automotive manufacturers and distributors with the rapid introduction of new vehicles and very competitive promotional campaigns. Higher petrol prices and increased cost of raw materials resulting in lower profit margins, also posed a challenge. As a result of these extremely competitive conditions and rising prices at the pump, the domestic market saw a shift in favour of cars with smaller engine displacement and relatively cheaper people-movers. Total vehicle industry volume rose by 13% to 551,052 units in 2005, with total sales for passenger cars rising by 5.3% to 400,835 units. The industry was relatively firm throughout 2005 particularly for commercial vehicles, including MPV and 4X4, which saw sales increasing by 40.3%. However, sales softened during the first half of 2006. In the JanuaryJune 2006 period, the total industry volume of vehicles sold was at 248,407 units compared with 261,111 in the equivalent period last year. Passenger cars, which make up 74% of the industry, saw 184,725 units sold, against 199,554 units previously. This recent decline has been attributed to a number of factors, including the rise in fuel prices, tighter credit policies leading to less loans being approved as well as the fall in used car values which have affected trade-ins. It is expected that the market will continue to remain soft until the end of 2006.
The Malaysian auto industry continued to experience significant changes brought upon by a more liberalised operating environment and challenging market conditions
FINANCIAL PERFORMANCE
Given the industry scenarios described, characterised by increased market competition and a dearth of products in the growing market segments, PROTONs domestic sales volume for the financial period under review declined by 11.1% to 166,968 units in comparison to 187,800 units in the previous financial year. PROTON also saw its domestic market share decline to 40% in 2005 in comparison to the 44% market share recorded in 2004.
Although exports to Australia and the United Kingdom increased by 49.8% and 16% respectively for the financial year, total export sales for the period declined 7% to 12,765 units. With the reduction in sales, PROTONs financial performance for the year in review also recorded a decline. Group revenue decreased by 8% to RM7,796.9 million compared to RM8,483.3 million in the preceding financial year. Group profit after tax however, decreased by 89% to RM46.7 million from RM442.4 million (adjusted) in the preceding year.
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CHAIRMANS STATEMENT
DIVIDENDS
In view of the performance of PROTON for the year under review, the Board of Directors recommends a final taxexempt dividend of 5 sen a share in respect of the financial year ended 31 March 2006. This is subject to the approval of the shareholders at the forthcoming Annual General Meeting to be held on 6 September 2006. If approved, the total dividends payable for the financial year under review would amount to 5 sen a share or a total tax-exempt dividend of RM27,460,650 as compared to 35 sen a share or a total tax-exempt dividend of RM192,224,550 in the previous financial period.
MV Augusta Motors SpA The Group-wide review of PROTONs investments, was to determine their continued relevance and the changes, if any, that would be required to ensure the investments provided positive returns to the Group going forward. As a result of this review, Proton Capital Sdn. Bhd. (PCSB), a wholly-owned subsidiary of PROTON, made a decision to dispose of its entire interest in MV Agusta Motors SpA (MVAM). The Share Sale Agreement was signed on 23 December 2005 and completed on 1 March 2006. As already publicly explained, this action was deemed necessary as there is very little synergy to be gained by the continued investment in MVAM. Further more, continuing to be a shareholder in this financially troubled entity, which is in a net liability position, would have put both PCSB and PROTON at great financial and reputational risk, were MVAM to fall into
bankruptcy. With the sale finalised, PROTON can now harness its resources and focus on strengthening its core businesses of automotive design, engineering, manufacturing and sales for the benefit of all its stakeholders, including its customers and shareholders. It is unfortunate that there are a few who continue to question the disposal. But let us assure all stakeholders, PROTON has done a thorough assessment of its involvement in MVAM before its decision on this matter. PROTON now considers this matter closed. Governance Structures Since July 2005, PROTON initiated the move to review its gover nance structures to ascertain weaknesses in the system and to determine possible actions that could be taken to remedy the situation. In addition, PROTON has also completed a review of the decision making process for investments undertaken by PROTON in the past.
CORPORATE DEVELOPMENTS DURING THE PERIOD UNDER REVIEW

In last years Chairmans Statement, it was clearly stated that PROTON must be versatile and dynamic, to remain relevant and competitive. Following on from the management changes announced in July 2005, the Group has continued its comprehensive review to ensure it remains relevant and is able to compete more effectively and efficiently going forward. From this review, a number of corporate exercises had been initiated and undertaken during the year to realign the strategic direction of the company. Some of these are explained further in the following paragraphs.
...there is very little synergy to be gained by the continued investment in MVAM. Furthermore, continuing to be a shareholder in this financially troubled entity, which is in a net liability position, would have put both PCSB and PROTON at great financial and reputational risk...
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ANNUAL REPORT 2006
...PROTON initiated the move to review its governance structures to ascertain weaknesses in the system...
Again this was to ascertain weaknesses in the process leading to these investment decisions and to identify measures to strengthen the process. As a result of the various reviews, changes have been made to the Management Committee and Board structures of PROTON and its Group. In addition, the decision-making structures and limits of authorities, especially with respect to investments, have also been tightened to ensure better clarity to all those concerned, as to actual authority and essential information to be disclosed. Apart from the re-organisation of domestic structures, PROTON has also undertaken changes to the governance structures of its overseas investments. This is with a view to improve and strengthen their financial discipline. Launching of new products During the financial year, in June 2005, PROTON launched the Savvy, a supermini, in both manual and automated manual transmission (AMT) configurations.
The Savvy has the body strength of a car twice its size and comes with safety features surpassing those usually found in cars of similar class. To top it off, with the collaboration of Lotus Engineering, the Savvys ride and handling is among the best in its class. In December 2005, PROTON officially launched the Chancellor, a car developed mainly as a chauffeur driven saloon to further expand its product line-up. This model was specifically conceived to provide a higher level of comfort, luxury and quality for its passengers. This car is now expected to be the official Government car for senior members of Government, senior civil servants and other senior corporate executives. More recently, on 16 June 2006, PROTON launched the Satria Neo as a successor to its popular Satria. This new product is representative of PROTONs joint-efforts with Lotus Engineering. As a result, the Satria Neo has the unique combination of good styling, per for mance and safety features unparalleled in many other cars within the same segment.
Y.A.B. Dato Seri Abdullah Haji Ahmad Badawi, Prime Minister of Malaysia, officially launched the Satria Neo at PROTONs Centre of Excellence Complex, Subang Jaya.
...the Satria Neo has the unique combination of good styling, performance and safety features unparalleled in many other cars within the same segment...
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CHAIRMANS STATEMENT
OTHER SIGNIFICANT DEVELOPMENTS DURING THE PERIOD UNDER REVIEW

Apart from the various corporate developments mentioned, there have also been other external developments during the financial year which have had an impact on PROTONs performance and its prospects going forward. National Automotive Policy The financial year in review saw the release of the National Automotive Policy (NAP), which represents a comprehensive framework of the Gover nments aspirations and expectations of the automotive sector. The overall objective of the NAP is to generate sustainable economic value through maximising the long-ter m contributions of the automotive sector to the national economy, while simultaneously benefiting the Malaysian consumer. This thrust by Government for the local industry to create economic value will entail all segments of the industry to work together. It is also essential that the industry continues to receive the full support of the Government, in its efforts to strengthen itself, in order to become fully competitive globally. The NAP and its specific policy instruments will benefit the Malaysian automotive industry over the longer term. With this clearly outlined policy,
local manufacturers, assemblers and other industry players, including potential investors, will be able to better plan their businesses and automotive-related investments. In the spirit of the NAP, PROTON on 24 March 2006, announced that the prices of its cars would be reduced across the board by between 2.5% to 7%, representing a reduction of between RM1,000 to RM3,000 depending on the model. This is in line with the Governments call for local manufacturers to produce cars which are more affordable.
environment which requires them to be able to adapt to the challenges of globalisation, new regulations, higher energy prices, endure the rapid emergence of increased competition and changing customer needs. Globalisation has spurred the automotive industry to introduce better quality products and concurrently strive for lower manufacturing costs. It has forced players to introduce the World Car strategy a vehicle based on a single platfor m that can be the base for multiple products and sold in multiple regions in the world, thus leveraging on engineering, distribution, development and marketing costs and achieve the economies of scale in production. New regulations that call for the harmonisation of safety regulations and emission levels with inter national standards, are forcing automakers to meet stringent new standards, produce cleaner vehicles and meet customer expectations for higher fuel economy, safety and performance features.
CONTINUING INDUSTRY CHALLENGES

In todays global automotive industry, opportunities and risks are everywhere, in emerging and mature markets alike. But while possibilities are plentiful, profitable growth is becoming more difficult to achieve, as challenges emerge from within the supply chain right through to the retail environment. Hence automotive players must conduct their business amidst this new
...National Automotive Policy (NAP), which represents a comprehensive framework of the Governments aspirations and expectations of the automotive sector...
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ANNUAL REPORT 2006
demanding that their suppliers too, adapt to these changes. For some time now, major OEMs have put their Tier 1 suppliers under intense and relentless cost pressures, forcing annual cost cuts. As a result, Malaysian suppliers too are now required to deliver further cost reductions, by significantly cutting costs and even consider to merge in order to achieve greater economies of scale. The consumer revolution is bringing about the emergence of a customer base that has become more discerning, well-informed and demanding. Todays automakers must ultimately balance the increasingly stringent regulations with the needs of consumers who have become more spoilt for choice. These consumers look to brands they can trust, brands that are reliable, and simultaneously managing costs, capacity and inventory to remain competitive and profitable. As automakers look for greater economies of scale by introducing common platfor ms for multiple models and multiple markets, they are also brands that are in a position to offer them the best value for money and after sales support. On the domestic front, as PROTON moves forward into its new financial year, intense competition in both the domestic and export markets is
Higher energy prices have provided the impetus to introduce better and more fuel efficient and economical vehicles. The push by well-informed consumers and environmental regulations for cleaner and more eco-friendly vehicles, has seen auto players devoting more resources towards development of concept models for hybrid cars and alternative fuel vehicles. The changing business landscape means that todays automotive players have to compete with new products and adapt to new regulations while
Globalisation has spurred the automotive industry to introduce better quality products and concurrently strive for lower manufacturing costs
32
CHAIRMANS STATEMENT
expected to continue to put pressure on Group sales and profitability. Tighter credit control by financial institutions coupled with increasing interest rates and the softening of the used car market will continue to dampen new car sales. Higher fuel prices and the recent increase in electricity tariffs will correspondingly increase the cost of production. The PROTON Group recognises the immense challenges facing the industry globally and at home and is undertaking the necessary measures to adapt to this changing landscape. The Group is positioning itself to leverage upon its strengths and every opportunity that comes its way, to prepare it to rise above the challenges it may encounter. The Group seeks to assure its stakeholders that it is financially sound and has the resources, commitment and resolve to transform itself for the better and will spare no effort to improve its long-term profitability.
going it alone. PROTON does not have the luxury of time to develop the necessary range of products from scratch. Consequently, the previous operating strategy to develop multiple platforms in-house has to be revamped to reflect current challenges. Thus the pursuit of strategic alliances with international partners for mutual benefit. Alliance and Collaboration Strategy In the last one year, PROTON undertook a review of its alliance and collaboration strategy. Clearly, the proposed collaboration in the past could not meet the specific needs of the Group. Going forward, PROTON will pursue a collaborative strategy that is flexible, balanced, mutually beneficial and specifically tailored for the Group requirements. It will focus on establishing collaborations aimed at acquiring the right technology, expertise and knowhow to become a competitive car manufacturer globally. These collaborations are also for the purpose of acquiring products, where appropriate, to optimise capacity usage and even for gaining market access. PROTON could conceivably establish alliances and collaborations with different partners for different purposes. It is in line with this new philosophy that on 3 February 2006, PROTON entered into a Memorandum of Understanding with Japanese automaker, Mitsubishi
Motor Corporation (Mitsubishi). The collaboration with Mitsubishi is part of the Product Alliance strategy and will enable PROTON to quickly develop additional products and technical expertise in specific areas. In addition to the agreement with Mitsubishi, PROTON had also entered into a Memorandum of Understanding with Chery Automobile Company Limited (Chery) on 23 May 2006. The business arrangement with Chery provides the opportunity for both companies to work together, amongst others, to co-source materials and components. PROTON, via Lotus Engineering Malaysia, had also entered into a Memorandum of Understanding with Jinhua-Youngman Automobile Limited (Jinhua-Youngman) on 23 May 2006. The collaboration with Jinhua-Youngman is particularly significant from a business standpoint as it provides PROTON with the opportunity to improve its revenue generating capabilities from the licensing of some of the Groups technologies. More importantly, this collaboration will also assist in introducing PROTONs products to China, one of the most vibrant automotive markets in the world.
STRATEGIC INITIATIVES GOING FORWARD

In light of the increased competition and liberalisation within the domestic automotive industry, rapidly changing trends and industry challenges, PROTON has to re-strategise how it should compete. It is clear that PROTON can utilise its limited resources more efficiently via strategic collaborations rather than
33
ANNUAL REPORT 2006
Under the management team led by Managing Director, Syed Zainal Abidin, the Group is actively looking to rebuild and realign its inter nal resources, particularly its managerial resources, to be able to meet new priorities and new challenges. While there is a need for haste, at the same time more discipline is warranted to ensure things are done in an effective manner for long-term profitability. Some of the clear lessons learnt in the last year include the need for PROTON to realign its resources to enable rapid renewal of its core products, and the need to be more economical in its product development strategy. These were not applied vigorously enough in the past and led to PROTON losing its dominant market share in the domestic market. Moving forward, rapid renewal of core products and a more realistic platform strategy for optimising the use of available platforms and components bin, will form the cornerstones of the Companys strategy to improve its costcompetitiveness. Despite the focus on improving costcompetitiveness, PROTON will not renege on the promise to deliver the right car for the right market at the right time for the right price. It will spare no effort to deliver on this promise. Although PROTON has had to re-evaluate its product planning, I am confident that
...going forward, PROTON will focus on delivering to its customers, the right car for the right market at the right time for the right price
Apart from the inter national collaborations, PROTON had also on 2 February 2006, signed a Memorandum of Understanding with Petroliam Nasional Ber had (Petronas). This collaboration is aimed at exploring the possibility of further developing Petronas large capacity engines for use in PROTONs cars. In all these relationships, PROTON will seek to establish partnerships that are mutually beneficial and which will optimise stakeholder value.
Operations Strategy Despite the shortcomings of the past and the current challenging environment going forward, the Group will endeavour to improve and regain its domestic market share, while continuing to promote export growth. The Group will also continue to intensify efforts to further improve quality, enhance cost competitiveness and introduce new models to mitigate the impact of higher costs and increasing competition.
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CHAIRMANS STATEMENT
the company will be able to introduce a new product range based on this philosophy within the next 12 months. This will then herald in the new product cycle of PROTON, developed on the promise of giving the customer what it wants! The implementation of quality programmes to enhance the quality of PROTONs products, services and brand image is an extremely important thrust given the continued perception issues afflicting the brand. PROTON has shown that it is capable of producing good quality products, as evident with the recently launched Satria Neo. Going forward, the company will continue to stress on the need to over deliver on quality to address the continuing perception issues regarding its quality. Restructurings and recapitalisations Apart from the above, it is also clear that further restructuring of the Group is needed to make it more efficient and effective. The restructuring will also include recapitalisation of key overseas subsidiaries to ensure they remain financially sound to better serve the interest of their respective customers. With this in mind, PROTON is currently working towards recapitalising its distributive arms in the United Kingdom and Australia, as well as its subsidiary, Lotus Group International Ltd.
In addition, the Group is also planning to rationalise and optimise its domestic and international distribution/dealer network, to make the network more cost-effective, whilst at the same time improve customer satisfaction at point of sale as well as after-sales service. Both restructuring efforts are significant undertakings and will likely take some time to implement successfully. Once fully implemented, PROTON has no doubt that the subsidiaries and distribution/dealer network will be on a better financial footing and will be able to serve its customers better. The three strategic initiatives mentioned are but a few of the initiatives currently being worked on by PROTON. There are naturally other initiatives that will be implemented as part of the Groups commitment to improve itself. The industry landscape is such that PROTON must continue to demonstrate great commitment and self-reliance to remain relevant to its stakeholders. The Group is confident that these key thrusts will take it back on the road to profitability and long-term success.
FUTURE PROSPECTS
The various challenges and trends affecting the global automotive industry, have to a large extent adversely affected the fortunes of many automotive industry players. There are not that many that have emerged from the last few years unscathed. Looking ahead, market complexity and interdependence are increasing. The road ahead for PROTON will continue to be challenging given the global trends affecting the automotive sector and specific factors affecting the company. It is with this in mind that since mid2005, PROTON had been realigning its various core strategies such as the new product and export strategy. However, due to the complexity of several of these initiatives, some remain in the process of implementation and have yet to generate a positive effect for the company. Notwithstanding this fact, PROTON remains positive that with the various remedial steps being taken and the commitment of its staff and employees, as well as other stakeholders, it will be able to surmount the current challenges and emerge a stronger, leaner and more disciplined company.
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ANNUAL REPORT 2006
ACKNOWLEDGEMENTS
As PROTON puts another year behind it and moves on to new challenges, we want to appreciate the efforts of the many people that make up the PROTON family. On behalf of the Board of Directors, I wish to convey our sincere appreciation to PROTONs staff and employees, at all levels and across the various functions and many continents. We are grateful for all your sacrifices and contributions. I trust that the staff and employees of the PROTON Group will continue to provide their support and hard work to ensure PROTONs continued success, as we forge ahead into the new automotive landscape. On behalf of PROTON Group, I would also like to convey my appreciation to Datuk Kisai Rahmat, who has resigned, for his service and contribution to the Group over the years. We are also grateful to the support shown by our partners PROTONs vendors and suppliers as well as our distribution and sales teams. Our utmost appreciation to the vendors who have stood by us through both the good and lean times we acknowledge the many sacrifices you have made. To our distributors and dealers PROTONs
brand ambassadors we applaud your efforts and contributions to PROTONs success. We take this opportunity to acknowledge the contributions of Edaran Otomobil Nasional Berhad (EON) and their dealers under EDAM, and also our very own PROTON Edar and their dealers grouped under PEDA. We look forward to your continued support and on our part will do what is necessary to enhance and strengthen our partnership for our mutual benefits. PROTON would not be where it is today without the strong support of the Rt.Hon. Prime Minister, Y.A.B. Dato Seri Abdullah Haji Ahmad Badawi and the Malaysian Gover nment through its various Ministries and agencies. We are committed to working closely with the Government, in the spirit of Malaysia Incorporated, for the betterment of the national automotive industry and our nation. PROTON would also like to record its appreciation to all its customers that have continuously supported the company and its products over the years. We realise full well that a large part of the companys success over the years is due to the strong support shown by customers. As such, PROTON
is committed to ensure that going forward it will continuously improve the quality of its products as well as the level of after-sales service. Last but not least, our sincere appreciation to PROTONs shareholders who have to a great extent, been instrumental in nurturing its success from a fledgling automotive manufacturer to where it is today. Of course, there is still a long way to go before PROTON can truly call itself a successful global player. In any event, we thank you for your support and guidance which has helped seen this Company through. It is our sincere hope that all our key stakeholders will continue to support and work together with PROTON with renewed commitment and perseverance to support our products, the brand and the Group, more so amidst this challenging new landscape. Thank you.
Dato Mohammed Azlan bin Hashim Chairman
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AN INTERVIEW WITH THE MANAGING DIRECTOR

An Interview
Managing
THE WAY FORWARD
PROTONs new Managing Director, Syed Zainal Abidin bin Syed Mohamed Tahir, shares his insights on the strategic initiatives being undertaken to make PROTON more competitive and agile amidst a rapidly changing automotive landscape.
w i t h
t h e
Director
What are
your impressions of PROTON since you
came onboard 1 January 2006?

The basics are very much in place at PROTON. The one thing is that, somewhere along the line we may have lacked the discipline to ensure that certain processes were followed appropriately. We intend to put everything back into perspective so that everyone is aligned. If we are strong in monitoring this, we will achieve the results we want it will all come together. Whats needed now is that the right people are in the right system (business process) with a strong desire to set things right.
SYED ZAINAL ABIDIN BIN SYED MOHAMED TAHIR MANAGING DIRECTOR
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ANNUAL REPORT 2006
Youve been tasked with moving PROTON forward
how will you achieve this?
After taking a long hard look internally and externally, weve decided to focus on seven critical areas that will put us back on the road to being truly competitive. Our key thrusts will involve initiatives in the areas of:
1. Product Development We will focus on introducing the right car, for the right market, at the right price and at the right time. It is about producing vehicles that are not only exciting, of a diverse range and model, but also those that are in line with what the market wants and of better and higher quality. We will be sending at least 50 technical staff to dealers and service centres in various parts of the country to get feedback. These staff will act as our ambassadors to gather feedback from customers for three months and if the outcome is positive we will implement it over a longer period. PROTON will use this information to build cars that the people want instead of what it feels they should drive. PROTON will also abandon its silo approach to building cars so that the good and the bad experiences can be shared across all platforms. PROTON will also develop new cars of its own and those in collaboration with other car makers, to replace some of PROTONs existing models which have been on the road for too long. PROTON is tapping deeper synergies with LOTUS and will work on producing more affordable LOTUS cars using advanced PROTON vehicle platforms.
2. Quality Enhancements and Improvements A number of quality programmes have been initiated and more will be introduced to enhance the quality of not only our products but also our services. These programmes aim to paint a more positive perception of the brand among car buyers and existing PROTON car owners. To ensure this, the division that looks after product quality will no longer fall under the control of the factory but will report directly to me. Every morning, employees at our factories are reminded about the importance of quality for 60 seconds before they begin work. There is always room for improvement because quality is not something that remains stagnant, but constantly evolves. PROTON must keep abreast of these developments and changes in the industry as well as customer needs and requirements.
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3. Cost Improvements Cost improvements or cost savings here do not necessarily translate into lower or cheaper quality products and services. Instead, improvements here focus on the entire networks ability to operate in a more productive and efficient manner thus further reducing wastage or unnecessary costs. PROTON will consolidate its parts-making manufacturers and suppliers, focussing on 20 to 30 core vendors. The rest of the parts and components suppliers should deal directly with these key vendors. Currently we have 14 logistics providers and this is not very efficient. We may want to reduce this number to three or two, at best. This will translate into better response and cost efficiencies. Improvements in quality and factory efficiencies will further contribute to cost savings. 4. Enhancements to Production and Efficiency This initiative relates to how PROTON will identify and arrest weaknesses and inefficiencies across the board in its current operations. PROTON will reduce the 1,700 third party suppliers of raw materials and other non-automotive components and will deal directly with the source. This will minimise transactions that do not create any value for PROTON. The production process will be reviewed to eliminate any inefficiency in manpower and machinery.
5. Vendor Development As a national car company and as the backbone of Malaysias automotive industry, PROTON has both a national and social obligation to ensure that local vendors have the necessary expertise, resources, skills, international accreditation and competitive edge to take Malaysias component manufacturing industry several notches up. PROTON will implement a first-tier concept for our vendors. The selection for Tier One vendors will be very stringent. Tier One vendors must prove that they posses the capability as well as astute financial and management skills to run their business well; besides this, they must uphold high quality standards and undertake research and development activities. PROTON will work closely with the vendors to ensure continuous improvement in quality and efficiency is implemented. 6. Enhancement of Sales, Distribution and After Sales Service PROTON will focus on consolidating and improving its existing network and presenting itself to consumers in a more effective manner. Delivery or cars will be done at our customers convenience even if they request the pick-up at 10 pm, we must be able to accommodate this request. PROTON will also now refocus on its export strategy and will ensure a balance between volume and profitability when pursuing its export model. Other initiatives here will also include creating synergies in logistics, distribution, spare-parts and training. PROTON is no longer in the business of just manufacturing and selling cars, but must, however, undertake measures to enhance its pre, in and post-customer service efforts.
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ANNUAL REPORT 2006
7. Human Capital Development Every employee, representative and even our business partners must not only understand what is required of them and have the appropriate resources at hand, more importantly, they must be equipped with the right knowledge and skills. Our people are our greatest asset. A renewed emphasis will be given to upgrading employees and representatives skills-sets and technical knowledge, as well as inculcating a positive mindset among them to embrace the changes going forward.
EXPECTED
SATISFIED CUSTOMERS POSITIVE PERCEPTION
DELIVERABLES
COMPETITIVE PRICING SUSTAINABLE MARGIN
WIDER MARKET MORE CUSTOMERS
THE WAY FORWARD

7 CRITICAL AREAS OF FOCUS
PRODUCT DEVELOPMENT QUALITY COST CONTROL MANUFACTURING EFFICIENCY VENDOR DEVELOPMENT SALES & DISTRIBUTION
ORGANISATION
STRUCTURE
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If we are to truly move forward, we must do all that is necessary to ensure these seven key areas are effectively turned around. They will be the foundation upon which we build this company up again. To build a house you need a strong foundation. If the sub-structure and the floor is weak, your house will collapse and thats something we cant afford. The elements of the new road map for PROTON underline this i.e. that we form and strengthen the foundation first, so that when the future presents itself, we already have a strong base and are prepared to respond accordingly.
How will PROTONs product development initiative

play out?
We need to venture out to really understand what the market wants. We will go out and study our customers, dealers, etc. to understand who our target market is. This information must be in place before we can even start thinking of building a car.
What is your part in all this?

My job, and that of my team, is to harness and align every member in the PROTON family to help realise our objectives. Were not here merely to help set the direction, but, to support the family, making sure that there is a conducive working environment in order to achieve our objectives. There is no individual in this world who does not want to improve or to change, but in order to do so successfully, there has to be the right working environment and chemistry. PROTONs new management understands this, is focused on what it wants to do, and will effect the necessary positive changes to move forward.
We will focus on segments where we are very strong and will expand our presence there by introducing a greater variety of products. We will be open-minded and look at products that are suitable across borders. Having said that, we have to be really realistic about the markets we want to penetrate into, taking into account our weaknesses and strengths. We will study these markets by living in them, by understanding the people, by analysing buying trends and by studying what other companies are doing only then will we design a product and position it to suit that market. It truly is all about having the right product and coming out with it at the right time and at the right price all these three elements must work hand in hand for PROTON to be successful. Only when we have a full suite of products in every segment of the car market can you call us a true auto manufacturer.
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ANNUAL REPORT 2006
What will
entail?
the quality improvement initiatives
What will you do to manage costs and enhance

production and efficiency as well as vendors efforts?
A reduction in costs does not necessarily translate into reduced margins. We can in fact improve our margins. We need to be clear on the areas that we need to be more efficient in. Some 80% of a car is built of add-on materials so its not just the parts we have to look at, but the cost of producing these parts and cost of assembling the car. An extensive vendor programme to improve the overall cost index is essential here. While we are on a level playing field with other automotive players in terms of labour costs, raw material costs and the type of facilities we utilise, we cannot say the same for our overheads. There are two things to consider here: Firstly, the things we have put in place to enhance capacity have not yet been amortised. It is only a matter of time before these costs are recoverable. In this area, we will work to enhance our capacity so there is some incremental reduction. Secondly, inefficiencies undoubtedly exist. Many vendors do not rise to the level of quality we require, resulting in many rejections all of which have a direct impact on cost. As a manufacturer, PROTON views our vendors not just as our business partners we need one another to survive. Going forward, we will allocate the resources and work hand-inhand with our vendors to improve the situation by reducing these inefficiencies.
Everyone knows about the numerous quality complaints that plague our brand. We need to be realistic here and stop pointing fingers at any one group, as quality is the ownership and responsibility of everyone. There needs to be a change of attitude and mindset throughout the length and breadth of our organisation if we are to improve this is the very first step. I believe the journey of improvement has started at PROTON. Some improvements have started, others may take months to achieve. Having said this, it is imperative that we satisfy the requirements of our customers quickly. Going forward, PROTON must and will offer better quality products. We intend to put the best practices into every car that rolls out of the factory. How do we instil this? It has to be done via training, having managers and supervisors frequently conducting checks, through visualisation, and through a strong belief in quality. We must also set higher benchmarks and everyone in our organisation must have strong quality awareness not just speaking of it, but visualising it and practicing it in a consistent and not sporadic manner. A Quality Improvement Committee has been tasked with coordinating and improving all quality programmes found to be inconsistent in the past. Our processes and relationships with vendors are also being reviewed so that all parties understand their respective roles in ensuring quality products. We also need to acquire more information on our customers buying experiences, analyse this and take the proper steps to resolve negative experiences. Quality must and will be ingrained in everyone.
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We also envisage the inefficiencies within our own factories improving once quality improves and expect this to translate into automatic cost savings. Our Cost Reduction Committee will review the entire supply chain, from components and production to sales and marketing. We will also review the number of outlets we have against the volume we want to push and will initiate a programme to consolidate our dealer network system.
How will
you harness strategic partnerships and

In engaging with others, we firstly need to ask ourselves what are the products we want; then, who has them now; and who are the right people with the right product who can assist us in getting into a market? Once we identify who has these attractive products, its about courting them to see if they are willing to work with us in a win-win situation. In identifying partners, we will carefully look at three criteria. Firstly, a partner must be willing to share with us the product that we are looking for. Secondly, they must also be willing to share with us the technology aimed at enhancing our know-how of building cars and the knowledge of managing manufacturing efficiency, quality, costs, etc. effectively.
alliances to move forward?

As a national car manufacturer, we have strong national objectives to fulfil; but at the same time, we must also be realistic. Can we do everything by ourselves? I think not. Consider the MPV and SUV segment today its the fastest growing market segment in Malaysia. However, PROTON is definitely not a player here and by the time we can produce a suitable product, Im afraid we would have already lost out on the opportunity. The one option we have of entering this segment is to engage strategic partnerships and alliances. Here, a strategic alliance may not necessarily involve equity participation. There are many other forms of cooperation including the sharing of resources. In todays auto industry, it is common for two to three auto manufacturers to collaborate to save on cost, time and development expenditure and in the process obtain a larger volume.
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Finally, they must also be able to present us with a market or markets in which we have not been able to penetrate because of the lack of a suitable product. At the same time, we must be prepared to offer our partners any of our products that may suit their needs, our own expertise and know-how, as well as open up our markets.
Can you elaborate

for PROTON today?
on the key challenges
At the same time, we will also explore strategic collaborations and alliances, which will form the base for PROTONs future products, improved quality and operational efficiency. We will also implement a more structured human capital development programme with an emphasis on technical training and exposure to the worlds best practices, and, conduct this on an ongoing basis. In recognition of the fact that our people are the companys key asset, we will deploy experienced and skilled personnel to key support functions to strengthen our competitive edge in our markets. Its going to be a tough journey, but it is one that we must take and will take. We trust that all the parties that have supported us in the past, plus the new ones that want to come along on this adventure, will remain steadfastly with us till we reach the finishing line.
Today, we acknowledge that PROTON needs to regain its sales and market share as the leading car brand in the domestic market, mainly through the consolidated effort on sales operations and quality improvement. The export revenue and brand presence abroad must also be increased. On top of it all, customer satisfaction is an all-important element where various initiatives are being or will be rolled out to make the experience of owning a PROTON, a satisfying one. Additionally, improvements on manufacturing operations, production systems and purchasing processes; as well as the consolidation of vendors, shall deliver a better financial position for PROTON.
FOCUS
Our vehicles move beyond fulfilling a need rather we share an experience
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OPERATIONS REVIEW
ENGINEERING SERVICES
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The PROTON Groups engineering capabilities have grown by leaps and bounds over the years and today encompass a wide spectrum of automotive research and developmental (R&D) activities. Today, PROTON is able to develop new models from scratch with most activities done in-house at the Shah Alam R&D facility.
PROTONs Engineering and R&D division possesses its own New Product Introduction (NPI) process which enables us to undertake all stages of the NPI process from concept initiation, vehicle engineering, and powertrain engineering to prototyping, homologation, testing and production preparation. This in-house capability within PROTON makes Malaysia one of thirteen countries with the capability to develop a model from the ground-up.
PROTON also boasts extended engineering capabilities as a result of the resources of the other subsidiaries within the Group, namely Lotus Group International Limited which is renowned for its automotive engineering services, and Miyazu (Malaysia) Sdn. Bhd., for its die and mould-making capability. PROTON has also been able to leverage on Lotuss global network to gain speedy entry into foreign markets where we offer our own products and engineering services.
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OPERATIONS REVIEW
Research &
Development
Our efforts to establish our very own R&D facility, reflect PROTONs commitment to meeting the objectives of Malaysias Second Industrial Master Plan (IMP 2). Our R&D teams are continuously working to enhance our capabilities, retain our position at the forefront of technological development and enhance our competitive edge. With the commencement of Malaysias Third Industrial Master Plan (IMP 3), which aims to develop human capital and support the knowledge growth of local talent, PROTON has initiated efforts to transfer technology and accelerate our learning curve. This has resulted in extensive R&D facilities coming into being, which in turn translates into a renewed focus on the quality of the end product and the services that PROTON offers. The new enhancements to PROTONs R&D facilities include: Upgraded design facilities boasting the latest CATIA version 5 which provides for more versatile and compatible operating system support and networkability. Upgraded laboratory equipment for chassis engineering and vehicle testing to enhance data range and accuracy during vehicle development and testing. A Virtual Reality Facility for digital mock-ups of vehicles which allows for faster assessment of design concepts and significant savings and flexibility.
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Development
PROTON has received recognition from the automotive industry for our recent product development activities which have materialised in the product line-up that we currently offer the local and international markets.
Product
WAJA CAMPRO
The CamPro, Malaysias first commercialised engine, has proven itself in the market since its integration into the Gen.2 model. The engines cost advantages and fuel efficiency had provided PROTON with a definite market advantage. The integration of the CamPro into the Waja platform has also enabled PROTON to extend this advantage on a larger scale while revitalising the Waja model.
SAVVY
The PROTON Savvy creates a new standard for the compact car segment by raising the bar in the area of safety, ride and handling and components reliability. PROTON has also introduced the muchawaited Automated Manual Transmission (AMT) variant for the Savvy incorporating the essence of both manual and automatic shifting for product versatility.
SATRIA NEO
The much-awaited Satria Neo met the Start of Production (SOP) date by utilising PROTONs Tanjung Malim manufacturing facility. The two-door hatchback powered by PROTONs very own CamPro engine is designed to provide exceptional ride and handling as well as occupant safety and is compliant with EURO 4 emission standards. The Satria Neo, was launched by the Prime Minister on 16 June 2006.
CHANCELLOR
PROTONs new flagship vehicle, the Chancellor, offers a choice of luxury with its four-seat stretch and chauffeur-driven focus. Fitted with plush leather seats and the necessary elements that provide for a refined ride, the Chancellor also boasts superb incar multimedia components such as a DVD player and LCD display which are both standard fittings. The Chancellor is also offered in a five-seat longwheel sedan option.
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OPERATIONS REVIEW
Moving
In the near future, PROTON will endeavour to create excitement in our product line-up by releasing enhancements and cosmetic changes to existing platforms such as the Waja, Gen.2 and Savvy appealing new colour shades and styling cues will be standard features. New models are also planned to help us penetrate the MPV and luxury sedan segments for both the domestic and export markets.
Forward
Technology
Development
PROTON will continue to keep abreast of technological advancements in the automotive industry by undertaking projects that aim to enhance our technical know-how and capabilities in high-technology areas as well as provide potential long-term benefits. Our intent is that every effort we undertake will translate into tangible end products and that we will be able to capitalise on the knowledge gained from these activities.
COMPOSITE MATERIAL RESEARCH

The Lotus Europa S which made its debut along with the APX at the Geneva Motorshow signifies the Groups intent to enhance our knowledge and capabilities in the area of composite materials. The end product saw a low volume production line successfully set up at the Shah Alam manufacturing facility. The Europa project had also established an industrial partnership between PROTON and Composite Technology Research Malaysia (CTRM) who are known for their support activities on the Airbus A380.
ALUMINIUM PERFORMANCE CROSSOVER (APX)

PROTON Group had successfully developed a concept prototype that utilises the Versatile Vehicle Architecture (VVA) that was developed through Lotus Engineering. The APX was built with an aluminiumbased VVA powered by a V6 supercharged engine and is a seven-seat crossover vehicle. The APX made its debut in the Geneva Motorshow in early 2006 and was also PROTONs highlight for the KL International Motorshow 2006.
PARALLEL HYBRID ELECTRIC VEHICLE (PHEV)

PROTON had embarked on a project with the Lotus Group to develop a hybrid vehicle capable of running on either electricity or gasoline. This programme aims to elevate our technology to a level that is on par with our global competitors by creating an alternative vehicle for the future which provides customers with better fuel economy, reduced emissions and uncompromising performance.
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Initiatives
PROTON continuously innovates and improves to provide our customers better quality products. Testing activities and initiatives continue past the commencement of production and model launches to ensure industry standards are dynamically surpassed. This is reflective of the PROTON Brand Essence of striving for customer satisfaction.
Continuous
PROTONs pursuit of engineering excellence also aims to elevate the standards of Malaysias automotive industry and is exemplified though our commitment in providing Engineering and R&D services to facilitate the supply chain and other local car manufacturers. The services we provide span the entire range of facilities, from clay modelling, prototyping and vehicle engineering to homologation and testing.
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OPERATIONS REVIEW
MANUFACTURING
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ANNUAL REPORT 2006
PROTONs manufacturing capacity and capability comprises two main plants in Malaysia, namely Perusahaan Otomobil Nasional Sdn. Bhd. in Selangor and Proton Tanjung Malim Sdn. Bhd. in Perak, as well as two overseas subsidiary plants P.T. Proton Tracoma Motors in Indonesia and Lotus Cars in the United Kingdom. Together, these plants possess a combined installed manufacturing capacity of 400,000 units annually. MALAYSIAN FACILITIES
The manufacturing facilities in Malaysia are the most integrated within the region. With casting and foundry facilities as well as machining, stamping, assembly, painting and complete vehicle testing facilities, PROTON has moved beyond being a mere assembler to becoming a full-fledged auto manufacturer.
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OPERATIONS REVIEW
Shah Alam
The Shah Alam plant, with its combined capacity of 200,000 units annually, comprises the main factory which produces the Saga, Wira, Perdana and Arena models, and the medium volume factory which produces the Waja and Chancellor models for the domestic and export markets. PROTONs casting, engine and transmission factories are also located in Shah Alam and these facilities are capable of producing 180,000 units of CamPro engines per year for both the Shah Alam and Tanjong Malim plants. The Shah Alam plant also supplies CKD (Completely Knocked-Down) parts and components to Zagros-Khodro in Iran to assemble and market PROTON vehicles in the Middle East region. In the period under review, 1,740 vehicle sets were delivered for assembly. In the period under review, various initiatives focusing on improving the quality of products, operational efficiency and new product variants and introductions, were implemented. Among the new products introduced were the Saga Iswara Special Edition and a low end variant as well as the Perdana V6 enhancement, the Waja enhancement with CamPro Engine, and the Chancellor. Over the course of the year, the built-up quality (measured in Defect per Unit or DPU) at both the main and medium volume factories improved by almost 20%, while the cost per unit was reduced by 1%.
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ANNUAL REPORT 2006
Ta n j u n g M a l i m
PROTONs ultra-modern manufacturing and assembly plant in Tanjung Malim has an annual installed capacity of 150,000 units and is capable of producing three different platforms and multiple variants. The plant currently produces the Gen.2 and Savvy models two new platforms and products from the PROTON stable. The plant complex consists of engine, stamping, body assembly, painting and final assembly facilities, inclusive of end-of-line vehicle testing equipment that is fully integrated into PROTONs Automated-Assembly Line Controller (PALC) application. While the Tanjung Malim Plant has the potential of assembling up to one million vehicles, to date, only 240 acres of the total 1,280 acres have been developed. A community of suppliers has developed in the vicinity of the plant complex ensuring effective and efficient logistics network. To date, more than 10 major modules and system suppliers are operating in the PROTON City Vendor Park. The financial year saw the Tanjung Malim plants builtup quality (measured in DPU) improving by almost 25%, while its cost per unit was reduced by 1%. The CamPro facilities in the engine factory, comprising the main machining facilities for the CamPro cylinder head, camshaft, crankshaft and cylinder block, were successfully commissioned. New product introductions included the Gen.2 1.3 variant and Savvy AMT both for the domestic and the RHD export markets. Concurrently, preparations for the Gen.2 and Savvy LHD-export variants, including a new Satria model, are being undertaken and these models should be ready in the next financial year. In the period under review, several initiatives aimed at improving the quality of products and operational efficiency as well as new products variant and introductions were implemented.
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OPERATIONS REVIEW
OVERSEAS FACILITIES
Chikarang, Indonesia
The manufacturing plant in Indonesia is held under a joint venture between Perusahaan Otomobil Nasional Sdn. Bhd. (which owns 51% equity) and Tracoma Holdings Berhad (which owns 49% equity). The joint venture company, P.T. Proton Tracoma Motors, is involved mainly in the manufacture of PROTONs products not only for Indonesia but also for the ASEAN markets. The assembly equipment and facilities were completed and fully-commissioned in the third quarter of 2005. The plant is all set to assemble vehicles in the coming financial period and has an installed capacity of 40,000 units per year.
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ANNUAL REPORT 2006
Norwich, United Kingdom

PROTONs manufacturing plant in the United Kingdom is mainly involved in the manufacture and distribution of sports cars. A fully-owned subsidiary of PROTON, Lotus Cars has an annual capacity of 10,000 units per year. The main products produced by Lotus Cars are the Exige and Elise models mainly for the European and US markets. In the period under review, efforts focused on new product development including the development of the Europa among others. An Esprit replacement is also being intensely developed with its introduction targeted within the next two years. With these imminent new products, efforts and activities will focus on marketing and sales in the United States in particular, as this is a major market of the future.
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OPERATIONS REVIEW
MARKETING
Crystal Showroom, PROTONs Centre of Excellence Complex, Subang Jaya.
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ANNUAL REPORT 2006
Markets
In the year 2005, the Malaysian automotive industry registered its best performance to date chalking up motor vehicle sales of 551,042 units, up 13% from 487,605 units in 2004. Sales in the passenger car segment grew by 5.3% to 400,835 units from 380,568 units in the previous year. It was the best year ever for the industry despite the uncertainties of the muchanticipated National Automotive Policy (NAP). The industrys record sales in 2005 were mainly attributed to the strong sales of many new models introduced at competitive prices, in addition to low interest rates and longer repayment periods. the introduction of the totally new PROTON Savvy in June 2005. The Wira, Gen.2 and Saga models were also
Domestic
The PROTON brand recorded another milestone with
given fresh touches in order to compete with newer products. The Waja, meanwhile, was repackaged with PROTONs own Campro engine in January 2006. On the operational front, Proton Edar Sdn. Bhd. continued to focus on its sales and service network, our key focus and advantage over other brands, to serve our customers better. The year under review saw our sales outlets increasing to 234 outlets from 224 outlets the year before, whereas the service network grew to 168 outlets from 150 outlets in the preceding year.
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OPERATIONS REVIEW
Another key highlight was the opening up of the Crystal Showroom within the Centre of Excellence (COE) Complex in Subang Jaya in October 2005. This world-class showroom is fully equipped with stateof-the-art facilities and a dedicated Customer Delivery Centre (CDC) which will deliver new cars directly to the buyers within the Klang Valley.
Various initiatives were implemented to boost sales as well as to bring in service revenue. The PROTON 20-Year Campaign (P20Y) carried out from September to November 2005 managed to boost sales by 70% to hit 22,917 units in October 2005, the highest in PROTONs history to date. The Customer Management Center (CMC) was strengthened and tasked with monitoring the overall Customer Satisfaction Index (CSI). This will ensure that the products and services we offer are on par or better than our competitors.
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ANNUAL REPORT 2006
Markets
The export market for the financial year under review experienced a reduction in volume shipped compared to the previous financial year, from 17,243 units in FY2005 to 12,526 units in FY2006. While actual orders by the various overseas markets were far in excess of the number shipped, the difference was due to constraints in the supply chain. There is no doubt that demand for PROTON cars in the overseas markets exists. As such, looking forward into FY2007, we anticipate a significant improvement in the number of PROTON cars sold overseas. The many markets that were opened in the preceding financial year are now beginning to show encouraging signs of ramping-up volume. South Africa, which started distributing PROTON cars in August 2005, is fast growing to become PROTONs third largest overseas market after the United Kingdom and Australia. The Gen.2, inclusive of the Left-Hand-Drive version, was well received upon its introduction into new countries in the overseas market. The Savvy was also introduced into the Right-HandDrive overseas markets including the United Kingdom, Australia, Singapore and South Africa in the year under In the longer term, PROTONs exports are expected to contribute significantly to the volume sold. Based on the roadmap of new markets to be opened, coupled with the expected introduction of new models in PROTONs New markets are also continually being opened up. encouraging, with the Savvy now being the best selling model for PROTON in South Africa. Left-Hand-Drive
Export
review. The response to the Savvy has been very
versions of the Savvy are expected to be introduced from September 2006 onwards. This is expected to further increase the popularity of the Savvy and contribute towards our overall export numbers.
Saudi Arabia and Pakistan are the latest to be penetrated by PROTON, and should start showing results within the current financial year. Closer to home, following the announcement of the NAP, countries within ASEAN are evolving into attractive markets. The duty structures within these ASEAN countries are expected to be rationalised within the AFTA guidelines, thus making PROTONs entry into these markets a viable proposition.
product line-up, the export market will continue to be an exciting area of expansion, accelerating forward PROTONs position as a global automotive player.
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OPERATIONS REVIEW
PROPERTIES
Rear view of PROTONs Manufacturing Plant at Tanjung Malim, Perak.
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ANNUAL REPORT 2006
PROTON is involved in the property sector through its equity ownership in Proton Hartanah Sdn. Bhd., which in turn wholly owns Proton Properties Sdn. Bhd. and 40% equity in Proton City Development Corporation Sdn. Bhd.
PROTON manages 1,280 acres encompassing its plant in Tanjung Malim and has access to a further 2,720 acres via its investment in Proton City Development Corporation Sdn. Bhd. The latter project comprises an integrated development for residential, commercial, educational and vendor parks as well as recreational facilities.
The Proton plant contributes towards the continuing development of the Tanjung Malim township and the surrounding neighbourhood. As a caring employer, PROTON offers its staff the opportunity to own low and medium-cost apartments in the vicinity of their workplace.
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OPERATIONS REVIEW
FINANCIAL SERVICES
PROTONs Centre of Excellence view at dawn.
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ANNUAL REPORT 2006
PROTON has entered into relationships with reputable financial institutions to provide convenient services that include financing package for customers and operational facilities for authorised dealers.
PROTON Commerce Sdn. Bhd. is a venture between Proton Edar Sdn. Bhd. and Bumiputra Commerce Bank Berhad;
Proton Finance Ltd. is a venture between Proton Cars UK Ltd. and Llyods TSB Bank;
Lotus Finance Ltd., is a venture between Group Lotus Plc. and Chartered Trust, provides financial services solely for Lotus cars.
Proton Commerces e-Finance system enables customers to apply for hire purchase facilities via the Internet. By simply logging onto www.proton-edar.com.my or www.bcb.com.my from any Internet terminal, customers are immediately advised as to whether their applications have been rejected or conditionally approved, subject to the submission of relevant supporting documents.
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OPERATIONS REVIEW
HUMAN CAPITAL DEVELOPMENT
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ANNUAL REPORT 2006
PROTONs global workforce today comprises 11,000 employees, many of whom are long-service employees that began their careers at PROTON and have grown with the Company. PROTON has also brought in many new employees hired from top multinational companies.
This infusion of new blood aims to balance the new ideas and skills against the rich knowledge and experience of our long-standing employees. Recognising that our success depends very much on our people, PROTON has made human capital development one of our foremost priorities. The Company provides a conducive learning environment where employees are encouraged to continually ascend an upward learning curve. PROTONs top-line organisation has been restructured to ensure that it supports the companys current and future business needs. Structured training and development programmes focusing on leadership and managerial competencies as well as technical functional competencies have been developed. Some of these initiatives have involved joint programmes with the University of Malaya since March 2003 i.e. the Executive Development Programme (EDP) and Managerial Development Programme (MDP). December 2005 saw our third EDP intake kicking off with 150 executives and the graduates are expected to receive their certificates in December 2006. The first module of the MDP kicked off in April 2004 with a total of 53 managerial heads with the graduates receiving their certificates in December 2005. To fulfil the Companys future human capital needs, we have also identified top-notch students from universities and provided them scholarships through Yayasan PROTON. At PROTON, we believe in providing our employees a favourable platform to contribute creative and innovative ideas to Management. The Innovative and Creative Circles (ICC) initiative is a channel that enables employees to showcase their creativity and innovation in solving problems at the workplace and in creating accessories, tools or administrative functions that will help boost the Companys productivity. The ICC is also a platform that lends to our workforce sharpening its customer service and leadership skills. By empowering our employees, we aim to inculcate a greater sense of involvement and ownership among them. The ICC concept and methodology was first implemented at the main factory in Shah Alam and now covers the factory in Tanjung Malim as well as the value chain of PROTON suppliers and dealers. An ICC Secretariat has also been set up to further develop and promote the ICC concept and methodology among PROTON employees. The Secretariat and ICC facilitators have been tasked with visiting each registered ICC project at least twice during the tenure of a project as well as with educating its members and helping them achieve their project goals. Going forward, PROTON will continue to focus on performance measurements, using key per formance indicators (KPIs) directly linked to reward and recognition. Human Capital Development will continue to play an important role in ensuring PROTON measures up as a competitive player amidst the changing automotive landscape.
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OPERATIONS REVIEW
CORPORATE SOCIAL RESPONSIBILITY
Dato Mohammed Azlan Hashim, Chairman of PROTON, handing over the contribution for earthquake relief aid to Rt.Hon. Dr. Muhammad Jusuf Kala, Vice President of the Republic of Indonesia.
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ANNUAL REPORT 2006
PROTON is committed to serving the various communities in which we operate. Over the course of the year under review, PROTON continues to lend support to various organisations and worthy causes. As part of our collaborative efforts with the Government to highlight the nations automotive capabilities and the PROTON brand, we extended our support as the Official Car sponsor to international events such as the 39th ASEAN Ministerial Meeting, the 11th ASEAN Summit Kuala Lumpur, the First Malaysian Womens Games, the Perdana Global Peace Forum and COMINAC.
PROTON also undertook several educational initiatives including those related to the automotive industry and key support services. These included supporting a special educational scheme for unemployed graduates and one for high-flyers in the SPM examinations; collaborating with institutes of higher-learning; contributing cash or donations in kind or sponsoring cars for activities initiated by educationalrelated organisations; and providing an educational relief fund for underprivileged groups. In support of road safety efforts, PROTON supported a defensive driving course for car owners and supported a defensive motorcycle riding programme for employees and the public in conjunction with Majlis Keselamatan Jalan Raya. We also supported the KLIMS 2006 Road Safety Campaign. As part of our commitment to the development of national sports, in particular key sports that would enhance Malaysias and PROTONs image in the global sports arena, we supported the development of Malaysian Badminton through the Program Penajaan Sukan (PROTON-BAM) and local motorsports through several motorsports events. Our motorsports initiatives included such R3 (RaceRallyResearch) programmes as the Merdeka Millennium Endurance (MME) Race, the Malaysian Rally Championship, the Street Shoot Out & Time Attack and the A1 GP Malaysia. We also helped promote Malaysia among international motorsport audiences by supporting Malaysias A1 Team. Other sports initiatives included supporting the Womens Sports & Fitness Foundation of Malaysia in their national fitness programme as well as sponsoring the Tour de Langkawi. Funds were also channelled towards various registered charities and worthy causes including the Yayasan Harapan Kanak-Kanak Malaysias Gift of Hope Night 06; Pusat Harian Kanak-kanak Spastik Bandar Ipoh; Majlis Amal Pesara for a haemodialysis machine; as well as the Pertubuhan Kebajikan Anak-anak Yatim & Miskin for its charity fund. We also lent our support to other institutions such as the Yayasan Sultan Idris Shah and Badan Amal Darling. As part of PROTONs natural disaster fund relief efforts, we provided assistance to the community in Shah Alam affected by floods in early 2006. In addition, fishing boats pledged by PROTON in aid of the tsunami victims in Kedah were recently delivered to fishermen who were affected by the tragedy. We have allocated funds for disbursement to affected communities for future relief efforts as and when such help is required. PROTON remains committed to raising the standards of and caring for the communities we operate in.
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OPERATIONS REVIEW
ENVIRONMENT, HEALTH AND SAFETY
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ANNUAL REPORT 2006
As a responsible corporate citizen, PROTON has taken steps to ensure that we practice sustainable development meeting present needs without compromising future prospects as part of our overall working environment, from the manufacturing process and the cars we make, to factory safety and the conditions under which our employees work.
PROTON provides the resources for as well as promotes good environmental protection, health and safety (EHS) practices to ensure the safety and health of our employees and the protection of our environment. We actively instil an awareness of and look after the safety and health needs of our employees, our business associates and the general public. PROTON believes that technological advancements and national development at the cost of the environment or civilised society will not help us achieve the Malaysia that we aspire to create. We stand fir m in the belief that all development must be sustainable to be viable. In line with this philosophy, we have integrated our objective into every component of PROTON. Although it is an added cost of millions of ringgit a year to us, PROTON believes that being an environmental-friendly corporate citizen is an integral part of our responsibility as the national car manufacturer. PROTONs car manufacturing processes have been designed to be environmentally-friendly and to comply with strict internationally-accepted standards and legal compliance. For example, waste water resulting from the manufacturing process and other sources are treated at PROTONs own waste water treatment facility in compliance with the Department of Environments regulations before being discharged into the river as clean water.
Recycling is also encouraged and by-products such as paper and boxes are sent to vendors for recycling. The increased use of metal and reusable plastic boxes instead of wooden boxes, is a conscious effort on our part to reduce the need for logging trees. PROTON is also committed to phasing-out the consumption of Ozone Depleting Substances in the manufacturing process and components we use by using alternative materials and processes. PROTON also encourages our component suppliers to phase-out Ozone Depleting Substances in their industrial and manufacturing processes. PROTON, as a responsible corporate organisation, carries out various safety campaigns and training, including training on hearing conservation, defensive driving and riding and also fire safety for all its employees. PROTON also provides an Ergonomics programme where studies are being made to reduce work related injuries, occupational diseases, improve safety levels in the factory, work quality and productivity. As we move ahead, PROTON will endeavour to uphold good EHS practices in all our dealings with all our target audiences and in all our activities.
CARING
Taking care of our customer needs dictate how we design the environment around us.
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STATEMENT ON CORPORATE GOVERNANCE

Statement on
Corporate
The Board is committed to applying the recommendations of the Malaysian Code on Corporate Governance to ensure that good corporate governance is practiced throughout the Group to effectively discharge its responsibilities to protect and enhance shareholder value. Set out below is a statement on how the Group has applied the principles of the Malaysian Code on Corporate Governance.
Governance
BOARD OF DIRECTORS
The Board is committed to establishing and enhancing shareholder value in the long-term. To this end, the Board is responsible for the overall Group strategy, acquisition and divestment policies, capital expenditures, annual budget, review of financial and operational performance, and internal controls and risk management processes. The Managing Director (MD) on the other hand is responsible for the implementation of broad policies approved by the Board and reports and discusses material matters including regulatory developments and strategic projects to the Board. There is therefore a natural separation of management and governance leading to a balance of power and authority.
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ANNUAL REPORT 2006
In the financial year ended 31 March 2006, the Board of PROTON Holdings Berhad (PHB) met twenty one (21) times. The following are the details of attendance of the Directors: No. Name of Director Designation Date of Appointment 17 Dec 2004 Date of Resignation Meeting Attendance 20/21
1.
Dato Mohammed Azlan bin Hashim Chairman Syed Zainal Abidin bin Syed Mohamed Tahir Lt. Gen (R) Dato Seri Mohamed Daud bin Abu Bakar Abdul Jabbar bin Abdul Majid
Non-Independent Non-Executive Chairman Managing Director
2.
1 Jan 2006
4/4
3.
Independent Non-Executive Director Independent Non-Executive Director Non-Independent Non-Executive Director Non-Independent Non-Executive Director Independent Non-Executive Director Non-Independent Non-Executive Director Non-Independent Non-Executive Director Chief Executive Officer
12 Apr 2004
20/21
4.
12 Apr 2004
15/21
5.
Badrul Feisal bin Abdul Rahim
12 Apr 2004
19/21
6.
17 Dec 2004
21/21
7.
Abdul Kadir bin Md Kassim
10 Mar 2005
21/21
8.
Dato Ahmad bin Haji Hashim
26 Oct 2005
6/8
9.
Dato Haji Abd. Rahim bin Haji Abdul Tengku Tan Sri Dr. Mahaleel bin Tengku Ariff Datuk Kisai bin Rahmat
17 Dec 2004
2 Sep 2005
6/9
10.
12 Apr 2004
30 Sep 2005
6/11
11.
Executive Director
I Jan 2006
31 Jul 2006
3/4
The profiles of the directors are set out on pages 14 to 21 of the Annual Report. Board meetings for a particular year are scheduled in advance before the start of each calendar year. Additional meetings are convened whenever necessary.
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BOARD COMPOSITION AND BALANCE

The Board consists of eight members, with the Chairman who is a Non-Independent Non-Executive Director, three NonIndependent Non-Executive Directors, three Independent Non-Executive Directors and one Executive Director. As in the previous year, Abdul Jabbar bin Abdul Majid is the Companys Senior Independent Director to whom concerns pertaining to the Group may be conveyed by shareholders and the public.
POLICY ON DIRECTOR APPOINTMENTS

The Board Nomination Committee reviews all new appointments by taking into consideration the skill sets required by the Company and the Group. The Board has formulated guiding principles for appointment of directors for Proton Holdings Berhad, its subsidiary, associate and investee companies. New directors are required to undergo familiarisation programmes, plant visits and briefings to get a better understanding of the Proton Group, its operations and the automotive industry. The Board Nomination Committee annually reviews the mix of skills and experience of the Directors to ensure that the Board has the right balance and effectiveness.
INDEPENDENCE AND CONFLICT OF INTEREST

The Directors are required to make written declarations and it is their responsibility to declare whether they have a potential or actual conflict of interest in any transaction. Where issues involve conflict of interest, the interested Directors abstain from discussing or voting on the matter.
RE-ELECTION OF DIRECTORS
All Directors including the Executive Director are subject to retirement by rotation at least once in every three years and are eligible for re-election. In accordance with Article 104 of the Companys Articles of Association, 1/3 of the Directors shall retire from office at each Annual General Meeting. The following Directors shall retire by rotation at the forthcoming Annual General Meeting of PROTON Holdings Berhad and have offered themselves for re-election: 1. 2. Dato Mohammed Azlan bin Hashim; and Abdul Jabbar bin Abdul Majid
SUPPLY OF INFORMATION
In general, board papers and minutes of previous meetings of the Board and Board Committees including minutes of board meetings of subsidiary companies are circulated in advance to the Board before a board meeting. Senior management as well as professionals and external advisors are, from time to time invited to attend board meetings. The Board has access to the Company Secretary who is available to provide the Directors with the appropriate advice and services and also to ensure that the relevant procedures are followed.
Any new appointed director shall hold office only until the next Annual General Meeting of the Company and shall be eligible for re-election under Article 111. The following Directors shall retire pursuant to the said Article and have offered themselves for re-election. 1. 2. Dato Ahmad bin Haji Hashim Syed Zainal Abidin bin Syed Mohamed Tahir
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ANNUAL REPORT 2006
BOARD COMMITTEES
The Board has delegated specific responsibilities to five sub-committees, namely the Board Audit Committee, Board Nomination Committee, Board Remuneration Committee, Board Risk Management Committee and Board Executive Committee. The said Committees have the authority to examine specific issues and report to the Board with their recommendations. The responsibility of decisions on all matters ultimately lies with the Board as a whole.
(I) BOARD AUDIT COMMITTEE

The composition of the Board Audit Committee and the respective attendance record of meetings of its members for the financial year ended 31 March 2006 are as follows: No. Name of Director Designation Date of Appointment 10 Mar 2005 Date of Resignation Meeting Attendance 16/16
1.
Abdul Jabbar bin Abdul Majid Chairman
Chairman Independent Non-Executive Director Member Non-Independent Non-Executive Director Member Independent Non-Executive Director
2.
10 Mar 2005
15/16
3.
10 Mar 2005
16/16
During the financial year, the Board Audit Committee of PROTON Holdings Berhad undertook the following activities: (a) Assisted the Board in discharging its statutory duties and responsibilities relating to accounting and reporting practices of the Company and the Group in accordance with Generally Accepted Accounting Practices. (b) Reviewed the external audit terms of engagement, the audit strategy, the proposed audit fee and the achievement of the agreed upon reporting timeframes for the audit of the financial statements. (c) (d) (e) Reviewed the external audit reports and discussed any problems and reservations arising thereon. Reviewed the internal audit plan, methodology, functions and resources. Took cognisance of findings on internal audit reports and management response.
The Board Audit Committee Terms of Reference is set out below.
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COMPOSITION The Committee shall be appointed from amongst the Board and shall:(i) (ii) (iii) comprise of no fewer than three members; a majority of the members must be independent directors; and at least one member must be a member of the Malaysian Institute of Accountants or if he is not, then he must be a person who complies with Paragraph 15.10 of Bursa Malaysia Securities Berhads Listing Requirements.
The Chairman, who shall be elected by the members of the Committee, shall be an independent director. No alternate director may be appointed as a member of the Board Audit Committee. The Board will review the terms of office and the performance of the Board Audit Committee and its members at least once every three years. FUNCTIONS AND DUTIES The functions and duties of the Board Audit Committee shall be to:(a) Review and report to the Board of Directors on the following: with the External Auditors, the audit plan; with the External Auditors, the External Auditors evaluation of the system of internal controls; with the External Auditors, the External Auditors audit report; the assistance given by the Companys employees to the External Auditors;
the adequacy of the scope, functions and resources of the internal audit functions and that it has the necessary authority to carry out its work, and the performance of the members of the internal audit function; the internal audit programme, processes, the results of the internal audit programme, or investigations undertaken and whether or not appropriate action is taken by the management on the recommendations of the internal audit function; the quarterly results and year-end financial statements, prior to the approval by the Board of Directors, focusing particularly on:(i) (ii) (iii) changes in or implementation of major accounting policy; significant and unusual events; compliance with accounting standards and other legal requirements; and
(iv) accuracy and adequacy of the disclosure of information essential to a fair and full presentation of the financial affairs of the Group; any related party and conflict of interest situation that may arise within the listed issuer or group including any transaction, procedure or course of conduct that raises questions of management integrity; promptly report to Bursa Malaysia Securities Berhad on any matter reported by it to the Board of the Company which has not been satisfactorily resolved resulting in a breach of the Listing Requirements of Bursa Malaysia Securities Berhad; submit to the Board a Report on the summary of activities of the Board Audit Committee in the discharge of its functions and responsibilities in respect of each financial year.
(b)
Consider the appointment of the external auditor, the audit fee and any questions of resignation and dismissal.
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MEETINGS The Committee shall hold meetings on at least four occasions each year, although additional meetings may be called, as and when necessary, by the Chairman of the Committee. These meetings will usually be: prior to the current years audit; upon completion of the Exter nal Auditors interim examination; prior to the meeting of the full board to approve the financial statements; prior to the announcement of the quarterly results; upon the request of any member of the Committee or the External Auditors, the Chairman of the Committee shall convene a meeting of the Committee to consider the matters brought to its attention; at least once a year, the Committee shall meet with the External Auditors without any Executive Directors present.
INTERNAL AUDIT FUNCTION The Group uses the services of the Group Internal Audit Division to accomplish its internal audit requirements. The Group Internal Audit Division reports to the Board Audit Committee on matters concerning the Group and assists the Board of Directors in monitoring and managing risks and internal controls. The Group Internal Audit Division reviews internal controls related to all key activities of the Group and recommends improvements in controls and procedures. The Group Internal Audit Division is independent of the activities it audits and performs with impartiality and due professional care. The findings of the Group Internal Audit Division are reported to the Board Audit Committee. The Board Audit Committee approves the internal audit plan of the Group Internal Audit Division each year. The scope of the inter nal audit covers the audits of all units and operations, including subsidiaries. During the year, the Group Internal Audit Division serves to ensure control measures are adequate and effective in mitigating key risks and that they are monitored. The monitoring process will for m the basis for continually improving the risk management process in the context of the Groups overall goals. In the course of auditing, the Group Internal Audit Division has identified some minor internal control weaknesses during the period, which have been or are being addressed. None of the weaknesses has resulted in any material losses, contingencies or uncertainties that would require disclosure in the Groups Annual Report.
ATTENDANCE In order to form a quorum in respect of a meeting of an audit committee, the majority of members present must be independent directors. The Chairman may request that directors and members of the management, the Internal Auditors and representatives of the External Auditors be present at meetings of the Committee.
MINUTES The Company Secretary shall be the Secretary to the Committee and shall be present at all meetings to record minutes. Minutes of each meeting shall be prepared and entered into the books provided for the purpose and sent to the Committee members and will be made available to all Board members. The Minutes shall be signed by the Chairman of the Committee.
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(II) BOARD NOMINATION COMMITTEE

The Board Nomination Committee reviews new director appointments of the Group and the balance and effectiveness of the boards of directors, taking into account the required mix of skills and experience and other qualities, before making recommendations to the Board. It also reviews appointments of Senior Level Critical Mission positions for PROTON Group. The Board Nomination Committee is made up entirely of Non-Executive Directors, with the majority consisting of Independent Non-Executive Directors. No. Name of Director Designation Date of Appointment 10 Mar 2005 Date of Resignation Meeting Attendance 5/5
1.
Dato Mohammed Azlan bin Hashim
Chairman Non-Independent Non-Executive Director Member Independent Non-Executive Director Member Non-Independent Non-Executive Director Member Independent Non-Executive Director Member Independent Non-Executive Director
2.
10 Mar 2005
5/5
3.
10 Mar 2005
4/5
4.
10 Mar 2005
3/5
5.
10 Mar 2005
5/5
* With effect from 1 August 2006, the Board Nomination Committee and Board Remuneration Committee have merged as one entity, known as Board Nomination & Remuneration Committee.
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ANNUAL REPORT 2006
(III) BOARD REMUNERATION COMMITTEE

The Board Remuneration Committee is empowered to conduct periodic reviews on the overall remuneration policy and package for the Executive and Non-Executive Directors and Senior Level Critical Mission positions of the Group for recommendation to the Board. The Board Remuneration Committee is made up of Non-Executive Directors and third party members (not being directors of the Company) who are appointed by the Board from time to time. No. Name of Director Designation Date of Appointment 10 Mar 2005 Date of Resignation Meeting Attendance 5/5
1.
Chairman Non-Independent Non-Executive Director Member Independent Non-Executive Director Member Independent Member Independent Member Non-Independent Non-Executive Director Chairman Non-Independent Non-Executive Director
2.
10 Mar 2005
4/5
3. 4. 5.
Ahmad Tajuddin bin Abdul Carrim Md Ali bin Md Dewal Lt. Gen (R) Dato Seri Mohamed Daud bin Abu Bakar
29 Aug 2005 29 Aug 2005 10 Mar 2005
29 Aug 2005
4/4 4/4 1/1
6.
10 Mar 2005
29 Aug 2005
1/1
* With effect from 1 August 2006, the Board Remuneration Committee and Board Nomination Committee have merged as one entity, known as Board Nomination & Remuneration Committee.
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(IV) BOARD RISK MANAGEMENT COMMITTEE

The Board Risk Management Committee assists the Board to oversee the overall management of all risks faced by the Groups business. Further details of the activities of the Board Risk Management Committee are spelt out in the Statement of Internal Control. The Board Remuneration Committee is made up of Non-Executive Directors and third party members (not being directors of the Company) who are appointed by the Board from time to time. No. Name of Director Designation Date of Appointment 29 Aug 2005 Date of Resignation Meeting Attendance 1/1
1.
Chairman Independent Non-Executive Director Member Non-Independent Non-Executive Director Member Independent Member Independent Member Independent Member Independent Non-Executive Director Chairman Non-Independent Non-Executive Director Member Non-Independent Non-Executive Director
2.
29 Aug 2005
1/1
3. 4. 5. 6.
Datuk Michael Lim Heen Peok Datuk Tan Kim Leong Md Ali bin Md Dewal Lt. Gen (R) Dato Seri Mohamed Daud bin Abu Bakar
29 Aug 2005 29 Aug 2005 29 Aug 2005 10 Mar 2005
29 Aug 2005
1/1 1/1 1/1 1/1
7.
10 Mar 2005
29 Aug 2005
1/1
8.
Dato Haji Abd. Rahim bin Haji Abdul
10 Mar 2005
29 Aug 2005
1/1
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ANNUAL REPORT 2006
(V) GROUP EXECUTIVE COMMITTEE/ BOARD EXECUTIVE COMMITTEE

(a) GROUP EXECUTIVE COMMITTEE A Group Executive Committee (GEXCO) was formed on 26 July 2006, to facilitate the transition period, in view of the retirement of the then Group Chief Executive Officer. The GEXCO comprised four members, with two representatives from amongst the Board members and the remaining representatives from the management team. The members were: Chairman : Dato Mohammed Azlan bin Hashim Members : Badrul Feisal bin Abdul Rahim Datuk Kisai bin Rahmat (Joint Chief Operating Officer) Datuk Kamarulzaman bin Darus (Joint Chief Operating Officer) (b) BOARD EXECUTIVE COMMITTEE Subsequently on 21 December 2005, the Board resolved to disband the GEXCO with effect from 31 December 2006 and in place, set up a Board Executive Committee (EXCO) comprising the following members: Chairman : Dato Mohammed Azlan bin Hashim Members : Syed Zainal Abidin bin Syed Mohamed Tahir Badrul Feisal bin Abdul Rahim Datuk Kisai bin Rahmat The key objective of the Board EXCO is to facilitate decisions to be made by the Board and the timely response to changes affecting the Company through more frequent meetings of a smaller number of appointed members of the Board who have the power to provide direction to the Management of the Company. The Board subsequently resolved to disband Board EXCO with effect from 30 June 2006.
DIRECTORS TRAINING
All Directors have successfully completed the Mandatory Accreditation Programme. Despite repeal of Bursa Malaysia Securities Berhads Continuing Educational Programme with effect from 1 January 2005, the Directors continue to identify and attend appropriate seminars and courses to keep abreast of changes in legislation and regulations affecting the Group.
DIRECTORS REMUNERATION
In the case of the Executive Directors, the remuneration is structured to link rewards to corporate and individual performance through key performance indicators comprising fixed and per for mance-based rewards. The Board Remuneration Committee is responsible for reviewing the performance of the Executive Directors and recommending to the Board the remuneration package and reward structure. The Board Remuneration Committee carries out reviews when appropriate and refers to remuneration surveys and consultants to assist in determining the appropriate level of reward, which is competitive and consistent with the corporate objectives. This is necessary in order to attract and retain professionals with the qualities needed to manage the Group successfully.
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In the case of Non-Executive Directors, the Board as a whole determines the remuneration of the Non-Executive Directors. A Non-Executive Directors Scheme/Policy has been formulated as a guideline for the determination of remuneration and benefits for the Non-Executive Directors at PROTON Group. The level of remuneration of the Non-Executive Directors reflects the experience and level of responsibilities undertaken by the Director concerned. The Non-Executive Directors are paid annual fees and attendance allowances in accordance with the number of meetings attended. In addition, the Non-Executive Directors are each provided with the use of car. Details of the total remuneration of the Directors of PROTON Holdings Berhad for the financial year ended 31 March 2006 are as follows: Directors Basic Salaries Bonus and EPF 955,638 955,638 Fees and Allowance 127,070 691,811 818,881 Benefits in Kind Total
Executive Directors Non-Executive Directors TOTAL
56,837 23,733 80,570
1,139,545 715,544 1,855,089
Number of Directors Range of Total Remuneration RM50,000 and below RM50,001 RM100,000 RM150,001 RM200,000 RM250,001 RM300,000 RM500,000 RM1,000,000 TOTAL Executive 2 1 3 Non-Executive 2 5 1 8 Total 2 5 2 1 1 11
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ANNUAL REPORT 2006
FINANCIAL REPORTING
The Board is committed to providing a balanced, clear and meaningful assessment of the financial performance and prospects of the Group to shareholders, the investor community and the regulatory authorities. Shareholders and other stakeholders are kept abreast of the Groups per formance through the timely announcement of the quarterly financial results and accompanying press releases. The Board Audit Committee assists the Board to oversee the financial reporting processes and the quality of its financial reporting. Quarterly financial results and annual financial statements are reviewed by the Board Audit Committee to ensure adequacy and completeness of information prior to the Boards approval. To enhance the quality of the Groups financial reporting, the external auditors will be conducting quarterly reviews of the Groups quarterly results in addition to the year-end audit.
In preparing the financial statements the Board has; Selected suitable accounting policies and applied them consistently; Made judgements and estimates that are reasonable and prudent; Ensured that all applicable accounting standards have been followed; and Prepared financial statements on the going concern basis as the Directors have a reasonable expectation, having made enquiries that the Group has adequate resources to continue its operations for the foreseeable future.
INTERNAL CONTROLS
The Board acknowledges its overall responsibility for maintaining a system of internal controls that provides assurance of effective and efficient operations and compliance with laws and regulations and also its internal procedures and guidelines. The size and complexity of the operations may give rise to risks of unanticipated or
DIRECTORS RESPONSIBILITY STATEMENT

The Board is required by the Companies Act, 1965, to ensure that financial statements prepared for each financial year have been made out in accordance with the applicable approved accounting standards and give a true and fair view of the state of affairs of the Company and the Group at the end of the financial year, as well as of the results and cash flow of the Company and the Group for the financial year. The Board is responsible for ensuring that the Company keeps accounting records which disclose with reasonable accuracy, the financial position of the Company and the Group and that the financial statements comply with the Companies Act, 1965.
unavoidable losses. The system of internal controls is designed to provide reasonable but not absolute assurance against the risk of material errors, frauds or losses occurring. The Board Audit Committee reviews the effectiveness of the system of internal controls, which covers financial, operational and compliance controls, and also risk management.
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RELATIONSHIP WITH AUDITORS

The Board Audit Committee maintains an appropriate transparent relationship with both the Group external auditors and internal auditors. The external auditors are invited to attend Board Audit Committee meetings and present their audit findings when the Companys annual financial results are considered. The Board Audit Committee meets with the external auditors at least once a year without the presence of the Executive Director and management.
In addition, the Chairman briefs the shareholders on the companys operations for the financial year. Senior management and the external auditors are present to respond to questions and queries to ensure a high level of accountability and transparency of the business goals, strategy and operations. For investors, regular dialogues are held with financial analysts and fund managers representing institutional and individual shareholders through the investor relations programme. Besides the Annual Report, the Board ensures timely announcements are made to Bursa Malaysia Securities Berhad and disseminates clear, accurate, and sufficient information to enable the shareholders and investors to make informed decisions. The Investor Relations Unit also proactively disseminates appropriate and relevant information to the investor community and attends to whatever queries they may have.
DIALOGUE BETWEEN THE COMPANY AND INVESTORS

The Board recognises the importance of transparency and accountability to its shareholders and investors. Different channels of communication are optimised to provide shareholders and investors with a balanced and complete view of the Groups performance and the issues faced by its businesses in the competitive environment amidst a changing landscape. The issue of the Annual Report is an important medium of information for the shareholders and investors whereas the Annual General Meeting of the Company is the main forum for communication and dialogue with the shareholders. Shareholders are encouraged to actively participate and interact with the Board and members of the senior management pertaining to the agenda items during the general meeting.
ADDITIONAL COMPLIANCE INFORMATION

ANNUAL REPORT 2006
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NON-AUDIT FEES
During the financial year, the amount of non-audit fees paid and payable to the external auditors by the Group are as follows: External Auditors 2006 RM000 1,934 362 2005 RM000 87 1,682
PricewaterhouseCoopers Malaysia Member firm of PricewaterhouseCoopers International Limited, a separate and independent legal entity from PricewaterhouseCoopers Malaysia Total
2,296
1,769
MATERIAL CONTRACTS
(i) By an investment agreement dated 7 July 2004 entered into between Proton Capital Sdn. Bhd. (PCSB) and Claudio Castiglioni, PCSB acquired 57,750,000 Class A shares representing 57.75% of the corporate capital of MV Agusta Motor S.p.A (MVA) for Euro70 million. MVA is a company organised and existing under the laws of Italy and the principal activity of MVA is the manufacturing and marketing of motorcycles and related products. In connection with the investment agreement, PCSB entered into a shareholders agreement dated 26 November 2004 with Claudio Castiglioni in relation to governance and other shareholder issues concerning MVA. By an agreement dated 24 December 2005 entered into between PCSB and GEVI S.pA, a company incorporated under the laws of Italy (Purchaser), PCSB agreed to sell to the Purchaser 57,750,000 Class A shares representing 57.75% of the corporate capital of MVA to the Purchaser in consideration of Euro 1.00. The agreement was completed on 1 March 2006.
(ii)
Announcements to Bursa Malaysia Securities Berhad were made in accordance with the Listing Requirements.
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STATEMENT ON INTERNAL CONTROL

Statement
On
Internal
INTRODUCTION The Malaysian Code on Corporate Governance requires listed companies to maintain a sound system of internal control to safeguard shareholders investments and the Groups assets.
Directors of listed companies are required to make disclosures in their annual reports on the state of internal control in accordance with the Revamped Listing Requirements of the Bursa Malaysia. The Bursa Malaysias Statement on Internal Control: Guidance for Directors of Public Listed Companies (Guidance) provides guidance for compliance with these requirements. The Boards Internal Control Statement, which has been prepared in accordance with the Guidance is set out below.
CONTROL
BOARD RESPONSIBILITY
The Board recognizes the importance of sound internal controls and risk management practices to good corporate governance. The Board has an overall responsibility for the Groups system of internal controls and its effectiveness, as well as reviewing its adequacy
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ANNUAL REPORT 2006
and integrity. The Groups system of internal control is designed to manage the principal business risks that may impede the Group from achieving its business objectives. The system, by its nature, can only provide reasonable but not absolute assurance against any material misstatement or loss occurrence.
RISK MANAGEMENT
Risk Management is regarded by the Board of Directors to be an integral part of the Groups operation with the objective of maintaining a sound internal control system and ensuring its continuing adequacy and integrity. It is for this reason that it continues to embed the risk management process in the conduct of the business operations to provide reasonable assurance of achieving the Groups business objective while at the same time enhancing shareholders value. The Group Risk Management Unit (GRMU), established since July 2002, is responsible for ensuring that an appropriate risk management framework exist within the Group and effectively implemented to manage the key risk exposures of the organization on an ongoing basis.
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STATEMENT ON INTERNAL CONTROL

To ensure the effective & systematic implementation of the Groups Risk Management Framework, Risk Management Champions were nominated comprising representatives from key Business Units and Subsidiaries to ensure enterprise level risks are effectively cascaded down to the operational level and effectively managed. GRMU together with the Risk Management Champions has undertaken a number of risk assessments during the year which include risks associated to quality, vendors and continue to monitor risk related to operations and projects. GRMU has facilitated in the process of risk identification, reporting, mitigation and continuing resolution of these issues. The Group Risk Management Committee (GRMC) comprises of senior management is responsible for overseeing the risk management implementation, regular updating of the group risk profiles and improving the implementation methodology. The committee also provides direction to the GRMU in carrying out its activities. The Board Risk Management Committee (BRMC), established in November 2003 had conducted periodic meetings to deliberate on risk issues and assist the Board in reviewing risk policies and strategies.
Responsibility for implementing the Groups strategies and day-to-day businesses are delegated to the Management. The organization structure sets out clear segregation of roles and responsibilities, lines of accountability and levels of authority to ensure effective and independent stewardship. During the financial year, the Chief Executive Officer (CEO) had retired. Following the retirement, a Group Executive Committee was promptly set up to assume the decision making authority of the CEO. In addition, a Joint Chief Operating Officers (COO) position was established to oversee the day-to-day operations of the Group. The above measures were taken prior to the appointment of the Managing Director. Board Audit Committee The Board has delegated the duty of reviewing and monitoring the effectiveness of the Groups system of internal control to the Board of Audit Committee (BAC). The BAC comprises non-executive members of the Board, the majority of whom are independent directors. The BAC assumes the overall duties of reviewing with the external auditors their audit plan, audit report, as well as their findings and recommendations on internal controls highlighted annually in the Internal Control Memorandum. Throughout the financial year, the BAC is updated on the Malaysian Financial Reporting Standards, as well as legal and regulatory requirements. It also reviews the effectiveness of the internal audit function with particular emphasis on the scope and quality of audits, resources as well as independence of the Group Internal Audit Department (GIAD). The composition of the Audit Committee consists of members who bring with them a wide variety of experience from different industries and backgrounds. They continue to meet regularly and have full and unimpeded access to the internal and external auditors and all employees of the Group. Further information relating to the activities of the BAC are set out in the Statement on Corporate Governance.
ASSURANCE MECHANISM
The Board and Management have established numerous processes for identifying, evaluating and managing the significant risks faced by the Group. These processes include updating the system of internal controls when there are changes to the business environment or regulatory guidelines. The key elements of the Groups control environment include: Organisation structure The Board is supported by a number of established Board committees in the execution of its responsibilities, namely Audit, Nomination, Remuneration and Risk Management, the details of which are set out in the Statement on Corporate Governance. Each committee has a clearlydefined terms of reference.
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ANNUAL REPORT 2006
Group Internal Audit The GIAD continues to independently monitor compliance with policies and procedures and the effectiveness of the internal control systems and highlights significant findings and corrective measures in respect of any non-compliance on a timely basis. The annual audit plan, established primarily on a risk-based approach, is reviewed and approved by the BAC annually before the commencement of the following financial year and a quarterly work status update is given by GIAD. GIAD also reports to the Management Committee on monthly basis on the status of implementation of recommendations arising from the audit findings by both GIAD and also the external auditors. Further information relating to the activities of GIAD functions are set out in the Statement on Corporate Governance.
Management Committee meetings are held on a regular basis to identify, discuss and resolve operational, financial and key management issues; A comprehensive budgeting process where the annual budgets are approved by the Board and reviewed at mid year; The Board receives and reviews monthly reports from management on key strategic and operational issues and provides direction to management; Regular visits to operating units and subsidiaries by senior management; Measurement of each departments per for mance against a set of common criteria via internal survey questionnaires; Continuous training efforts to enhance competency of the workforce; and Formal employee appraisal system for effective coaching and evaluation of employee performance.
OTHER KEY ELEMENTS OF INTERNAL CONTROL

The other key elements of the Groups internal control systems are described below: Defined delegation of responsibilities to committees and management of Head office and operating units, including authorization levels for various aspects of the business which are set out in the Limits of Authority which had been revised in 2005 in line with the changing business, operational and statutory reporting needs; Documented internal policies and procedures set out in the Group Policies and Procedures which also had been revised in 2005 to meet changing business, operational and statutory reporting needs and certification by ISO 9001:2000 of the Quality System Procedures for the Company and 2 major subsidiaries within the Group; Quarterly financial statements and the Groups per for mance are deliberated by the BAC, which subsequently presents them to the Board for their review, consideration and approval.
CONCLUSIONS
For the Financial Year under review, after due and careful inquiry and based on the infor mation and assurance provided, the Board is satisfied that there were no material losses as a result of weaknesses in the system of internal control, that would require separate disclosure in the Companys Annual Report. Nevertheless, areas requiring attention are accorded with more regular monitoring to ensure ongoing adequacy and effectiveness of internal controls and safeguarding shareholders investment and the Groups assets. The statement is made in accordance with the resolution of the Board of Directors dated 26 July 2006.
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RISK MANAGEMENT
Management
Balancing risk and reward is important but reward does not come without risk. PROTON has continued to implement a Risk Management Framework to ensure risks that are faced by the organization are effectively managed.
RISK
RISK MANAGEMENT FRAMEWORK

PROTON Group has adopted a Risk Management Framework that consists of the following:-
RISK POLICY & STRATEGY

Risk policies had been developed in PROTON and its major subsidiaries to provide a basis to manage potential risk that arise from the business process and as a guide in its decision making process.
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ANNUAL REPORT 2006
RISK GOVERNANCE & CULTURE
BOARD OF DIRECTORS BOARD RISK MANAGEMENT COMMITTEE (BRMC)

Liaison
Reporting Flow Chart
GROUP CEO/MANAGING DIRECTOR GROUP RISK MANAGEMENT COMMITTEE (GRMC) ALL BUSINESS UNITS & PROTON GROUP OF COMPANIES
GROUP RISK MANAGEMENT UNIT (GRMU)

Liaison
Board Risk Management Committee The Board Risk Management Committee that was formed in November 2003, continues to meet periodically to review among others, the risk report updates, and oversee the implementation and operation of the Risk Management Framework. The Board Risk Management Committee comprise of 5 non-executive directors. Group Risk Management Committee The Group Risk Management Committee that comprise members of senior management has the responsibility among others, to identify and evaluate principal risks and evaluate the practicality of the proposed risk mitigation actions. The Group Risk Management Committee met 6 times for the period of review.
Risk Management Units of major subsidiaries Risk Management Unit of major subsidiaries continues to report to Group Risk Management Committee high risk events facing their respective companies and its mitigation status, via the Group Risk Management Unit. Group Risk Management Unit consolidates the group significant risks and reports it to Group Risk Management Committee.
RISK MEASUREMENT
A standard Risk Management methodology has been developed and has been used for Risk Assessment purposes for identifying, rating and monitoring the operational risk, market risk and project risk faced by PROTON and its major subsidiaries.
Group Risk Management Unit The Group Risk Management Unit continues to inculcate the Risk Management culture within PROTON and its major subsidiaries via the Risk Awareness and Profiling programs. Group Risk Management Unit together with the risk champions of business operating units has undertaken a series of Risk Profiling programs namely risk related to projects, operations, quality and supplier.
RISK OPERATIONS & SYSTEM

The Group Risk Management Unit is continuously conducting training to ensure that reporting are done using the standard risk reporting format.
CHALLENGES
Moving forward, the challenge is to institutionalize Risk Management culture within PROTON Group as a business culture and to be able to use Risk Management tool to add value towards achieving PROTONs business objectives and enhancing shareholders value.
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CALENDAR OF EVENTS 2005-2006

14-15 July 2005

Savvy Analysts drive from KL to Kuantan, experiencing the driving capability of the model.
24 July 2005
The 18th Annual General Meeting of PROTON Workers Union.
Calendar of
26 July-4 August 2005
HR Week themed, Living the Values, in conjunction with the launch of Corporate Mantra.
EVENTS 05-06
10 August 2005
A visit by worldwide trade commissioners from MATRADE for a first-hand view of PROTONs facilities.
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ANNUAL REPORT 2006
10 September 2005
A 10-year Service Award Ceremony was held to honour and acknowledge long-serving employees of PROTON.
12-14 August 2005

The 15th National Skills Competition, organised by PROTON and Works Ministry, to inculcate technical skills among apprentices.
28 September 2005
PROTON Holdings Berhads 2nd Annual General Meeting.
5 October 2005
Visit by the Minister for Housing & Urban Development, Punjab, Pakistan, H.E. Syed Raza Ali Gillani.
29 September 2005
Innovative and Creative Circle (ICC) Convention for PROTON vendors.
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15 November 2005
Media preview of the Savvy AMT, introducing a new technology to local market.
14 November 2005
Prize presentation to the winner of National Jersey Competition, in which PROTON is one of the main sponsors.
15 November 2005
Official unveiling of Savvy AMT, handing over to its first batch of customers.
16 November 2005
Journalists from Qatar and Egypt visit PROTON.
21 November 2005
Handover Ceremony of official cars for 11th ASEAN Summit organised by the Ministry of Foreign Affairs.
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ANNUAL REPORT 2006
24 November 2005
The PROTON team emerged second runnerup at the National Level Innovation Convention Circle competition organised by the National Productivity Centre.
30 November 2005
The prize presentation to the winners of PROTON 20-Year Campaign (P20Y).
10-14 December 2005

PROTON showcased its products at the East-Asia Business Exhibition (EABEX 05) held at Kuala Lumpur Convention Centre.
15 December 2005
Launch of the Proton Chancellor by the Deputy Minister of Transport, Tengku Dato Seri Azlan ibni Sultan Abu Bakar.
11 December 2005
The Drive Safe, Smart and Wise programme for Gen.2 Club members.
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28 December 2005
Visit by directors of PROTON Groups to Tanjung Malim plant.
15 December 2005
Visit by representatives of Jinhua Youngman Automobile Manufacturing, China.
4 January 2006
Media visit to Chancellor assembly line.
13 January 2006
Official launch of the Proton Waja Campro.
27 January 2006
PROTON officially sponsors A1 Team Malaysia in the inaugural A1 Grand Prix 2006.
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ANNUAL REPORT 2006
3 February 2006
Signing ceremony of the Memorandum of Understanding between PROTON and Mitsubishi Motors Corporation, witnessed by the Minister of International Trade & Industry, Y.B. Dato Seri Rafidah Aziz.
3-12 February 2006

PROTON participates as the Official Vehicle sponsor for the Le Tour De Langkawi 2006.
14 February 2006
A Savvy Kind of Love promotion launched by Malaysian Idols 2005, Daniel Lee.
19 February 2006
Customers Appreciation Day held at PROTON Centre of Excellence, Subang Jaya.
17 March 2006
Charity program organised for Rumah Amal Limpahan Kasih, a home for underprivileged orphans and single mothers.
1 March 2006
Launch of Lotus Europa at Geneva Motorshow.
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4 April 2006
Haji Abdul Kadir Md. Kassim with Y.A.B. Dato Seri Mahadzir Kadir, the Menteri Besar of Kedah, during the handing over of boats to fishermen affected by the Tsunami in Kedah.
25-27 March 2006

Journalists and dealers from Turkey visit PROTON.
5 April 2006
Launch of the company-wide Quality Campaign.
25 April 2006
PROTON showcasing its R&D capabilities at the MIGHT Dialogue held at the Putrajaya Convention Centre.
28-30 April 2006

Langkawi Adventure Race 2006 organised by Kelab PROTON for its members.
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ANNUAL REPORT 2006
30 April 2006
A1 Team Malaysias podium finish at the final round of A1 Grand Prix 2006 in China.
16-17 May 2006

PROTON showcase at SMIDEX, exhibiting its exclusive components.
25 May-4 June 2006

PROTONs showcasing range of concept cars and special editions held at KL International Motorshow 2006.
23 May 2006
The Embassys fraternity visits PROTON Showroom at Mutiara Damansara enroute to Tanjung Malim plant.
16 June 2006
Launch of the new Satria Neo, by the Prime Minister of Malaysia, Datuk Seri Abdullah Haji Ahmad Badawi.
29 May 2006
Majlis Anugerah Kecemerlangan by Yayasan Proton to honour children of PROTONs staff who performed with flying colours in PMR and SPM.
STATUTORY Financial
Statements
c o n t e n t s
104 108 109 111 112 Directors Report Income Statements Balance Sheets Consolidated Statement of Changes in Equity Company Statement of Changes in Equity 113 116 175 175 176 Cash Flow Statements Notes to the Financial Statements Statement by Directors Statutory Declaration Report of the Auditors
104
DIRECTORS REPORT
The Directors have pleasure in submitting their annual report to the members together with the audited financial statements of the Group and Company for the financial year ended 31 March 2006.
PRINCIPAL ACTIVITIES
The Company is principally involved in investment holding activities. The principal activities of the subsidiaries, jointly controlled entities and associated companies are set out in Notes 24 to 26 of the financial statements. There have been no significant changes in the activities of the Group and the Company during the financial year.
FINANCIAL RESULTS
Group RM000 Profit after taxation Minority interests Net profit attributable to shareholders 46,394 296 46,690 Company RM000 111,022 111,022
DIVIDENDS
The amount of dividends paid or declared by the Company since 31 March 2005 were as follows: RM000 In respect of the financial year ended 31 March 2005: Final tax exempt dividend of 10.0 sen per ordinary share, paid on 28 October 2005 54,921
The Directors now recommend the payment of a final tax exempt dividend of 5.0 sen per ordinary share on 549,213,002 ordinary shares amounting to RM27,460,650 for the financial year ended 31 March 2006, subject to the approval of members at the forthcoming Annual General Meeting of the Company.
DIRECTORS REPORT
(CONTINUED) ANNUAL REPORT 2006
105
RESERVES AND PROVISIONS

There were no material transfers to or from reserves and provisions during the financial year except as disclosed in the financial statements.
DIRECTORS
The Directors who have held office during the period since the date of the last report are: Dato Mohammed Azlan bin Hashim Syed Zainal Abidin bin Syed Mohamed Tahir Abdul Jabbar bin Abdul Majid Lt Gen (R) Dato Seri Mohamed Daud bin Abu Bakar Badrul Feisal bin Abdul Rahim Mohammad Zainal bin Shaari Haji Abdul Kadir bin Md Kassim Dato Ahmad bin Hj Hashim Datuk Kisai bin Rahmat Dato Haji Abd. Rahim bin Haji Abdul Tengku Tan Sri Dr Mahaleel bin Tengku Ariff (Appointed on 1.1.2006)
(Appointed on 26.10.2005) (Appointed on 1.1.2006) (Resigned on 2.9.2005) (Resigned on 30.9.2005)
In accordance with Article 104 of the Companys Articles of Association, Abdul Jabbar bin Abdul Majid and Dato Mohammed Azlan bin Hashim, retire at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election. In accordance with Article 111 of the Companys Articles of Association, Syed Zainal Abidin bin Syed Mohamed Tahir and Dato Ahmad bin Hj Hashim retire at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election. In accordance with Section 129(2) of the Companies Act 1965, Lt Gen (R) Dato Seri Mohamed Daud bin Abu Bakar, having attained the age of 70, retires at the forthcoming Annual General Meeting and offers himself for reappointment under Section 129(6) of the Companies Act 1965. Datuk Kisai bin Rahmat has tendered his resignation with effect from 31 July 2006.
DIRECTORS INTEREST IN SHARES AND DEBENTURES

According to the register of Directors shareholdings, no Director in office at the end of the financial year held any interest in shares or debentures in the Company or its related corporations.
106
DIRECTORS REPORT
(CONTINUED) PROTON HOLDINGS BERHAD
STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS

Before the income statements and balance sheets of the Group and Company were made out, the Directors took reasonable steps: (a) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and to ensure that any current assets, other than debts, which were unlikely to realise in the ordinary course of business their values as shown in the accounting records of the Group and Company had been written down to an amount which they might be expected so to realise.
(b)
At the date of this report, the Directors are not aware of any circumstances: (a) (b) (c) which would render the amounts written off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the Group and Company inadequate to any substantial extent; or which would render the values attributed to current assets in the financial statements of the Group and Company misleading; or which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and Company misleading or inappropriate.
No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and Company to meet their obligations when they fall due. At the date of this report, there does not exist: (a) (b) any charge on the assets of the Group or the Company which has arisen since the end of the financial year which secures the liability of any other person; or any contingent liability of the Group or the Company which has arisen since the end of the financial year.
At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements which would render any amount stated in the financial statements misleading. In the opinion of the Directors: (a) the results of the Groups and Companys operations during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature except as disclosed in Notes 4 and 43 to the financial statements; and there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely to affect substantially the results of the operations of the Group or the Company for the financial year in which this report is made.
(b)
DIRECTORS REPORT
107
AUDITORS
The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office.
Signed on behalf of the Board of Directors in accordance with their resolution dated 26 July 2006.
DATO MOHAMMED AZLAN BIN HASHIM Chairman
SYED ZAINAL ABIDIN BIN SYED MOHAMED TAHIR Director
108
INCOME STATEMENTS
for the financial year ended 31 March 2006

Note
Group Restated 2006 2005 RM000 RM000 7,796,932 (6,895,091) 901,841 230,544 (439,754) (580,771) (78,834) 8,483,295 (7,102,493) 1,380,802 148,572 (301,453) (409,057) (46,369) 772,495 (46,192) 39,818 13,771 (367,577) 412,315
Company 2006 RM000 111,097 111,097 836 (834) 111,099 111,099 2005 RM000 1,488,839 1,488,839 (1,320) (209) 1,487,310 1,487,310
Revenue Cost of sales Gross profit Other operating income Distribution costs Administrative expenses Other operating expenses Profit from operations Finance cost Share of results of associated companies Share of results of jointly controlled entities operating results goodwill impairment charge Profit before taxation Taxation Company Subsidiary companies Share of taxation in associated companies Share of taxation in jointly controlled entities
4 6
33,026 (43,878) 23,383 15,541 28,072
26
28,409 (7,093) (2,994) 7 18,322 46,394 296 46,690
43,161 (8,396) (4,638) 30,127 442,442 442,442
(77) (77) 111,022 111,022
(364,203) (364,203) 1,123,107 1,123,107
Profit after taxation Minority interests Net profit attributable to shareholders
Earnings per share (sen) basic diluted
8 8
8.5 N/A
80.6 N/A
The notes on pages 116 to 174 form part of these financial statements.
BALANCE SHEETS
as at 31 March 2006
ANNUAL REPORT 2006
109
Note
Group Restated 2006 2005 RM000 RM000
Company 2006 RM000 2005 RM000
CURRENT ASSETS Inventories Trade and other receivables Amounts due from subsidiary companies Amounts due from associated companies Amount due from jointly controlled entities Tax recoverable Short term investments Deposits, bank and cash balances
10 11 12 13 14 15 16
1,389,005 1,142,851 4,394 45,285 51,491 211,965 1,585,982 4,430,973
967,080 1,348,555 3,554 37,866 13,179 201,535 2,454,718 5,026,487
195 68,041 118 49,835 118,189
4,489 6,315 3,713 50,638 65,155
CURRENT LIABILITIES Trade and other payables Provisions Amounts due to subsidiary companies Amounts due to associated companies Amount due to jointly controlled entities Taxation Short term borrowings
17 18 19 20 21 22
1,247,328 217,062 34,904 20,138 16,865 804,766 2,341,063
1,694,165 239,888 5,034 40,395 2,624 227,921 2,210,027 2,816,460
2,719 10,086 12,805 105,384
2,517 13,355 15,872 49,283
NET CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Subsidiary companies Associated companies Jointly controlled entities Other long term investments Deferred tax assets Goodwill
2,089,910
23 24 25 26 27 28 29
3,330,946 155,702 249,963 10,397 105,786 29,008 3,881,802
3,313,352 161,963 255,457 6,276 38,479 29,008 3,804,535
1,465,659 13,600 6,475 1,485,734
1,465,659 17,600 2,475 1,485,734
110
BALANCE SHEETS
as at 31 March 2006 (CONTINUED) PROTON HOLDINGS BERHAD
Note
Company 2006 RM000 2005 RM000
NON-CURRENT LIABILITIES Long term liabilities Deferred tax liabilities
30 28
100,255 805 101,060 5,870,652
759,639 1,074 760,713 5,860,282
1,591,118
1,535,017
FINANCED BY: Share capital Reserves SHAREHOLDERS FUNDS MINORITY INTERESTS
31 32
549,213 5,321,439 5,870,652 5,870,652
549,213 5,310,736 5,859,949 333 5,860,282
549,213 1,041,905 1,591,118 1,591,118
549,213 985,804 1,535,017 1,535,017
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

ANNUAL REPORT 2006
111
Issued and fully paid ordinary shares Number of shares 000 Nominal value of RM1 each RM000 Capital reserves RM000
Non-distributable Foreign exchange translation RM000
Distributable Retained earnings RM000
Note
Goodwill RM000
Total RM000
At 1 April 2004 as previously stated Effect of change in accounting policy As restated Currency translation differences Net profit attributable to shareholders Dividend for the financial year ended 31 March 2005 interim At 31 March 2005
549,213 43 549,213
549,213 549,213
475,617 475,617
(359,597) 359,597
(69,631) (69,631) (12,185)
4,942,385 (330,589) 4,611,796 442,442
5,537,987 29,008 5,566,995 (12,185) 442,442
549,213
549,213
475,617
(81,816)
(137,303) 4,916,935
(137,303) 5,859,949
At 1 April 2005 as previously stated Effect of change in accounting policy As restated Currency translation differences Net profit attributable to shareholders Dividend for the financial year ended 31 March 2005 final At 31 March 2006
549,213 43 549,213
549,213 549,213
475,617 475,617
(727,174) 727,174
(81,816) (81,816) 18,934
5,615,101 (698,166) 4,916,935 46,690
5,830,941 29,008 5,859,949 18,934 46,690
549,213
549,213
475,617
(62,882)
(54,921) 4,908,704
(54,921) 5,870,652
112
COMPANY STATEMENT OF CHANGES IN EQUITY

Issued and fully paid ordinary shares Number of shares 000 * 549,213 549,213 Nominal value of RM1 each RM000 # 549,213 549,213
Distributable Retained earnings RM000 1,123,107 (137,303) 985,804
Note
Total RM000 # 549,213 1,123,107 (137,303) 1,535,017
At 1 April 2004 Ordinary share issued Net profit attributable to shareholders Dividend for the financial year ended 31 March 2005 interim At 31 March 2005
At 1 April 2005 Net profit attributable to shareholders Dividend for the financial year ended 31 March 2005 final At 31 March 2006
549,213 9 549,213
549,213 549,213
985,804 111,022 (54,921) 1,041,905
1,535,017 111,022 (54,921) 1,591,118
* #
Number of share issued is 2 units. Nominal value of share issued is RM2.
CASH FLOW STATEMENTS

ANNUAL REPORT 2006
113
Note
Company 2006 RM000 2005 RM000
CASH FLOWS FROM OPERATING ACTIVITIES Profit after taxation Adjustments for: Taxation Property, plant and equipment: depreciation written off impairment (gain)/loss on disposal Allowance for inventories write down Interest expense Interest income Share of results of associated companies Share of results of jointly controlled entities Impairment of investment in associated company Impairment of goodwill (Write back)/diminution in value of short term investments Gain on disposal of short term investments Loss on dilution in interest of associated company Allowance for doubtful debts Unrealised foreign exchange (gain)/loss Provision for warranties (net of expected reimbursement) Dividend-in-specie Dividend income Operating profit before working capital changes
46,394
442,442
111,022
1,123,107
(18,322) 351,409 82,857 5,066 (218) 46,865 43,878 (67,388) (23,383) (15,541) (7,202) (2,664) 48 117,923 (20,365) 81,314 (9,525) 611,146
(30,127) 312,428 135,643 1,879 23,713 18,527 46,192 (87,910) (39,818) (13,771) 22,000 367,577 7,202 (11,106) 9,983 (6,208) 55,645 (9,178) 1,245,113
77 (588) (111,097) (586)
364,203 224 (1,300,724) (188,115) (1,305)
114
for the financial year ended 31 March 2006 (CONTINUED) PROTON HOLDINGS BERHAD
Note
Company 2006 RM000 2005 RM000
CASH FLOWS FROM OPERATING ACTIVITIES (CONTINUED) Changes in working capital: Inventories Receivables trade and other receivables subsidiary companies associated companies and jointly controlled entities Payables trade and other payables provisions for liabilities and charges subsidiary companies associated companies and jointly controlled entities Cash generated from operations Taxation paid Interest received Interest paid Net cash flow (used in)/from operating activities (468,790) 45,479 (8,259) (420,151) (90,151) 9,613 (321,113) (62,687) 76,835 (40,505) (347,470) (184,016) (441,182) (35,488) 233,318 (87,706) 9,639 739,678 (53,696) 94,704 (43,844) 736,842 4,294 (61,726) 3,713 222 (3,269) (57,352) (98) 568 (56,882) (4,713) (6,315) (3,713) 2,517 13,355 (174) (174)
CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Additional investment in jointly controlled entities Purchase of short term investments Proceeds from disposal of short term investments Proceeds from disposal of property, plant and equipment Dividends received Redemption of preference shares in an associated company Net cash flow (used in)/from investing activities
(478,451) (207,817) 207,253 15,816 42,452 (420,747)
(895,206) (510,232) (222,128) 206,477 17,447 32,069 4,000 (1,367,573)
111,000 111,000
188,115 188,115
for the financial year ended 31 March 2006 (CONTINUED) ANNUAL REPORT 2006
115
Note
Company 2006 RM000 2005 RM000
CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid Contribution by minority interest Proceeds from short term borrowings Proceeds from new term loan Repayment of term loans Finance lease and hire purchase instalments paid Repayment of short term borrowings Fixed deposits pledged as security Net cash flows used in financing activities NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS EXCHANGE RATE EFFECTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR
39
(54,921) 326,582 (54,436) (326,688) (11,123) (120,586)
(137,303) 333 778,353 344,155 (52,342) (10) (777,177) (396,838) (240,829)
(54,921) (54,921)
(137,303) (137,303)
(888,803) 5,070
(871,560) 513
(803)
50,638
1,576,925
2,447,972
50,638
39
693,192
1,576,925
49,835
50,638
116
NOTES TO THE FINANCIAL STATEMENTS
31 March 2006
GENERAL INFORMATION
The Company is principally involved in investment holding activities. The principal activities of the subsidiaries, jointly controlled entities and associated companies are set out in Notes 24 to 26 to the financial statements. There have been no significant changes in the activities of the Group and the Company during the financial year. The Company was incorporated as a limited liability company, and is domiciled in Malaysia. There were 11,159 (2005: 10,300) employees in the Group and no employee (2005: Nil) in the Company at the end of the financial year. The Company is managed by employees of Perusahaan Otomobil Nasional Sdn. Bhd. The address of the registered office and the principal place of business of the Company is: HICOM Industrial Estate Batu Tiga 40000 Shah Alam Selangor Darul Ehsan Malaysia
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation The financial statements of the Group and Company have been prepared under the historical cost convention (as modified by the revaluation of certain freehold land), unless otherwise indicated in the summary of significant accounting policies. The financial statements comply with the MASB approved accounting standards in Malaysia and the provisions of the Companies Act, 1965. The preparation of financial statements in conformity with MASB approved accounting standards in Malaysia and the provisions of the Companies Act, 1965 require the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the financial year. These estimates are based on the Directors best knowledge of current events and actions.
31 March 2006 (CONTINUED) ANNUAL REPORT 2006
117
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b) Basis of consolidation (i) Subsidiary companies Subsidiary companies are those companies in which the Group has power to exercise control over the financial and operating policies so as to obtain benefits from their activities. Subsidiaries are consolidated using the acquisition method of accounting except for certain subsidiaries (as disclosed in Note 24), which were accounted for using the merger method arising from internal group reorganisation as defined in FRS 122 (2004): Business Combinations, where: the ultimate shareholders remain the same, and the rights of each shareholder, relative to other are unchanged; and the minorities share of net assets of the Group are not altered by the transfer.
Under the acquisition method of accounting, the results of subsidiaries acquired or disposed during the financial year are included from the date of acquisition up to the date of disposal. The cost of an acquisition is the amount of cash paid and the fair value at the date of acquisition of other purchase consideration. At the date of acquisition, the fair values of the subsidiaries net assets are determined and these values are reflected in the consolidated financial statements. The difference between the cost of acquisition over the Groups share of the fair value of the identifiable net assets of the subsidiaries acquired at the date of acquisition is reflected as goodwill. Minority interest is measured at the minorities share of the post acquisition fair values of the identifiable assets and liabilities of the acquiree. Separate disclosure is made of minority interest. Under the merger method of accounting, the results of the subsidiaries are presented as if the merger had been effected throughout the current and previous financial periods. The cost of investment in a merger is recorded at the aggregate of the nominal value of equity shares issued, cash and cash equivalents and fair value of other consideration. On consolidation, the difference between the carrying value of the investment over the nominal value of the share acquired, if any, is taken to a non-distributable merger reserve or merger deficit. Investments in subsidiaries are stated at cost. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. Refer to accounting policy Note 2(u) on impairment of assets. (ii) Associated companies Associated companies are companies in which the Group exercises significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the associated companies but not control over those policies. Investments in associated companies are accounted for in the consolidated financial statements by the equity method of accounting.
118
31 March 2006 (CONTINUED) PROTON HOLDINGS BERHAD

(b) Basis of consolidation (continued) (ii) Associated companies (continued) The consolidated income statement includes the Groups share of results of the associated companies based on its latest audited financial statements or management financial statements of the companies concerned. In the consolidated balance sheet, the Groups interest in the associated companies is stated at cost plus the Groups share of post acquisition results and reserves. Investments in associates are stated at cost. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. Refer to accounting policy Note 2(u) on impairment of assets. (iii) Jointly controlled entities Jointly controlled entities are corporations, partnerships or other entities over which there is contractually agreed sharing of control by the Group with one or more parties. The Groups interests in jointly controlled entities are accounted for in the consolidated financial statements by the equity method of accounting. The consolidated income statement includes the Groups share of results of the jointly controlled entities based on its latest audited financial statements or management financial statements of the companies concerned. In the consolidated balance sheet, the Groups interest in the jointly controlled entities is stated at cost plus the Groups share of post acquisition results and reserves. Investments in jointly controlled entities are stated at cost. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. Refer to accounting policy Note 2(u) on impairment of assets. (c) Investments Investments in other non-current investments are shown at cost and an allowance for diminution in value is made where, in the opinion of the Directors, there is a decline other than temporary in the value of such investments. Where there has been a decline other than temporary in the value of an investment, such a decline is recognised as an expense in the financial year in which the decline is identified. Refer to accounting policy Note 2(u) on impairment of assets. Short-term investments are carried at the lower of cost and market value, determined on an aggregate portfolio basis by category of investments. Market value is calculated by reference to stock exchange quoted selling prices at the close of business on the balance sheet date. Increases/decreases in the carrying amount of short term investments are credited/charged to the income statement. On disposal of an investment, the difference between net disposal proceeds and its carrying amount is charged/credited to the income statement.
119

(d) Goodwill Goodwill arising on consolidation represents the excess of the purchase price over the fair value of the net assets of subsidiary and associated companies and jointly controlled entities at the date of acquisition. In prior financial years, goodwill on acquisition was written off and set off against reserves in the year of acquisition. In the current year, the Directors made the decision to change the accounting policy to recognise goodwill as an asset subject to annual impairment review (Refer to accounting policy Note 2(u) on impairment of assets). The Directors believe that this change in policy will result in better presentation of the financial statements and is in the line with developments in international standards on goodwill, namely FRS 3 Business Combinations as it relates to goodwill accounting. The effect of the change in policy is detailed in Note 43 to the financial statements. (e) Property, plant and equipment A piece of freehold land held by a subsidiary company is stated at Directors valuation based on a 1983 independent professional valuation of the open market value of the land on existing use basis. The surplus arising on revaluation was credited directly to capital reserves and subsequently utilised. This valuation has not been updated. All other land held by the Group are stated at cost. Freehold land and work in progress are not amortised. All long leasehold land are amortised over the period of their lease term. All other property, plant and equipment except for dies and jigs included under plant and machinery, held by the Group are stated at cost less accumulated depreciation and impairment losses. Depreciation is charged on a straight-line basis to write off the costs of the assets over the term of their estimated useful lives. Where an indication of impairment exists, the carrying amount of the assets is assessed and written down immediately to its recoverable amount. Refer to accounting policy Note 2(u) on impairment of assets. The principal annual rates of depreciation used are as follows: Long leasehold land Buildings Plant and machinery Office equipment, furniture, fittings and vehicles Over period of lease term of 98 years 2% 5% 10% 50% 10% 50%
Dies and jigs, included under plant and machinery are depreciated based on the unit of production basis to write off the cost of the assets over the term of their estimated useful lives which range from 5 to 6 years. Work in progress is not depreciated. Upon completion, the related costs will be transferred to the respective category of assets. Depreciation on work in progress commences when the assets are ready for their intended use.
120

(f) Land and development expenditure Land and development expenditure consists of land held for development and related development costs common to projects. Developed land is stated at the lower of cost and net realisable value. All expenditure incurred on uncompleted projects are capitalised and are included in the balance sheet as development expenditure. Upon completion of the projects, land and related development cost are reclassified as apartments for sale. (g) Leases Finance leases are leases of property, plant and equipment where the Group assumes substantially all the benefits and risks of ownership. Property, plant and equipment acquired under finance leases are included in tangible property, plant and equipment and are amortised in accordance with Note 2(e) above. Obligations under such agreements are treated as a liability and finance charges are allocated to the income statement over the lease periods to give a constant periodic rate of interest on the remaining lease liabilities. Operating leases are leases of assets under which a significant portion of the risks and benefits of ownership are effectively retained by the lessor. Payments made under operating leases are charged to the income statement on a straight-line basis over the lease period. (h) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on a first-in, first-out basis. In the case of work-in-progress and finished vehicles, an appropriate proportion of production overheads are included in the costs. (i) Trade and other receivables Trade and other receivables are carried at anticipated net realisable value. Allowances are made for doubtful debts based on specific review of outstanding balances at balance sheet date. General allowances are made to cover possible losses that are not specifically identified. Bad debts are written off to the income statement during the financial year in which they are identified. Research and development expenditure Research and development expenditure is recognised as an expense when incurred. Costs incurred on development projects are capitalised to the extent that such expenditure is reasonably certain to generate future economic benefits. Expenditure that have been capitalised are depreciated over the useful lives of the product. Development costs initially recognised as an expense are not recognised as an asset in a subsequent period.
(j)
121

(k) Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provision for warranties Provision is made for the estimated liability on all products under warranty in addition to claims already received. Warranties are provided for a period of between one to three years for vehicles sold. The provision is based on experienced levels of claims arising during the period of warranty. When the Group expects warranties to be reimbursed from suppliers, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. (l) Employee benefits (i) Short term employee benefits Salaries, wages, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group. (ii) Post employment benefits The Group has various post-employment benefit schemes in accordance with the local conditions and practices in the countries in which it operates. The Group has both defined contribution and defined benefit plans. Defined contribution plans The Groups contributions to defined contribution plans are charged to the income statement in the period to which they relate. Once the contributions have been paid, the Group has no further payment obligations. Defined benefit plans The liability in respect of a defined benefit plan is the present value of the defined benefit obligation at the balance sheet date minus the fair value of plan assets, together with adjustments for actuarial gains/losses and past service cost. The Group determines the present value of the defined benefit obligation and the fair value of any plan assets with sufficient regularity such that the amounts recognised in the financial statements do not differ materially from the amounts that would be determined at the balance sheet date. The defined benefit obligation, calculated using the projected unit credit method, is determined by independent actuaries on the basis of triennial valuations. Assumptions were made in relation to the annual investment returns, annual salary increases and annual increases in pension payments. Plan assets in excess of the defined benefit obligation are subject to the asset limitation specified in FRS 119 (2004).
122

(l) Employee benefits (continued) (ii) Post employment benefits (continued) Defined benefit plans (continued) Actuarial gains and losses arise from experience adjustments and changes in actuarial assumptions. The amount of net actuarial gains and losses recognised in the income statement is determined by the corridor method in accordance with FRS 119 (2004) and is charged or credited to income over the average remaining service lives of the related employees participating in the defined benefit plan. Upon initial adoption of FRS 119 (2004) effective on 1 April 2003, the increase in defined benefit liability is recognised as an expense on a straight-line basis over 5 years in accordance with the transitional provision of the Standard. (iii) Termination benefits Termination benefits are payable whenever an employees employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value.
(m) Income taxes Current tax expense is determined according to the tax laws of each jurisdiction in which the Group operates and include all taxes based upon the taxable profits, including withholding taxes payable by a foreign subsidiary company on distributions of retained earnings to companies in the Group. Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed to assets and liabilities for tax purposes and their carrying amounts in the financial statements. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences or unused tax losses can be utilised. Deferred tax is recognised on temporary differences arising on investments in subsidiaries, associates and joint ventures except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred tax.
123

(n) Foreign currency transactions and translation Transactions in foreign currencies during the financial year are translated into Ringgit Malaysia at exchange rates ruling at the transaction dates. Foreign currency monetary assets and liabilities at the balance sheet date are translated into Ringgit Malaysia at the exchange rates ruling at that date. Exchange differences arising from the settlement of foreign currency transactions and from the translation of foreign currency monetary assets and liabilities are included in the income statement. Results of foreign subsidiary and associated companies are translated into Ringgit Malaysia at average rates of exchange for the financial year. Assets and liabilities are translated into Ringgit Malaysia, at the rates of exchange ruling at the balance sheet date. Exchange differences arising from the translation of the results for the financial year at average rates and assets and liabilities at year end rates and the restatement at year end rates of the opening net investments in foreign subsidiary and associated companies are taken to a foreign exchange translation account as a component of shareholders funds. The principal closing rates used in translation of foreign currency amounts were as follows: Foreign currency 31.3.2006 RM 3.69 6.43 2.64 4.48 3.14 31.3.2005 RM 3.80 7.14 2.93 4.92 3.54
1 USD 1 GBP 1 AUD 1 EURO 100 JPY (o)
Cash and cash equivalents Cash and cash equivalents comprise cash in hand, bank balances, bank deposits, bank overdrafts and short term, highly liquid investments that are readily convertible to known amounts of cash which are subject to insignificant risk of changes in value. Revenue recognition Revenue from sales of vehicles, spare parts and accessories are recognised upon delivery. Revenue from sale of completed apartments is recognised when the Sale and Purchase Agreements are signed. Revenue for rendering of services on long term engineering contracts is recognised on the basis of the stage of completion of such contracts at the financial year end, where the contractual outcome can be assessed with reasonable certainty. Full provision is made for all foreseeable losses on contracts entered into or commenced prior to the financial year end. Amounts are included within receivables and prepayments to recognise timing differences arising between amounts invoiced and amounts recognised in the income statement on individual engineering contracts.
(p)
124

(p) Revenue recognition (continued) Other revenue comprises mainly revenue from rental and royalty, which are recognised on an accrual basis. Dividends are recognised when the companys right to receive payment is established. (q) Financial instruments (i) Description A financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable, or an equity instrument of another enterprise. A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprise, or to exchange financial instruments with another enterprise under conditions that are potentially unfavourable. (ii) Financial instruments recognised on the balance sheet The particular recognition method adopted for financial instruments recognised on the balance sheet is disclosed in the individual policy statements associated with each item. Financial instruments not recognised on the balance sheet Foreign currency forward contracts The Group enters into foreign currency forward contracts to protect the Group from movements in exchange rates by establishing the rate at which a foreign currency asset or liability will be settled. Exchange gains and losses arising on contracts entered into as hedges of anticipated future transactions are deferred until the date of such transaction, at which time they are included in the measurement of such transactions. All other exchange gains and losses relating to hedge instruments are recognised in the income statement in the same period as the exchange differences on the underlying hedged items. Gains and losses on contracts which are no longer designated as hedges are included in the income statement. (iv) Fair value estimation for disclosure purposes The fair value of publicly traded derivatives and securities is based on quoted market prices at the balance sheet date. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date.
(iii)
125

(q) Financial instruments (continued) (iv) Fair value estimation for disclosure purposes (continued) In assessing the fair value of non-traded derivatives and financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Unquoted long term investments are valued based on quoted investments with similar features. The fair value for long term debts is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar instruments. The face values, less any estimated credit adjustments, for financial assets and liabilities classified as current are assumed to approximate their fair values. (r) Borrowings Classification Borrowings are initially recognised based on the proceeds received, net of transaction costs incurred. Subsequently, borrowings are stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. Interest, dividends, losses and gains relating to a financial instrument, or a component part, classified as a liability is reported within finance cost in the income statement. Capitalisation of borrowings cost Borrowings cost incurred on specific and identifiable borrowings used to finance property development and construction contract is capitalised until the properties are ready for their intended use. (s) Share capital Ordinary shares are classified as equity. External cost directly attributable to the issue of new shares are expensed off in the income statement. Final dividends payable on ordinary shares are recognised as liabilities when formally approved. (t) Contingent liabilities and contingent assets The Group does not recognise a contingent liability but discloses its existence in the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by uncertain future events beyond the control of the Group or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare circumstance where there is a liability that cannot be recognised because it cannot be measured reliably. A contingent asset is a possible asset that arises from past events whose existence will be confirmed by uncertain future events beyond the control of the Group. The Group does not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but not virtually certain.
126

(u) Impairment of assets Property, plant and equipment and other non-current assets, including intangible assets, are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an assets net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there is separately identifiable cash flows. The impairment loss is charged to the income statement unless it reverses a previous revaluation in which case it is charged to the revaluation surplus. Any subsequent increase in recoverable amount is recognised in the income statement unless it reverses an impairment loss on a revalued asset in which case it is taken to revaluation surplus.
REVENUE
Revenue represents the invoiced value of goods sold and services provided and is net of commission paid to dealers and related taxes. Revenue comprises: Group 2006 RM000 Sale of vehicles, spare parts and accessories Gross dividend income Rendering of services Others 7,645,963 142,957 8,012 7,796,932 2005 RM000 8,141,045 333,493 8,757 8,483,295 Company 2006 2005 RM000 RM000 111,097 111,097 1,488,839 1,488,839
127
PROFIT FROM OPERATIONS

Group Restated 2006 2005 RM000 RM000 The following items have been charged/(credited) in arriving at profit from operations: Gross dividends receivable from: subsidiary company, unquoted being dividend-in-specie subsidiary company, unquoted associated companies, unquoted others, quoted others, unquoted Property, plant and equipment: depreciation written off impairment (gain)/loss on disposal Research and development expenditure Provision for warranties (net of expected reimbursement) Allowance for doubtful debts Impairment of investment in associated companies Impairment of goodwill (Write back)/diminution in value of short term investments Loss on disposal of a jointly controlled entity Gain on disposal of short term investments Group audit fees to PricewaterhouseCoopers Malaysia current year underprovision of prior year firms of worldwide organisation Non-audit service fees to PricewaterhouseCoopers Malaysia firms of worldwide organisation Operating lease rental Hire of plant, machinery and equipment Rental of premises Foreign exchange (gain)/loss: transactions translation Rental income on land and buildings Interest income Allowance for inventories write down Recovery of insurance claims on Medium Volume Factory Fire (9,525) 351,409 82,857 5,066 (218) 271,661 81,314 117,923 (7,202) 5,113 (2,664) 514 200 966 1,934 362 7,644 12,722 (3,695) (20,365) (1,307) (67,388) 46,865 (46,737) (8,136) (1,042) 312,428 135,643 1,879 23,713 347,193 55,645 9,983 22,000 367,577 7,202 (11,106) 572 1,217 87 1,682 3,956 580 21,044 (2,238) (6,208) (383) (87,910) 18,527 (109,843) (1,254) 87 (223) (588) (1,300,724) (187,303) (812) 105 (15) 224 Company 2006 RM000 2005 RM000
128
STAFF COST
Group 2006 RM000 Wages, salaries and bonuses Termination benefits Pension cost defined contribution plan defined benefit plan Other employee benefits Reversal of overprovision of defined benefit plan 501,823 1,839 31,818 45,065 58,874 639,419 2005 RM000 590,051 28,680 19,749 22,551 45,568 (22,052) 684,547 Company 2006 2005 RM000 RM000 180 16 196 707 91 798
Prior to 31 March 2002, retirement benefit contributions by a subsidiary company were paid to the Hicom Retirement Benefit Scheme, an approved independent fund. With effect from 1 April 2002, the subsidiary converted the defined benefit scheme to a defined contribution plan with the Employees Provident Fund (EPF). Accrued benefits under the earlier scheme were transferred to the EPF. As at 31 March 2002, the shortfall in the defined scheme was estimated by the subsidiary. The actual shortfall was determined in the previous financial year, resulting in the reversal of over provisions previously made. Directors remuneration The aggregate amount of emoluments receivable by the Directors of the Company during the financial year was as follows: Group 2006 RM000 Non-executive Directors: fees estimated money value of benefits-in-kind other employee benefits Executive Directors: salaries and bonuses estimated money value of benefits-in-kind other employee benefits 2005 RM000 Company 2006 2005 RM000 RM000
514 24 178 955 57 128 1,856
500 40 707 15 76 1,338
514 24 178 180 16 912
412 32 707 15 76 1,242
Details of the defined contribution and defined benefit plans of the Group and Company are set out in Note 33.
129
FINANCE COST
Group 2006 RM000 Interest expense on: Long term loans Short term borrowings Others 2005 RM000
29,105 13,791 982 43,878
26,512 18,117 1,563 46,192
Included in other operating income of the Group is interest income amounting to RM67,388,000 (2005: RM87,910,000).
TAXATION
Group 2006 RM000 Taxation in Malaysia Current taxation: charge for the financial year under/(over) accrual in respect of prior years Taxation on share of profits of associated companies Taxation on share of profits of jointly controlled entities Taxation outside Malaysia Current taxation: charge for the financial year (over)/under accrual in respect of prior years Taxation on share of profits of associated companies Taxation on share of profits of jointly controlled entities Deferred taxation (Note 28) Origination and reversal of temporary differences 2005 RM000 Company 2006 2005 RM000 RM000
35,557 2,005 2,798 2,454
96,175 (152,480) 2,270 4,027
169 (92)
364,203
2,173 (568) 4,295 540
2,074 2,941 6,126 611
(67,576) (18,322)
8,129 (30,127)
77
364,203
130
TAXATION (CONTINUED)
Group 2006 RM000 Total Taxation for Company and subsidiaries Share of taxation in associated companies Share of taxation in jointly controlled entities 2005 RM000 Company 2006 2005 RM000 RM000
(28,409) 7,093 2,994 (18,322)
(43,161) 8,396 4,638 (30,127)
77 77
364,203 364,203
Numerical reconciliation between the average effective tax rate and the Malaysian tax rate. Group Restated 2006 2005 % % Malaysian tax rate Tax effects of: double deduction and allowance incentive on qualified expenditure expenses not deductible for tax purposes income not subject to tax current year tax losses not recognised under/(over) accrual in respect of prior years others Average effective tax rate 28 28 Company 2006 % 28 2005 % 28
(249) 139 (91) 101 5 2 (65)
(30) 33 (2) 2 (34) (4) (7)
(28)
(4) 24
131
TAXATION (CONTINUED)
Group 2006 RM000 Disclosure items: Current year tax losses utilised during the financial year Tax savings arising from such tax losses 1,057 298 2,864 858 2005 RM000 Company 2006 2005 RM000 RM000
Previously unrecognised tax losses utilised during the financial year Tax savings arising from such tax losses
6,675 1,869
5,014 1,467
Unutilised tax losses carried forward Unutilised reinvestment allowance
614,461 1,421,028
803,175 1,118,500
EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the financial year. Group Restated 2006 2005 Net profit attributable to shareholders (RM000) Weighted average number of ordinary shares in issue (000) Basic earnings per share (sen) 46,690 549,213 8.5 442,442 549,213 80.6
Diluted earnings per share is not presented in the financial statements since there are no dilutive potential ordinary shares.
132
DIVIDENDS
Dividends declared or proposed in respect of the financial year ended 31 March 2006 are as follows: Group 2006 RM000 Final dividend proposed for the financial year ended 31 March 2006: Tax exempt dividend of 5.0 sen (2005: 10.0 sen) per ordinary share Interim dividend paid for the financial year ended 31 March 2006: RM Nil (2005: tax exempt dividend of 25.0 sen) per ordinary share 2005 RM000
27,461
54,921
27,461
137,303 192,224
At the forthcoming Annual General Meeting, a final gross dividend of 5.0 sen per share (tax exempt) amounting to RM27,461,000 will be proposed for shareholders approval. The financial statements do not reflect this final dividend, which will only be accrued as a liability when approved by shareholders.
10
INVENTORIES
Group 2006 RM000 At cost Raw materials: completely knocked-down packs of vehicles others Parts, accessories and general stores Work-in-progress Finished vehicles Goods-in-transit Apartments for sale Balance carried forward 2005 RM000
262,996 148,174 91,139 102,933 651,574 65,988 171 1,322,975
155,635 111,986 87,393 102,209 389,709 36,604 9,482 893,018
133
10
INVENTORIES (CONTINUED)
Group 2006 RM000 Balance brought forward At net realisable value Raw materials: completely knocked-down packs of vehicles Parts, accessories and general stores Finished vehicles Apartments for sale 1,322,975 2005 RM000 893,018
1,924 118 47,357 16,631 66,030 1,389,005
2,492 1,718 58,709 11,143 74,062 967,080
11
TRADE AND OTHER RECEIVABLES

Group 2006 RM000 Trade receivables Allowance for doubtful debts 969,300 (52,662) 916,638 Other receivables Allowance for doubtful debts 143,778 (86,333) 57,445 Warranty claims recoverable (Note 18) Prepayments Deposits 125,835 28,709 14,224 1,142,851 2005 RM000 1,067,824 (19,861) 1,047,963 118,790 (1,211) 117,579 146,261 23,796 12,956 1,348,555 Company 2006 2005 RM000 RM000 195 195 195 45 45 4,444 4,489
134
11
TRADE AND OTHER RECEIVABLES (CONTINUED)

The currency exposure profile of trade and other receivables are as follows: Ringgit Malaysia RM000 Group Functional currency Ringgit Malaysia Pound Sterling Others Currency exposure at 31.3.2006 Pound US Sterling Dollar Euro RM000 RM000 RM000
Others RM000
Total RM000
958,916 958,916
113 61,349 61,462
60,673 14,459 270 75,402
3,697 14,015 4 17,716
249 8,964 20,142 29,355
1,023,648 98,787 20,416 1,142,851
Company Functional currency Ringgit Malaysia
195
195
Ringgit Malaysia RM000 Group Functional currency Ringgit Malaysia Pound Sterling Others
Currency exposure at 31.3.2005 Pound US Sterling Dollar Euro RM000 RM000 RM000
Others RM000
Total RM000
1,034,819 1,034,819
58,352 58,352
62,629 31,500 94,129
91,649 23,858 5 115,512
13,607 10,838 21,298 45,743
1,202,704 124,548 21,303 1,348,555
45
4,444
4,489
135
11
TRADE AND OTHER RECEIVABLES (CONTINUED)

Credit terms of trade receivable for the Group ranges from 14 days to 360 days (2005: 14 days to 360 days). However, the majority of the Group trade receivables have a credit term between 14 days to 60 days (2005: 14 days to 60 days). Group sales are concentrated in Malaysia with one major third party customer in Malaysia making up 31% (2005: 28%) of total Group revenue.
12
AMOUNTS DUE FROM SUBSIDIARY COMPANIES

The amounts due from subsidiary companies are denominated in Ringgit Malaysia, interest free and has no fixed terms of payment.
13
AMOUNTS DUE FROM ASSOCIATED COMPANIES

The amounts due from associated companies arose from normal trade transactions. These amounts have credit terms ranging from 30 to 60 days (2005: 30 to 60 days). Currency exposure at 31.3.2006 Ringgit Pound Malaysia Sterling Total RM000 RM000 RM000 Group Functional currency Ringgit Malaysia Pound Sterling
3,043 3,043
1,351 1,351
3,043 1,351 4,394
Currency exposure at 31.3.2005 Ringgit Pound Malaysia Sterling Total RM000 RM000 RM000 Group Functional currency Ringgit Malaysia Pound Sterling
1,784 1,784
1,770 1,770
1,784 1,770 3,554
136
14
AMOUNTS DUE FROM JOINTLY CONTROLLED ENTITIES

2006 RM000 Amounts due from jointly controlled entities Advances to a jointly controlled entity 45,285 45,285 Group 2005 RM000 17,937 19,929 37,866 Company 2006 2005 RM000 RM000 3,713 3,713
The amounts due from jointly controlled entities arose from normal trade transactions. These amounts have credit terms ranging from 30 to 45 days (2005: 30 to 45 days). Advances to a jointly controlled entity in 2005 were due within 180 days and interest of 7.23% was charged. Currency exposure at 31.3.2006 Japanese US Euro Yen Dollar RM000 RM000 RM000
Ringgit Malaysia RM000 Group Functional currency Ringgit Malaysia Pound Sterling
Total RM000
45,198 45,198
74 13 87
45,272 13 45,285
Ringgit Malaysia RM000 Group Functional currency Ringgit Malaysia Pound Sterling
Currency exposure at 31.3.2005 Japanese US Euro Yen Dollar RM000 RM000 RM000
Total RM000
9,512 9,512
19,929 19,929
3,713 3,713
4,712 4,712
17,937 19,929 37,866
Company The amount due from a jointly controlled entity in the previous financial year was denominated in Japanese Yen.
137
15
SHORT TERM INVESTMENTS

Group 2006 RM000 Quoted investments in Malaysia: Cost: Shares Commercial paper and corporate debt 2005 RM000
116,736 584 117,320
120,177 584 120,761
Unquoted investments in Malaysia: Cost: Commercial paper and corporate debt
94,645 211,965 211,965
87,976 208,737 (7,202) 201,535
Allowance for diminution in value
Market value of investments: Shares Commercial paper and corporate debt
121,868 98,996 220,864
112,975 91,898 204,873
138
16
DEPOSITS, BANK AND CASH BALANCES

Group 2006 RM000 Short term funds deposited with: Licensed banks Discount houses Other financial institutions 2005 RM000 Company 2006 2005 RM000 RM000
1,168,787 227,470 57,465 1,453,722 132,260 1,585,982
2,063,539 112,816 48,268 2,224,623 230,095 2,454,718
49,000 49,000 835 49,835
50,638 50,638
Bank and cash balances
Included in deposits are fixed deposits of RM716,841,000 (2005: RM705,718,000) pledged as restricted cash security the term loans obtained by subsidiary companies as explained in Note 30(b). The deposits have the following maturity profiles: Group 2006 RM000 0 1 month 2 3 months 4 6 months 6 12 months More than 12 months 626,287 83,386 90,500 353,549 300,000 1,453,722 2005 RM000 558,172 113,724 90,932 1,161,795 300,000 2,224,623 Company 2006 2005 RM000 RM000 49,000 49,000
Bank balances are deposits held at call with banks.
139
16
DEPOSITS, BANK AND CASH BALANCES (CONTINUED)

The currency exposure profile of deposits, bank and cash balances are as follows: Ringgit Malaysia RM000 Group Functional currency Ringgit Malaysia Pound Sterling Australian Dollar Others Currency exposure at 31.3.2006 Pound US Australian Sterling Dollar Dollar RM000 RM000 RM000
Others RM000
Total RM000
1,483,290 1,483,290
1,312 14,807 16,119
15,549 10,154 25,703
789 34,570 35,359
4,057 2,992 18,462 25,511
1,504,997 27,953 34,570 18,462 1,585,982
Ringgit Malaysia RM000 Group Functional currency Ringgit Malaysia Pound Sterling Australian Dollar Others
Currency exposure at 31.3.2005 Pound US Australian Sterling Dollar Dollar RM000 RM000 RM000
Others RM000
Total RM000
2,193,509 2,193,509
69,599 62,123 131,722
17,956 22,533 40,489
26,312 18,838 45,150
17,788 6,756 19,304 43,848
2,325,164 91,412 18,838 19,304 2,454,718
Deposits, bank and cash balances in the Company as at 31 March 2006 and 2005 are denominated in Ringgit Malaysia. The weighted average effective interest rates of deposits at the balance sheet date were 3.10% (2005: 2.87%) per annum for the Group and 2.73% (2005: Not applicable) for the Company.
140
17
TRADE AND OTHER PAYABLES

Group Restated 2006 2005 RM000 RM000 Trade payables Other payables Accruals Amounts due to related parties Leasing and hire purchase creditors current portion 250,129 350,118 625,743 21,338 1,247,328 461,026 204,957 1,028,178 4 1,694,165 Company 2006 RM000 617 2,102 2,719 2005 RM000 381 2,136 2,517
The currency exposure profile of the trade and other payables are as follows: Ringgit Malaysia RM000 Group Functional currency Ringgit Malaysia Pound Sterling Others Currency exposure at 31.3.2006 Pound US Japanese Sterling Dollar Yen RM000 RM000 RM000
Others RM000
Total RM000
960,123 960,123
4,514 103,949 108,463
16,678 15,371 357 32,406
28,133 1,273 29,406
95,767 8,641 12,522 116,930
1,105,215 129,234 12,879 1,247,328
2,658
61
2,719
141
17
TRADE AND OTHER PAYABLES (CONTINUED)

Ringgit Malaysia RM000 Group Functional currency Ringgit Malaysia Pound Sterling Others Currency exposure at 31.3.2005 (Restated) Pound US Japanese Sterling Dollar Yen Others RM000 RM000 RM000 RM000
Total RM000
1,289,762 1,289,762
894 204,434 205,328
87,196 14,750 101,946
40,413 129 40,542
34,384 12,017 10,186 56,587
1,452,649 231,330 10,186 1,694,165
845
48
10
1,418
196
2,517
Terms of trade payables granted to the Group and Company varies up to 60 days (2005: 60 days) credit days and no credit (2005: Not applicable) respectively.
18
PROVISIONS
Group Warranties 2006 2005 RM000 RM000 At 1 April Exchange differences Charged to income statement Warranties receivable Additional provision for the financial year Utilised during the financial year At 31 March 239,888 (5,043) 81,314 (8,946) 72,368 (90,151) 217,062 237,636 1,315 55,645 33,473 89,118 (88,181) 239,888
The Group expects to receive reimbursement from suppliers in respect of warranties amounting to RM125,835,000 (2005: RM146,261,000) as disclosed in Note 11.
142
19
AMOUNTS DUE TO SUBSIDIARY COMPANIES

Amounts due to subsidiary companies are unsecured, denominated in Ringgit Malaysia, interest free and have no fixed repayment terms.
20
AMOUNTS DUE TO ASSOCIATED COMPANIES

Amounts due to associated companies arose from normal trade transactions, denominated in Ringgit Malaysia and are payable within 60 days.
21
AMOUNTS DUE TO JOINTLY CONTROLLED ENTITIES

Amounts due to jointly controlled entities arose from normal trade transactions and are due between 30 days to 45 days (2005: 30 days to 45 days). The currency exposure profile of the amounts due to jointly controlled entities is as follows: Ringgit Malaysia RM000 Group Functional currency Ringgit Malaysia Currency exposure at 31.3.2006 Pound US Sterling Dollar RM000 RM000
Total RM000
20,063
75
20,138
Ringgit Malaysia RM000 Group Functional currency Ringgit Malaysia Others
Currency exposure at 31.3.2005 Pound US Sterling Dollar RM000 RM000
Total RM000
39,097 39,097
596 596
702 702
39,693 702 40,395
143
22
SHORT TERM BORROWINGS

Group 2006 RM000 Unsecured: Long term loan current portion (Note 30) Bankers acceptance Bank overdrafts 2005 RM000
56,613 1,304 58,260 116,177
54,436 1,410 172,075 227,921
Secured: Bank Overdrafts Long term loan current portion (Note 30)
117,689 570,900 688,589 804,766
227,921
The interest rate charged for bank overdrafts during the financial year ranged from 5.50% to 6.86% (2005: 5.50% to 6.83%) per annum. The bankers acceptance was drawn in Ringgit Malaysia and payable within 60 days. No interest was charged to the amount drawn (2005: Nil). The currency exposure profile of the short-term borrowings is as follows: Currency exposure at 31.3.2006 Ringgit Malaysia RM000 Group Functional currency Ringgit Malaysia Pound Sterling Pound Sterling RM000 USD RM000 Euro RM000 Others RM000 Total RM000
57,917 57,917
332,193 332,193
67,504 67,504
313,740 5,169 318,909
28,243 28,243
371,657 433,109 804,766
144
22
SHORT TERM BORROWINGS (CONTINUED)

Ringgit Malaysia RM000 Group Functional currency Ringgit Malaysia Pound Sterling Currency exposure at 31.3.2005 Pound Sterling USD Others RM000 RM000 RM000
Total RM000
55,846 55,846
106,653 106,653
52,705 52,705
12,717 12,717
55,846 172,075 227,921
23
PROPERTY, PLANT AND EQUIPMENT

Land Note Group 2006 Cost/valuation At 1 April 2005 Currency translation differences Additions Disposals Written off Reclassification At 31 March 2006 Freehold RM000 Long term leasehold RM000 Buildings RM000 Office equipment, furniture, fittings and vehicles RM000
Plant and machinery RM000
Work-inprogress RM000
Total RM000
243,464
12,045
1,181,676
3,718,608
1,014,993
468,451
6,639,237
(1,525) 14,070 256,009
(106) (950) 10,989
(20,977) 5,626 (8,840) 122,349 1,279,834
(23,401) 14,041 (6,887) (12,656) 392,706 4,082,411
(19,405) 69,766 (29,565) (6,217) 82,203 1,111,775
(137) 374,948 (114) (77,034) (597,258) 168,856
(65,551) 478,451 (46,356) (95,907) 6,909,874
145
23
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Land Note Group 2006 Accumulated depreciation At 1 April 2005 Currency translation differences Charge for the financial year Disposals Written off At 31 March 2006 Accumulated impairment losses At 1 April 2005 Currency translation differences Charge for the financial year Disposals At 31 March 2006 Net book value At 31 March 2006 Freehold RM000 Long term leasehold RM000 Buildings RM000 Office equipment, furniture, fittings and vehicles RM000
Total RM000
821
331,834
2,090,916
576,354
2,999,925
112 933
(4,250) 19,702 (2,156) 345,130
(13,383) 205,133 (4,989) (6,835) 2,270,842
(9,530) 126,462 (13,866) (6,215) 673,205
(27,163) 351,409 (21,011) (13,050) 3,290,110
14,879
1,056
158,616
89,079
62,330
325,960
(1,497) 289 13,671
(106) (950)
(15,916) 2,699 (6,686) 138,713
(8,827) 2,062 (1,878) 80,436
(6,115) 16 (233) 55,998
(32,461) 5,066 (9,747) 288,818
242,338
10,056
795,991
1,731,133
382,572
168,856
3,330,946
146
23

Land Note Group 2005 Cost/valuation At 1 April 2004 Currency translation differences Additions Disposals Written off Capitalisation of work-in-progress At 31 March 2005 Accumulated depreciation At 1 April 2004 Currency translation differences Charge for the financial year Disposals Written off At 31 March 2005 Freehold RM000 Long term leasehold RM000 Buildings RM000 Office equipment, furniture, fittings and vehicles RM000
Total RM000
241,914
12,015
1,186,424
3,390,743
855,213
307,195
5,993,504
431 1,148 (29) 243,464
30 12,045
6,070 4,102 (14,929) 9 1,181,676
7,244 18,149 (99,191) (273) 401,936 3,718,608
5,137 60,648 (14,536) (3,796) 112,327 1,014,993
5 811,159 (135,636) (514,272) 468,451
18,917 895,206 (128,685) (139,705) 6,639,237
723
315,242
1,961,218
489,262
2,766,445
98 821
1,307 19,921 (4,636) 331,834
4,591 197,192 (71,824) (261) 2,090,916
2,688 95,217 (8,159) (2,654) 576,354
8,586 312,428 (84,619) (2,915) 2,999,925
147
23

Land Note Group 2005 Accumulated impairment losses At 1 April 2004 Currency translation differences Charge for the financial year Disposals Written off At 31 March 2005 Net book value At 31 March 2005 Freehold RM000 Long term leasehold RM000 Buildings RM000 Office equipment, furniture, fittings and vehicles RM000
Total RM000
14,448
1,025
156,585
85,186
61,408
318,652
431 14,879
31 1,056
4,672 253 (2,894) 158,616
2,541 1,358 (6) 89,079
1,795 268 (1,141) 62,330
9,470 1,879 (2,894) (1,147) 325,960
228,585
10,168
691,226
1,538,613
376,309
468,451
3,313,352
A piece of a subsidiary companys freehold land was revalued on 5 September 1983 based on an independent professional valuation. The surplus of RM36,881,980 arising on the revaluation was credited to the capital reserves and subsequently utilised. Had the freehold land been carried at historical cost, the net book value of freehold land that would have been included in the financial statements at the end of the financial year would be RM22,448,000 (2005: RM22,448,000). The long term leasehold land comprise 2 parcels of land held by certain subsidiary companies which have unexpired leases of 91 and 70 years respectively as at 31 March 2006 (2005: 92 and 71 years respectively). A leasehold land with unexpired lease period of 137 years was disposed during the year. The title deed to the land of the Group amounting to net book value of RM72,258,000 (2005: RM52,260,000) has not been transferred pending subdivision of the master title.
148
24
SUBSIDIARY COMPANIES
Company 2006 2005 RM000 RM000 Unquoted shares at cost: At 1 April Acquisition of subsidiary companies At 31 March
1,465,659 1,465,659
* 1,465,659 1,465,659
The cost of investment in subsidiary companies is RM8.
The details of the subsidiary companies are as follows: Name Principal activities Country of incorporation Groups effective interest 2006 2005 100% 100%
Perusahaan Otomobil Nasional Sdn. Bhd.^ Proton Tanjung Malim Sdn. Bhd.^
Manufacture, assemble and sale of motor vehicles and related products Assembly of motor vehicles and related products Investment holding
Malaysia
Malaysia
100%
100%
Proton Marketing Sdn. Bhd. Lotus Advance Technologies Sdn. Bhd. Proton Hartanah Sdn. Bhd. Proton Capital Sdn. Bhd. Subsidiary of Perusahaan Otomobil Nasional Sdn. Bhd. Proton Automobiles (China) Ltd.^
Malaysia
100%
100%
Investment holding Investment holding Investment holding
Malaysia Malaysia Malaysia
100% 100% 100%
100% 100% 100%
Investment holding Dormant
British Virgin Islands
100%
100%
149
24
SUBSIDIARY COMPANIES (CONTINUED)

Name Principal activities Country of incorporation Groups effective interest 2006 2005
Subsidiary of Proton Marketing Sdn. Bhd. Proton Corporation Sdn. Bhd.^ Proton Cars (UK) Ltd.*^
Dormant Distributor of Proton vehicles in United Kingdom Importation and distribution of motor vehicles and related products Dormant Dormant Dormant
Malaysia England
100% 100%
100% 100%
Proton Cars Australia Pty. Ltd.*^
Australia
100%
100%
Proton Cars Benelux NV. SA*^ Lotus Cars Asia Pacific Sdn. Bhd.^ Auto Compound and Distribution Centre Sdn. Bhd.^ Proton Edar Sdn. Bhd.^
Belgium Malaysia Malaysia
100% 100% 100%
100% 100% 100%
Sale of motor vehicles, related spare parts and accessories
Malaysia
100%
100%
Subsidiaries of Lotus Advance Technologies Sdn. Bhd. Proton Engineering Research Technology Sdn. Bhd.^ Lotus Group International Ltd.*^ Subsidiaries of Proton Hartanah Sdn. Bhd. Proton Properties Sdn. Bhd.^
Provision of Engineering Services
Malaysia
100%
100%
Investment holding
England
100%
100%
Property development and management
Malaysia
100%
100%
150
24

Subsidiary of Proton Cars (UK) Ltd. Smith & Sons Motors Ltd.*^ Proton Direct Ltd.+^ Proton Cars (Imports) Ltd.*^ Proton Cars Direct Limited*^ Subsidiary of Proton Edar Sdn. Bhd. Proton Singapore Pte. Ltd.*^
Dormant Motor dealership Dormant Dormant
England England England England
100% 100% 100% 100%
100% 100% 100% 100%
Sale of motor vehicles, related spare parts and accessories Repair and maintenance of motor vehicles (previously dormant) Dormant Sale of motor vehicles, related spare parts and accessories
Singapore
100%
100%
Proton Edar Resources Sdn. Bhd.^
Malaysia
100%
100%
Proton Edar Ventures Sdn. Bhd.^ PT Proton Edar Indonesia*
Malaysia Indonesia
100% 95%
100% 95%
Subsidiary of Proton Engineering Research Technology Sdn. Bhd. Marco Acquisition Corporation*^
Leasing of Equipment and Asset
United States of America
100%
100%
Subsidiary of Lotus Group International Ltd. Group Lotus plc*^
Holds intellectual property
England
100%
100%
151
24

Subsidiaries of Group Lotus plc Lotus Cars Ltd.*^
Car manufacture and engineering consultancy Dormant Dormant Holding company for operations in North America
England
100%
100%
Lotus Body Engineering Ltd.*^ Lotus Motorsports Ltd.*^ Lotus Holdings Inc.*^
England England United States of America
100% 100% 100%
100% 100% 100%
Subsidiary of Lotus Cars Ltd. Lotus Engineering Ltd.*^
Carries out specific engineering contracts
England
100%
100%
Subsidiary of Lotus Engineering Ltd. Lotus Engineering (Malaysia) Sdn. Bhd.^ Subsidiary of Lotus Holdings Inc. Lotus Engineering Inc.*^
Engineering consultancy
Malaysia
100%
100%
Engineering consultancy in North America Car sales and servicing
United States of America United States of America
100%
100%
Lotus Cars USA Inc.*^
100%
100%
Subsidiary of Proton Cars Australia Pty Ltd. Lotus Cars Australia Pty. Ltd.* * + ^
Sale of cars
Australia
100%
100%
Audited by a member firm of PricewaterhouseCoopers International Limited which is a separate and independent legal entity from PricewaterhouseCoopers, Malaysia Not audited by PricewaterhouseCoopers Consolidated by merger method of accounting
152
25
ASSOCIATED COMPANIES
Group 2006 RM000 Unquoted shares at cost Accumulated impairment losses 50,298 (22,000) 28,298 127,404 155,702 2005 RM000 54,288 (22,000) 32,288 129,675 161,963 Company 2006 2005 RM000 RM000 13,600 13,600 13,600 17,600 17,600 17,600
Share of post acquisition reserves
Group 2006 RM000 Interest in associated companies are represented by: Groups share of net tangible assets Groups share of intangible assets 151,865 3,837 155,702 157,799 4,164 161,963 2005 RM000
The details of the associated companies are as follows: Name Principal activities Country of incorporation Groups effective interest 2006 2005 35% 35%
PHN Industry Sdn. Bhd.
Manufacture and sales of stamped parts and sub-assembly of automotive metal components Development, manufacture and sale of aluminium alloy casting products
Malaysia
Aluminium Alloy Industries Sdn. Bhd.#
Malaysia
25%
153
25
ASSOCIATED COMPANIES (CONTINUED)

Name Principal activities Country of incorporation Groups effective interest 2006 2005 25% 25%
Marutech Elastomer Industries Sdn. Bhd.
Manufacture and production of moulded products, extruded and rubber hoses for motor vehicles, motorcycle and other related products Manufacture and assembly of manual clutch and automatic transmission parts
Malaysia
Exedy (Malaysia) Sdn. Bhd.
Malaysia
45%
45%
Associated company of Perusahaan Otomobil Nasional Sdn. Bhd. Vina Star Motors Corporation
Import, assembly and distribution of vehicles
Socialist Republic of Vietnam
25%
25%
Associated company of Proton Hartanah Sdn. Bhd. Proton City Development Corporation Sdn. Bhd. Associated company of Proton Cars (UK) Ltd. Proton Finance Ltd. Associated company of Proton Edar Sdn. Bhd. Netstar Advance Systems Sdn. Bhd. Associated company of Proton Automobile China Ltd. Goldstar Proton Automobiles Co. Ltd. #
Property developer and project management
Malaysia
40%
40%
Provide dealer and customer finance
England
49.99% 49.99%
Engaged in the manufacture, assembly and sale of vehicle tracking devices
Malaysia
40%
40%
Production of automobile tools and components
Peoples Republic of China
49%
49%
The investment in this company was reduced to 19% and as such it was reclassified to long term investment.
154
26
JOINTLY CONTROLLED ENTITIES

Group Restated 2006 2005 RM000 RM000 Unquoted shares at cost Accumulated impairment losses 181,088 (1,114) 179,974 69,989 249,963 548,665 (1,114) 547,551 75,483 (367,577) 255,457
Share of post-acquisition reserves Goodwill impairment charge during the year
In November 2004, the Group via its wholly owned subsidiary, Proton Capital Sdn. Bhd., acquired 57.75% interest in MV Agusta Motor S.p.A. The goodwill arising from this acquisition amounting to RM367,577,000 was written off to reserves in accordance with the accounting policy in the previous financial year. During the current financial year, the accounting policy on goodwill was changed as explained in Notes 2(d) and 43. This had resulted in the restatement of goodwill of RM367,577,000 on the balance sheet at the date of acquisition, which was subsequently impaired at 31 March 2005 based on the Directors assessment of the carrying amount of its investment in the jointly controlled entity. The Groups share of the assets, liabilities, revenue and expenses of the jointly controlled entities are as follows: Group 2006 RM000 Non-current assets Current assets Current liabilities Net assets 231,168 159,594 (140,799) 249,963 2005 RM000 158,988 228,119 (131,650) 255,457
155
26
JOINTLY CONTROLLED ENTITIES (CONTINUED)

Group 2006 RM000 Revenue Expenses (excluding tax) Profit from ordinary activities before taxation Taxation (Note 7) Profit from ordinary activities after taxation 195,321 (179,780) 15,541 (2,994) 12,547 2005 RM000 203,461 (189,690) 13,771 (4,638) 9,133
The Group had excluded RM23,474,000 that would otherwise have been accounted for in respect of previous financial year, share of losses after taxation of a jointly controlled entity from the financial statements following discontinuation of the equity accounting for the results of the entity upon the carrying amounts of the investment having been fully eroded. The Group had no obligation to finance those losses. The Groups investment in the related jointly controlled entity has been disposed during the financial year. The details of the jointly controlled entities are as follows: Name Principal activities Country of incorporation Groups effective interest 2006 2005 0% 50%
Advanced Engine Research Sdn. Bhd.^ Jointly controlled entity of Proton Marketing Sdn. Bhd. Proton Parts Centre Sdn. Bhd.#
Dormant
Malaysia
Trading of motor vehicle components, spare parts and accessories Dormant
Malaysia
55%
55%
Proton Cars (Europe) Ltd.# Jointly controlled entity of Lotus Advance Technology Miyazu (Malaysia) Sdn. Bhd.#
England
56%
56%
Development, marketing and sale of products and services relating to dies, moulds and jigs
Malaysia
51%
51%
156
26
JOINTLY CONTROLLED ENTITIES (CONTINUED)

Jointly controlled entity of Perusahaan Otomobil Nasional Sdn. Bhd. PT Proton Tracoma Motors (Indonesia)# Jointly controlled entity of Proton Capital Sdn. Bhd. MV Agusta Motor SpA#^
Manufacturing and sales of motor vehicles
Indonesia
51%
51%
Manufacture and marketing of motorcycles and related product
Italy
0%
58%
Jointly controlled entity of Group Lotus plc Lotus Finance Ltd. Jointly controlled entity of Proton Edar Sdn. Bhd. Proton Commerce Sdn. Bhd. # ^
Motor vehicles financing
England
49.9%
49.9%
Motor vehicles financing
Malaysia
50%
50%
Companies in which the Group owns more than one half of the voting power. However, as the Group has joint control over the financial and operating policies, these investments are treated as jointly controlled entities. Disposed during the financial year.
27
OTHER LONG TERM INVESTMENTS

Group 2006 RM000 Unquoted investments in Malaysia: At cost Allowance for diminution in value 2005 RM000 Company 2006 2005 RM000 RM000
13,347 (2,950) 10,397
9,226 (2,950) 6,276
8,575 (2,100) 6,475
4,575 (2,100) 2,475
157
28
DEFERRED TAXATION
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same tax authority. The following amounts, determined after appropriate offsetting, are shown in the balance sheet: Group 2006 RM000 Subject to income tax: Deferred tax assets Deferred tax liabilities 105,786 (805) 104,981 38,479 (1,074) 37,405 2005 RM000 Company 2006 2005 RM000 RM000
Movement of deferred tax At start of financial year (Charged)/credited to income statement: (Note 7) property, plant and equipment inventories allowances and provisions receivables
37,405
45,534
54,237 589 9,296 3,454 67,576
(15,985) 6,940 1,713 (797) (8,129) 37,405
At end of financial year
104,981
Deferred tax assets (before offsetting) property, plant and equipment inventories allowances and provisions
46,290 18,987 61,361 126,638 (20,852) 105,786
18,398 52,065 70,463 (31,984) 38,479
Offset of deferred tax liabilities Deferred tax assets (after offsetting)
158
28
DEFERRED TAXATION (CONTINUED)

Group 2006 RM000 Deferred tax liabilities (before offsetting) property, plant and equipment receivables 2005 RM000 Company 2006 2005 RM000 RM000
(7,178) (14,479) (21,657) 20,852 (805)
(15,125) (17,933) (33,058) 31,984 (1,074)
Offset against deferred tax assets Deferred tax liabilities (after offsetting)
The amount of liability not offset relates to deferred tax liabilities arising in an overseas subsidiary for which there is no available asset for offset. The tax effect of deductible temporary differences and unused tax losses (both of which have no expiry date) for which no deferred tax asset is recognised in the balance sheet are as follows: Group 2006 RM000 Deductible temporary differences of which no deferred tax assets is recognised Unrecognised tax losses Unabsorbed capital allowances Unrecognised reinvestment allowances Other temporary differences 2005 RM000
184,214 47,395 397,888 4,661
241,107 52,041 313,180 9,466
Taxable temporary differences of which no deferred tax liabilities is recognised Surplus from land revaluation
11,572
12,860
As at 31 March 2006, there is no temporary differences associated with unremitted earnings of subsidiaries for the recognition of deferred tax liabilities (2005: Nil).
159
29
GOODWILL
Group RM000 At 1 April 2004/1 April 2005, as previously stated Effect of change in policy (Note 43) At 31 March 2005, as restated/At 31 March 2006 29,008 29,008
30
LONG TERM LIABILITIES

Group Restated 2006 2005 RM000 RM000 Unsecured: Long term loans (Note a) Portion repayable within twelve months (Note 22)
115,490 (56,613) 58,877
169,926 (54,436) 115,490
Secured: Long term loans (Note b) Portion repayable within twelve months (Note 22)
570,900 (570,900)
629,936 629,936
Finance lease and hire purchase creditors secured (Note c) Portion repayable within twelve months
4 (4) 14,213 759,639
Employee retirement benefits (Note d)
41,378 100,255
160
30
LONG TERM LIABILITIES (CONTINUED)

(a) Long term loans unsecured Group Restated 2006 2005 RM000 RM000 The long term loans are repayable as follows: Within one year Between one and two years Between two and five years 56,613 58,877 115,490 54,436 56,613 58,877 169,926
The term loans are repayable by 5 annual instalments over a 5-year period. The loan balance comprises of two separate tranches of RM21.6 million (2005: RM31.7 million) and RM93.9 million (2005: RM138.2 million) respectively. The final payment of the first tranche of the loan is due on 22 June 2007 and the second tranche is due on 30 September 2007. Both tranches of the loan bears a fixed interest rate of 4% per annum and is repayable in Ringgit Malaysia. (b) Long term loans secured The secured long term loans obtained by certain subsidiary companies are: (i) A term loan of 40 million was obtained by a foreign subsidiary company in October 2005. Interest is payable at a fixed rate of 4.94% per annum and the loan is repayable in full in October 2006. The loan is secured against another subsidiarys cash deposit in a bank in Malaysia (Note 39). During the financial year, the loan was reclassified as short term as it falls due within the next twelve months. (ii) A term loan of Euro 70 million was obtained by a Malaysian subsidiary company. The loan was drawn to finance an investment in a jointly controlled entity. The loan was drawn in Euro, secured against another subsidiarys cash deposit in a bank in Malaysia (Note 39) and repayable in full on 26 November 2009. Interest is payable at a fixed rate of 3.275% per annum on a half yearly basis.
During the financial year, the loan was reclassified as short term as the related investment was disposed and the loan will be paid within the next twelve months.
161
30
LONG TERM LIABILITIES (CONTINUED)

(c) Leasing and hire purchase creditors The leasing and hire purchase arrangements obtained by subsidiary companies are secured against the assets of the respective subsidiary companies. Employee retirement benefits The employee retirement benefits represents the scheme operated by Lotus Group International Ltd, as disclosed in Note 33.
(d)
31
SHARE CAPITAL
Company 2006 2005 RM000 RM000 Authorised: 1,000,000 1,000,000
Issued and fully paid: At beginning of financial year Issuance of ordinary shares of RM1 each during the financial year At end of financial year
549,213 549,213
* 549,213 549,213
2 units subscribers shares amounted to RM2 was issued and fully paid.
32
RESERVES
The Company has sufficient tax credits under Section 108(6) of the Income Tax Act, 1967 to frank approximately RM936.8 million (2005: RM936.3 million) of its retained profits as at 31 March 2006 if paid out as dividends. The extent of the retained earnings not covered at that date amounted to RM105.1 million (2005: RM49.5 million). In addition, the Company has tax exempt income as at 31 March 2006 amounting to approximately RM56.6 million (2005: RM0.8 million) available for distribution as tax exempt dividends to shareholders. This tax exempt income is subject to the agreement by the Inland Revenue Board. Capital Reserves Group The reserves arose as a result of the Group reorganisation. Following the share for share exchange, the Company has no share premium. Accordingly, the amount of share premium previously recognised on consolidation has been designated as capital reserve.
162
33
EMPLOYEE RETIREMENT BENEFITS

(a) Defined contribution plan Group companies incorporated in Malaysia contribute to the Employees Provident Fund, the national defined contribution plan. Once the contributions are paid, the Group has no further payment obligations. Defined benefit plan Lotus Group Scheme defined benefit scheme Lotus Group International Ltd. and its subsidiaries (Lotus Group), operate a defined benefit pension scheme, the Lotus Pension Plan. The assets are held in separate trustee administered funds. In addition, it provides life assurance cover for all employees. Contributions to the scheme are charged to the income statement so as to spread the cost of pensions over employees working lives with the Lotus Group. The contributions are determined by a qualified actuary on the basis of triennial valuations. The latest actuarial valuation of the plan was carried out on 31 December 2002, using the Projected Unit method, updated to 31 March 2006. The movements during the financial year in the amount recognised in the consolidated balance sheet is as follows: Group 2006 RM000 At 1 April Currency translation differences Charged to income statement Contributions and benefits paid At 31 March 14,213 (3,364) 45,065 (14,536) 41,378 2005 RM000 10,757 724 22,551 (19,819) 14,213
(b)
163
33
EMPLOYEE RETIREMENT BENEFITS (CONTINUED)

The amounts recognised in the consolidated balance sheet is analysed as follows: Group 2006 RM000 Present value of obligation Fair value of plan assets Shortfall of funded plan Unrecognised actuarial gain/(losses) Unrecognised transitional liability Liability in balance sheet 370,548 (309,543) 61,005 8,455 (28,082) 41,378 2005 RM000 299,940 (255,652) 44,288 (19,322) (10,753) 14,213
The expense recognised in the consolidated income statement is analysed as follows: Group 2006 RM000 Current service cost Interest cost Expected return on plan assets Actuarial (gain)/losses recognised Amortisation of transitional liability Total, included in staff costs within administrative expenses (Note 5) 11,996 15,159 (16,750) (2,670) 37,330 45,065 2005 RM000 16,333 15,680 (14,038) 1,052 3,524 22,551
Actual return on plan assets
65,290
25,720
164
33
EMPLOYEE RETIREMENT BENEFITS (CONTINUED)

The principal actuarial assumptions used in respect of the Groups defined benefit plan were as follows: Group 2006 % Discount rates Expected return on plan assets equities bonds others Expected rate of salary increase Expected rate of pension payment increase Inflation 5.00 7.25 4.50 4.00 3.85 2.85 2.85 2005 % 5.40 7.50 5.00 3.75 3.75 2.75 2.75
34
SEGMENTAL INFORMATION
The Group is principally engaged in the automobile industry namely manufacturing, assembling, trading and provision of engineering and other services in respect of motor vehicles and related products. Accordingly, no segmental information is considered necessary for analysis by industry segments. Intersegment sales comprise of sales of cars, parts and engineering services to companies in different geographical locations. Analysis of the Groups revenue, results and other information by geographical locations of the assets are as follows: Malaysia 2006 RMmillion Revenue External sales Inter-segment sales Total revenue Restated 2005 RMmillion Other countries 2006 RMmillion 2005 RMmillion 2006 RMmillion Elimination 2005 RMmillion 2006 RMmillion Total Restated 2005 RMmillion
6,654.6 129.9 6,784.5
7,299.6 114.7 7,414.3
1,142.3 149.6 1,291.9
1,183.7 280.1 1,463.8
(279.5) (279.5)
(394.8) (394.8)
7,796.9 7,796.9
8,483.3 8,483.3
165
34
SEGMENTAL INFORMATION (CONTINUED)

Malaysia 2006 RMmillion Result Segment operating profit/(loss) Unallocated expenses Unallocated income Interest expense Interest income Share of net results of associated companies and jointly controlled entities Taxation Profit after taxation Restated 2005 RMmillion Other countries 2006 RMmillion 2005 RMmillion 2006 RMmillion Elimination 2005 RMmillion 2006 RMmillion Total Restated 2005 RMmillion
58.6
797.5
(118.1)
(21.4)
5.4
(85.5)
(54.1) 9.9 9.5 (43.9) 67.8
690.6 (18.1) 12.0 (46.2) 87.9
21.3
(347.2)
7.5
20.2
28.8 28.4 46.4
(327.0) 43.2 442.4
Other information Segment assets Unallocated assets Total assets
6,907.1
7,443.8
620.4
723.5
7,527.5 785.3 8,312.8
8,167.3 663.7 8,831.0
Segment liabilities Unallocated liabilities Total liabilities
1,282.1
1,665.1
278.7
328.6
1,560.8 881.3 2,442.1
1,993.7 977.0 2,970.7
Capital expenditure Depreciation and amortisation Assets written off Impairment Other non-cash items
455.4 336.3 82.9 269.2
855.5 293.9 135.6 1.9 77.9
23.1 15.1 5.1 59.5
39.7 18.5 28.3
478.5 351.4 82.9 5.1 328.7
895.2 312.4 135.6 1.9 106.2
166
34
SEGMENTAL INFORMATION (CONTINUED)

Unallocated income includes dividend from other investments, gain on disposal of short-term investments and writeback of provision for diminution in value of short-term investments. Unallocated costs represent losses on short-term investments, both realised and unrealised. Segment assets consist primarily of property, plant and equipment, inventories, receivables and operating cash, and exclude investments in associates, joint venture, long term investments, short term investments and deferred tax assets. Segment liabilities comprise operating liabilities and exclude items such as taxation and borrowings. Capital expenditure mainly comprises additions to property, plant and equipment (Note 23). Secondary reporting format The primary reporting format is based on geographical locations of the assets. The industry segmentation is considered unnecessary as the Group is principally engaged in automobile industry. Therefore, only sales to external customer based on customer location is presented. Malaysia 2006 RMmillion Revenue External sales Inter segment sales Total revenue 2005 RMmillion Other countries 2006 RMmillion 2005 RMmillion 2006 RMmillion Elimination 2005 RMmillion 2006 RMmillion Total 2005 RMmillion
6,441.0 129.9 6,570.9
7,052.0 114.7 7,166.7
1,355.9 149.6 1,505.5
1,431.3 280.1 1,711.4
(279.5) (279.5)
(394.8) (394.8)
7,796.9 7,796.9
8,483.3 8,483.3
35
CAPITAL AND OTHER COMMITMENTS

Group 2006 RM000 Capital commitments Capital expenditure for property, plant and equipment approved by the Board not provided for in the financial statements: Contracted for Not contracted for 267,727 3,900,523 4,168,250 717,455 2,724,111 3,441,566 2005 RM000
167
36
OPERATING LEASES
As at 31 March 2006, the Group was committed to making the following payments in respect of operating leases expiring: Group Land and buildings 2006 RM000 Within one year Between one and five years After five years 1,246 5,753 6,999 Plant and machinery 2006 RM000 2,212 1,884 4,096 Total 2006 RM000 3,458 7,637 11,095 Land and buildings 2005 RM000 1,100 5,844 622 7,566 Plant and machinery 2005 RM000 2,815 2,552 115 5,482 Total 2005 RM000 3,915 8,396 737 13,048
37
SIGNIFICANT RELATED PARTY TRANSACTIONS DISCLOSURES

In the normal course of business, the Group and Company undertake a variety of transactions at mutually agreed terms with subsidiaries, associated companies, jointly controlled entities and other related parties. The related parties with whom the Group and Company transact with, include the following companies: Related parties PEPS-JV (M) Sdn. Bhd. Technomeiji Rubber Industries Sdn. Bhd. Aluminium Alloy Industries Sdn. Bhd. Relationship Equity investment Equity investment Equity investment
In addition to related parties disclosures mentioned elsewhere in the financial statements, set out below are other significant related party transactions. The related party transactions described below were carried out on terms and conditions obtainable in transactions with unrelated parties unless otherwise stated.
168
37
SIGNIFICANT RELATED PARTY TRANSACTIONS DISCLOSURES (CONTINUED)

Group 2006 RM000 (a) Sales of goods and services Sales of goods Jointly controlled entities Tenmaz Sdn. Bhd. Tenmaz Engineering (M) Sdn. Bhd. 2005 RM000
18,650 * *
22,034 7,012 175
(b)
Purchases of goods and services from: Mitsubishi Corporation, Japan Associated companies Jointly controlled entities Technomeiji Rubber Industries Sdn. Bhd. PEPS-JV (M) Sdn. Bhd. Aluminium Alloy Industries Sdn. Bhd.
157,536 165,940 13,597 186,259 16,601
1,002,033 156,749 182,316 12,444 176,170
(c)
Advances to a jointly controlled entity
19,929
Not applicable for the current financial year as these companies ceased to be related party.
38
CONTINGENT LIABILITIES
A supplier had obtained a judgement in default against a subsidiary company for RM12.2 million after failing to reach a formal agreement. Management had obtained legal opinion that the claims are without basis and action has been taken to set aside the judgement.
169
39
CASH AND CASH EQUIVALENTS

Group 2006 RM000 Licensed banks Discount houses Other licensed financial institutions 1,168,787 227,470 57,465 1,453,722 132,260 (175,949) (716,841) 693,192 2005 RM000 2,063,539 112,816 48,268 2,224,623 230,095 (172,075) (705,718) 1,576,925 Company 2006 2005 RM000 RM000 49,000 49,000 835 49,835 50,638 50,638
Bank and cash balances Bank overdrafts Fixed deposit pledged as security (Note 30)
40
FINANCIAL INSTRUMENTS
(a) Financial risk management objectives and policies The Groups activities are exposed to a variety of financial risks, including foreign currency exchange risk, interest rate risk, market risk, credit risk, liquidity and cash flow risk. The Group focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Financial risk management is carried out through risks reviews, internal control systems, a global insurance programme and adherence to Group financial risk management policies. The Board regularly reviews these risks and approves the treasury policies, which covers the management of these risks. The Group uses derivative financial instruments such as foreign exchange contracts and interest rate instruments to hedge certain exposures. It does not trade in financial instruments. (i) Foreign currency exchange risk The Group is exposed to currency risk as a result of the foreign currency transactions entered into by the Company and subsidiaries in currencies other than their functional currency. The Group enters into forward foreign currency exchange contracts to limit the exposure on foreign currency receivables and payables, and on cash flows generated from anticipated transactions denominated in foreign currencies. Interest rate risk The Groups income and operating cash flows are not substantially affected by changes in market interest rates except for interest from bank deposits. Derivative financial instruments are used, where appropriate, to generate the desired interest rate profile.
(ii)
170
40
FINANCIAL INSTRUMENTS (CONTINUED)

(a) Financial risk management objectives and policies (continued) (iii) Market risk The Group does not face significant exposure from the risk from changes in debt and equity prices. (iv) Credit risk The Group seeks to invest cash assets safely and profitably. The Group considers the risk of material loss in the event of non-performance by a financial counter party to be unlikely in view of the financial strength of those counter-parties. The Group seeks to control customers credit risk by ensuring that significant sales of product and services are made to customers with an appropriate credit history. (v) Liquidity and cash flow risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions.
(b)
Forward foreign exchange contracts Forward foreign exchange contracts are entered into by the Group in currencies other than the functional currency to manage exposure to fluctuations in foreign currency exchange rates on specific transactions. As at 31 March 2006, the outstanding notional principal amount of the Group foreign exchange contracts are as follows: Group 2006 RM000 Maturity Less than 6 months Between 6 months and 1 year 2005 RM000
45,873 41,986 87,859
327,518 78,948 406,466
171
40

(b) Forward foreign exchange contracts (continued) The foreign currency amounts to be received and the contractual exchange rates of the Groups outstanding contracts are as follows: Hedged item 2006 Group Future purchase of raw materials over the following 6 months Forecasted receivables the following 6 months 6 to 12 months Currency to be received Currency to be paid RM000 equivalent Average contracted rate
GBP GBP
USD USD
45,873 41,986 87,859
1 USD = GBP 1.7701 1 USD = GBP 1.7571
2005 Group Future purchase of raw materials over the following 6 months
JPY EUR GBP GBP GBP GBP
USD USD USD AUD USD USD
145,280 28,115 14,901 11,611 127,611 78,948 406,466
1 1 1 1
USD USD USD GBP
= = = =
JPY 104.39 EUR 1.3037 GBP 1.8735 AUD 0.4070
Forecasted receivables the following 6 months 6 to 12 months
1 USD = GBP 1.8875 1 USD = GBP 1.8875
172
40

(c) Fair values The carrying amounts of financial assets and liabilities of the Group and Company at the balance sheet date approximated their fair values except as set out below: Group Note Carrying amount RM000 Fair value RM000 Company Carrying amount Fair value RM000 RM000
2006 Recognised on the balance sheet Short term investments Other long term investments Long term loans unsecured
15 27 30
211,965 10,397 (115,490)
220,864 * (115,078)
6,475
2005 Recognised on the balance sheet Short term investments Other long term investments Long term loans unsecured secured Not recognised on the balance sheet Foreign exchange hedge instruments
15 27 30 30
201,535 6,276 (169,926) (629,936)
204,873 * (169,123) (631,324)
2,475
(5,041)
It was not practicable within the constraints of timeliness and cost to estimate the fair values of the unquoted shares reliably. The Group and Company share of the net tangible worth of the investments at the balance sheet date is RM14,956,000 (2005: RM9,510,000).
173
41
SIGNIFICANT DISPOSAL
On 24 December 2005, Proton Capital Sdn. Bhd., a wholly owned subsidiary of PROTON Holdings Berhad, entered into a Share Purchase & Investment Agreement with GEVI S.p.A, a company organised and existing under the laws of Italy, in relation to a proposed disposal involving the disposal of 57,750,000 Class A shares representing 57.75% of the corporate capital of MV Agusta Motor S.p.A for a cash consideration of Euro 1.00 (The Disposal). The Disposal did not have any significant effect on the earnings, net assets, share capital nor shareholdings of the PROTON Group. With the Disposal completed on 1 March 2006, the loan of EUR70 million taken to acquire MV Agusta Motor S.p.A was repaid on 26 May 2006 by utilising the restricted cash security as explained in Notes 30(b) and 39.
42
SUBSEQUENT EVENTS
Subsequent to the year end, the Group undertook a recapitalisation exercise to address the deficit in shareholders funds and strengthen the operations of its overseas subsidiaries, Proton Cars (UK) Ltd and Proton Cars Australia Pty. Ltd via partial waiver of intercompany balances and settlement of the remaining balances following the waiver. This recapitalisation exercise requires the approval of the Boards of Directors of the respective entities and Bank Negara Malaysia for additional overseas investment and the waiver of export trade debts. The proposal was approved by Bank Negara Malaysia on 29 June 2006.
43
COMPARATIVES
Certain figures for the year ended 31 March 2005 presented have been reclassified or adjusted, as compared to the original statutory accounts, due to the reasons below: Consistent presentation with the financial statements disclosure requirements for the financial year ended 31 March 2006; and Prior year adjustments arising from certain changes in accounting policies as described in Notes 2(d) and Note 26 as summarised below.
The goodwill balance as at 31 March 2005 arising from the acquisition of a subsidiary company had been restated upon the change in accounting policy as stated in Note 2(d). The goodwill arising from the investment in a jointly controlled entity was restated as detailed in Note 26. The consequence of the change in goodwill policy was also the classification of reserves between goodwill reserves and retained earnings.
174
43
COMPARATIVES (CONTINUED)
The effect of the change in accounting policy and the reclassification described above are as detailed below: As previously stated RM000 Income statement Profit after tax Adjustments RM000 As restated RM000
810,019
(367,577)
442,442
Balance sheet Retained earnings Goodwill reserve Goodwill
5,615,101 (727,174)
(698,166) 727,174 29,008
4,916,935 29,008
As previously stated RM000 Balance sheet Trade and other payables Long term liabilities
Reclassifications RM000
As restated RM000
(1,708,378) (745,426)
14,213 (14,213)
(1,694,165) (759,639)
44
APPROVAL OF FINANCIAL STATEMENTS

The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 26 July 2006.
STATEMENT BY DIRECTORS
pursuant to Section 169(15) of the Companies Act, 1965

ANNUAL REPORT 2006
175
We, Dato Mohammed Azlan bin Hashim and Syed Zainal Abidin bin Syed Mohamed Tahir, two of the Directors of PROTON Holdings Berhad, state that, in the opinion of the Directors, the financial statements set out on pages 108 to 174 are drawn up so as to give a true and fair view of the state of affairs of the Group and the Company as at 31 March 2006 and of the results and cash flows of the Group and the Company for the financial year ended on that date in accordance with the provisions of the Companies Act, 1965 and the MASB approved accounting standards in Malaysia. Signed on behalf of the Board of Directors in accordance with their resolution dated 26 July 2006.
DATO MOHAMMED AZLAN BIN HASHIM Chairman
SYED ZAINAL ABIDIN BIN SYED MOHAMED TAHIR Director
STATUTORY DECLARATION
pursuant to Section 169(16) of the Companies Act, 1965
I, Tan Chun Weng, the officer primarily responsible for the financial management of PROTON Holdings Berhad, do solemnly and sincerely declare that the financial statements set out on pages 108 to 174 are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960.
TAN CHUN WENG Subscribed and solemnly declared by the abovenamed Tan Chun Weng at Shah Alam in Malaysia on 26 July 2006, before me.
COMMISSIONER FOR OATHS
176
REPORT OF THE AUDITORS
to the Members of PROTON Holdings Berhad
(Company No. 623177 A) PROTON HOLDINGS BERHAD
We have audited the financial statements set out on pages 108 to 174. These financial statements are the responsibility of the Companys Directors. It is our responsibility to form an independent opinion, based on our audit, on these financial statements and to report our opinion to you, as a body, in accordance with section 174 of the Companies Act 1965 and for no other purpose. We do not assume responsibility to any other person for the content of this report. We conducted our audit in accordance with approved auditing standards in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion: (a) the financial statements have been prepared in accordance with the provisions of the Companies Act, 1965 and MASB approved accounting standards in Malaysia so as to give a true and fair view of: (i) (ii) and (b) the accounting and other records and the registers required by the Act to be kept by the Company and by the subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act. the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements; and the state of affairs of the Group and of the Company as at 31 March 2006 and of the results and cash flows of the Group and Company for the financial year ended on that date;
The names of the subsidiary companies of which we have not acted as auditors are indicated in Note 24 to the financial statements. We have considered the financial statements of these subsidiaries and the auditors reports thereon. We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Companys financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes. The auditors reports on the financial statements of the subsidiaries were not subject to any qualification and did not include any comment made under subsection (3) of section 174 of the Act.
PRICEWATERHOUSECOOPERS (No. AF: 1146) Chartered Accountants Kuala Lumpur 26 July 2006
DATO AHMAD JOHAN BIN MOHAMMAD RASLAN (No. 1867/09/06 (J)) Partner of the Firm
SHAREHOLDINGS STATISTICS
as at 20 July 2006
ANNUAL REPORT 2006
177
ANALYSIS OF SHAREHOLDINGS
Share Capital Authorised Share Capital Issued and Fully Paid Up Capital Class of Shares Voting Rights RM1,000,000,000/RM549,213,002/Ordinary Shares of RM1/- each One (1) Voting Right for one (1) Ordinary Share
ANALYSIS OF SHAREHOLDINGS BY RANGE GROUPS

No. of Shares 1 100 101 1,000 1,001 10,000 10,001 100,000 100,001 27,460,649 27,460,650 and Above 769 3,129,826 5,030,112 10,666,820 224,207,102 306,178,373 549,213,002 % Over Total Shares 0.00 0.57 0.92 1.94 40.82 55.75 100.00 No. of Shareholders 78 3,333 1,450 308 198 3 5,370 % Over Total Shareholders 1.45 62.07 27.00 5.74 3.69 0.05 100.00
DISTRIBUTION OF SHAREHOLDINGS
Malaysian No. of Shares 1 100 101 1,000 1,001 10,000 10,001 100,000 100,001 27,460,649 27,460,650 and Above 686 3,041,296 4,454,561 6,904,700 122,706,127 306,178,373 443,285,743 Foreign No. of Shares 83 88,530 575,551 3,762,120 101,500,975 0 105,927,259 Malaysian % Over Total Share 0.00 0.55 0.81 1.26 22.34 55.75 80.71 Foreign % Over Total Share 0.00 0.02 0.10 0.69 18.48 0.00 19.29 Malaysian No. of Shareholders 75 3,225 1,316 214 90 3 4,923 Foreign No. of Shareholders 3 108 134 94 108 0 447 Malaysian % Over Total Shareholders 1.40 60.06 24.51 3.99 1.68 0.05 91.69 Foreign % Over Total Shareholders 0.05 2.01 2.49 1.75 2.01 0.00 8.31
549,213,002
100.00
5,370
100.00
178
as at 20 July 2006 (CONTINUED) PROTON HOLDINGS BERHAD
SUBSTANTIAL SHAREHOLDERS (5% AND ABOVE)

Name 1 2 3 KHAZANAH NASIONAL BERHAD EMPLOYEES PROVIDENT FUND BOARD PETROLIAM NASIONAL BERHAD Shareholding 210,484,693 60,017,000 35,676,680 % 38.32 10.93 6.50
THIRTY LARGEST SHAREHOLDERS

Name of Shareholders 1. 2. 3. 4. 5. 6. KHAZANAH NASIONAL BERHAD EMPLOYEES PROVIDENT FUND BOARD RHB NOMINEES (TEMPATAN) SDN. BHD. PETROLIAM NASIONAL BERHAD CIMSEC NOMINEES (TEMPATAN) SDN. BHD. SECURITY TRUSTEE (KCW ISSUE 2) LEMBAGA TABUNG HAJI CARTABAN NOMINEES (ASING) SDN. BHD. GOVERNMENT OF SINGAPORE INVESTMENT CORPORATION PTE. LTD. FOR GOVERNMENT OF SINGAPORE (C) PERMODALAN NASIONAL BERHAD CARTABAN NOMINEES (TEMPATAN) SDN. BHD. AMANAH SSCM NOMINEES (TEMPATAN) SDN. BHD. FOR EMPLOYEES PROVIDENT FUND BOARD (JF404) PERECOM INDUSTRIES SDN. BHD. HSBC NOMINEES (ASING) SDN. BHD. TNTC FOR SAUDI ARABIAN MONETARY AGENCY CARTABAN NOMINEES (ASING) SDN. BHD. GOVERNMENT OF SINGAPORE INVESTMENT CORPORATION PTE. LTD. FOR MONETARY AUTHORITY OF SINGAPORE (H) MALAYSIA NOMINEES (TEMPATAN) SENDIRIAN BERHAD AMANAH SSCM ASSET MANAGEMENT BERHAD FOR AMANAH MILLENIA FUND BERHAD (JM730) CARTABAN NOMINEES (ASING) SDN. BHD. SSBT FUND NDS6 FOR NORTHROP GRUMMAN PENSION MASTER TRUST HSBC NOMINEES (ASING) SDN. BHD. TNTC FOR BRANDES INSTITUTIONAL EQUITY TRUST CITIGROUP NOMINEES (ASING) SDN. BHD. EXEMPT AN FOR AMERICAN INTERNATIONAL ASSURANCE COMPANY LIMITED No. of Shares 210,484,693 60,017,000 35,676,680 24,250,000 16,820,427 14,185,300 % 38.32 10.93 6.50 4.42 3.06 2.58
7. 8. 9. 10. 11.
8,838,000 8,094,900 7,444,000 6,835,998 5,960,200
1.61 1.47 1.36 1.24 1.09
12. 13. 14. 15.
4,268,400 3,686,500 3,658,200 3,534,500
0.78 0.67 0.67 0.64
as at 20 July 2006 (CONTINUED) ANNUAL REPORT 2006
179
THIRTY LARGEST SHAREHOLDERS (CONTINUED)

Name of Shareholders 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. AMANAH RAYA NOMINEES (TEMPATAN) SDN. BHD. AMANAH SAHAM MALAYSIA CITIGROUP NOMINEES (ASING) SDN. BHD. CBNY FOR DFA EMERGING MARKETS FUND CITIGROUP NOMINEES (ASING) SDN. BHD. MELLON BANK, N.A. FOR WEST VIRGINIA INVESTMENT MANAGEMENT BOARD CARTABAN NOMINEES (TEMPATAN) SDN. BHD. EXEMPT AN FOR AMANAH SSCM NOMINEES (TEMPATAN) SDN. BHD. (ACCOUNT 1) HSBC NOMINEES (ASING) SDN. BHD. EXEMPT AN FOR JPMORGAN CHASE BANK, NATIONAL ASSOCIATION (AUSTRALIA) HSBC NOMINEES (ASING) SDN. BHD. TNTC FOR UTAH STATE RETIREMENT SYSTEMS CARTABAN NOMINEES (ASING) SDN. BHD. SSBT FUND NXW3 FOR BRANDES GLOBAL SMALL CAP EQUITY FUND CARTABAN NOMINEES (ASING) SDN. BHD. INVESTORS BANK AND TRUST COMPANY FOR ISHARES, INC. HSBC NOMINEES (ASING) SDN. BHD. TNTC FOR POLAR CAPITAL FUNDS PLC (ASIA EX JAPAN F) HSBC NOMINEES (ASING) SDN. BHD. EXEMPT AN FOR FORTIS BANQUE LUXEMBOURG (OPCVM A/C) HSBC NOMINEES (ASING) SDN. BHD. BNY BRUSSELS FOR ING EMERGING COUNTRIES FUND MAYBAN NOMINEES (TEMPATAN) SDN. BHD. AVENUE INVEST BERHAD FOR KUMPULAN WANG AMANAH PENCEN (E00170-220136) BANK SIMPANAN NASIONAL BANK SIMPANAN NASIONAL BANK SIMPANAN NASIONAL TOTAL No. of Shares 3,471,800 3,112,500 2,929,200 2,888,200 2,862,300 2,354,176 2,231,566 1,995,300 1,986,100 1,953,575 1,903,014 1,865,400 1,853,000 1,852,000 1,852,000 448,864,929 % 0.63 0.57 0.53 0.53 0.52 0.43 0.41 0.36 0.36 0.36 0.35 0.34 0.34 0.34 0.34 81.75
180
PROPERTIES OWNED BY PROTON GROUP

Location
Description and Existing Use
Tenure
Date of Acquisition/ Revaluation
Age of Building
Net Book Value RM Million
PROPERTIES OWNED BY PERUSAHAAN OTOMOBIL NASIONAL SDN. BHD. No. H.S.(D) 71311, No. P.T. 82 Mukim of Damansara, District of Petaling, Selangor Darul Ehsan. (Formerly, HICOM Industrial Estate encompassing part of Lots 563, 564, 568, 570 and Lot 15, Mukim of Damansara, District of Petaling, Selangor Darul Ehsan). HICOM Industrial Estate encompassing Lot 572, Mukim of Damansara, District of Petaling, Selangor Darul Ehsan. Land with an area of 6,231,080 Freehold sq. ft. with main office, main factory, engine factory, medium volume factory, canteen buildings, sports facilities, car park for production cars and additional R&D laboratories building. Total built-up area is 2,594,603 sq. ft. 05.09.1983 21 Years Land: 68.4 Buildings: 146.5
3 units of flats currently rented out
Freehold
09.04.1986
21 Years
Flats: 0.05
No. H.S.(D) 71309, No. P.T. 80, Land having an area of Mukim of Damansara, 158,107 sq. ft. used as the car District of Petaling, park for staff Selangor Darul Ehsan. (Formerly, HICOM Industrial Estate encompassing Lot 568 Grant No. 5941, H.S.(D) 22208 No. P.T. 5115, H.S.(D) 22207, No. P.T. 5116, Mukim of Damansara, District of Petaling, Selangor Darul Ehsan).
Freehold
19.11.1993
Land: 2.6
181
Location
Tenure
Age of Building
PROPERTIES OWNED BY PERUSAHAAN OTOMOBIL NASIONAL SDN. BHD. (CONTINUED) Lot 25, HICOM Glenmarie Industrial Park, Mukim of Damansara, District of Petaling, Selangor Darul Ehsan. Land with an area of 1,036,728 sq. ft. with office, factory and canteen buildings and sports facilities used for the Casting Plant. Total built-up area is 194,579 sq. ft. Land with an area of 2,396,727 sq. ft. adjoining the Companys northern boundary housing the semi-high speed test track and control building. Total built-up area is 2,102,731 sq. ft. Freehold 30.12.1992 12 Years Land: 20.6 Buildings: 44.2
No. H.S.(D) 86554, No. P.T. 257 encompassing Lot 54, 60 and 62, Sime UEP Industrial Park, Mukim of Damansara, District of Petaling, Selangor Darul Ehsan.
Freehold
18.04.1994
12 Years
Land: 54.9 Track & Buildings: 27
No. H.S.(D) B.P. 5653 and 5654 Bil P.T. 16162 and 10163, District of Batang Padang, Mukim of Ulu Bernam Timur, Perak Darul Ridzuan.
Land with an area of 55,444,116 sq. ft. with a second automobile plant. Total built-up area is 3,374,577 sq. ft.
Freehold
03.02.1999
3 Years
Land: 1.0 Building: 405
182
Location PROPERTIES OWNED BY PROTON PROPERTIES SDN. BHD. No. H.S.(D) No. 71662, No. P.T. 439, Mukim of Damansara, District of Petaling, Selangor Darul Ehsan.
Tenure
Age of Building
6 units of 3-bedroom Seri Hijauan apartments with a total built-up area of 6,522 sq. ft. D-3-17 of East Wing, D-5-24 of East Wing, B-4-01 of West Wing, B-5-01 of West Wing, A-10-01 of North Wing, A-11-01 of North Wing
Freehold
15.06.1995
12 Years
Apartments: 1.0
PROPERTIES OWNED BY PROTON CARS (UK) LTD. Ref. AV 915, Units 1-3, Crawley Way, Avonmouth, Bristol Avon BS11 9YR, England. Land with an area of 162,479 sq. ft. with a parts warehouse building Freehold 31.03.1994 30 Years Land: 6.5 Buildings: 1.9
PROPERTY OWNED BY PROTON PARTS CENTRE SDN. BHD. Lot 91, HICOM Glenmarie Industrial Park, Mukim of Damansara, District of Petaling, Selangor Darul Ehsan. Land with an area of 512,266 sq. ft. with office and warehouse. Total built-up area is 220,000 sq. ft. Freehold 01.01.1993 13 Years Land: 10.2 Buildings: 21.8
183
Location PROPERTY OWNED BY PROTON EDAR SDN. BHD.
Tenure
Age of Building
Vehicle Preparation Centre (VPC) Vehicle Preparation Centre and No. H.S.(D) 86555, P.T. No. 258 stock control building with total and H.S.(D) 86557, P.T. No. 260, built-up area of 101,956 sq. ft. TP 2 Road, Sime UEP Industrial Park, 47600 Subang Jaya, Selangor Darul Ehsan. Centre of Excellence (COE) & Pre-Delivery and Inspection Centre (PDI) No H.S.(D) 86596, P.T. No. 299 and H.S.(D) 86597, P.T. No. 300, TP 2 Road, Sime UEP Industrial Park, 47600 Subang Jaya, Selangor Darul Ehsan. No. 2, Lrg. Samarinda 6A Off Jalan Kebun H.S.(D) 60042, P.T. No. 64566, Mukim of Klang, Selangor Darul Ehsan Administration & Operation Office and Pre-Delivery & Inspection Centre with total built-up area of 30,212 sq. ft.
Freehold
01.12.2000
5 Years
Building: 5.2
Freehold
01.03.2001
5 Years
Land: 35.7 Building: 141.3
3 storey shop units which approximately 2,475.7 sq. ft.
Freehold
10.05.2002
4 Years
Building: 0.7
Lot 859, Block 16 Kuching Central Land with an area of Land District, Stampin 412 Mile, 48,383.73 sq. ft. to be Penrissen Road Kuching, used for sales outlet Sarawak. and service centre No. 218089, Mukim of Plentong, District of Johor Bahru, Johor Darul Takzim. Land with an area of 87,120 sq. ft. to be used for sales outlet and service centre
Freehold
29.04.2002
4 Years
Land: 2.8
Freehold
29.04.2002
4 Years
Land: 8.1
184
Location PROPERTY OWNED BY PROTON EDAR SDN. BHD. (CONTINUED) H.S.(D) Mukim District Negeri 63313, P.T. No. 9671 of Ampangan of Seremban, Sembilan Darul Khusus.
Tenure
Age of Building
Land with an area of 79,949 sq. ft. used for sales outlet and service centre is 7,175 sq. ft.
Freehold
19.07.2002 29.09.2003
312 Years 2 Years
H.S.(D) 318392, PTD 81816, Mukim of Pulai, District of Johor Bahru, Jahor Darul Takzim.
Land with an area of 57,267 sq. ft. used for sales outlet and service centre
Freehold
06.08.2002
312 Years
Land: 5.1
Part of Lot 45, Held under Master Land with an area of 87,120 Title geran 29164 Lot 5458, sq. ft. used for sales outlet and Mukim & District of Petaling, service centre Selangor Darul Ehsan. Lot P.T. 22489, Mukim of Batu, District of Gombak, Selangor Darul Ehsan. Lot P.T. 4352, Mukim of Kuah, District of Langkawi, Kedah Darul Aman. H.S.(D) 144330, P.T. 40019 Mukim of Sungai Buloh, District of Petaling, Selangor Darul Ehsan. Land with an area of 87,120 sq. ft. used for sales outlet and service centre Land with an area of 51,979 sq. ft. used for sales outlet and service centre Land with an area of 61,524 sq. ft. used for sales outlet and service centre
Freehold
01.08.2002
312 Years
Land: 9.7
Freehold
26.08.2002
312 Years
Land: 7.6
Freehold
13.09.2002
312 Years
Land: 1.4
Freehold
02.09.2002 01.03.2004
312 Years 2 Years
185
Location PROPERTY OWNED BY PROTON EDAR SDN. BHD. (CONTINUED) H.S.(D) 159654, P.T. 1 Jalan Kemajuan, District of Petaling Jaya, Selangor Darul Ehsan. No. H.S.(D) 86596, P.T. No. 302, TP 5 Road, Sime UEP Industrial Park, 47600 Subang Jaya, Selangor Darul Ehsan.
Tenure
Age of Building
Land with an area of 99,862 sq. ft. used for sales outlet and service centre
Freehold
24.08.2005
7 Months
Land: 13.5
Land with an area of 123,853 sq. ft. used for stockyard area
Freehold
05.12.2005
Land: 0.6
PROPERTIES OWNED BY PROTON EDAR VENTURES SDN. BHD. No. H.S.(D) 588, No. P.T. 2361, Mukim of Gelung, District of Kubang Pasu, Kedah Darul Aman. Lot 1229, Mergong Industrial Estate Phase 11, Mukim of Mergong, District of Kota Setar, Kedah Darul Aman. Land with an area of 1,373,925 sq. ft. used as site for industrial building Freehold 11.12.1990 Land: 1.7
Land with an area of 45,025 sq. ft. with a 112 storey building leased to Proton Edar Sdn. Bhd., used as Pre-Delivery inspection and service centre
Long leasehold (Year of expiry: 2076)
15.05.1977
29 Years
186
Location
Tenure
Age of Building
PROPERTY OWNED BY PROTON CORPORATION SDN. BHD. Lot No. 23 & 24, Section 7, Phase 1A, Pulau Indah Industrial Park, Westport, Pelabuhan Klang, Selangor Darul Ehsan. Industrial land with an area of approximately 671,204 sq. ft. used to warehouse production export car Long 25.02.1998 leasehold of 99 years (Year of expiry: 2097) Land: 10.5
PROPERTIES OWNED BY LOTUS CARS LTD. (UK) (i) Lotus Cars Limited, Land adjacent to Potash Lane, Hethel, Norwich, Norfolk NR 14 8EZ, England. (ii) Land North of Browick Road, Hethel, Norwich, Norfolk NR14 8EZ, England. Group Lotus Plc. Potash Lane Hethel, Norwich, Norfolk NR14 8EZ, England. Two parcels of land with a total area of 6,286,550 sq. ft. with the factory, engineering facilities, offices and test track of Lotus Group International Ltd. Total built-up area is 515,500 sq. ft. Freehold 26.09.1968 39 Years Land: 6.3 Building: 86.2
R&D building rented to group companies. Total built-up area is 86,600 sq. ft.
Freehold
01.03.2000
7 Years
Building: 7
PROPERTY OWNED BY MARCO ACQUISITION CORPORATION 1254 North Main St, Ann Arbor, Michigan USA. Land with an area of approximately 165,528 sq. ft. with office and workshop. Total built-up area is 73,000 sq. ft. Freehold 24.02.2000 Office: 86 Years Workshop: 40 Years Land: 0.9 Building: 7.9
SHARE PRICE AND VOLUME TRADED

ANNUAL REPORT 2006
187
Volume (000)
12,500
Price (RM)
10
10,000
8 6
5,000
7,500
2,500
2 0
Apr 05
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec 05
Jan 06
Feb
Mar
Apr
May
Jun
Jul 06
Volume (000)
Opening
Highest
Lowest
Closing
188
NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Third (3rd) Annual General Meeting of the Company will be held at the Auditorium, PROTON Centre of Excellence, KM 33.8, Westbound Shah Alam Expressway, 47600 Subang Jaya, Selangor Darul Ehsan, Malaysia on Friday, 8 September 2006 at 3.30 p.m. for the following purposes:
1. To lay the Reports of the Directors and Auditors and the Audited Statement of Accounts for the year ended 31 March 2006. To approve the payment of a final (tax exempt) dividend of 5 sen per ordinary share. To elect the following Directors who retire in accordance with the Companys Articles of Association:Article 104 (i) (ii) (i) (ii) 4. Dato Mohammed Azlan bin Hashim Abdul Jabbar bin Abdul Majid Dato Ahmad bin Haji Hashim Syed Zainal Abidin bin Syed Mohamed Tahir RESOLUTION 2 RESOLUTION 3 RESOLUTION 4 RESOLUTION 5 RESOLUTION 1
2. 3.
Article 111
To elect the following Director who retires in accordance with Section 129 of the Companies Act, 1965 (CA) (i) Lt. Gen (R) Dato Seri Mohamed Daud bin Abu Bakar RESOLUTION 6 RESOLUTION 7 RESOLUTION 8
5. 6.
To approve the Directors fees for the year ended 31 March 2006. To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company and to authorise the Directors to fix their remuneration. To transact any other ordinary business for which due notice has been given.
7. 8.
RESOLUTION 9
AS SPECIAL BUSINESS
To consider and, if thought fit, to pass the following resolution as Ordinary Resolution:That subject always to the provisions of the Companies Act, 1965, the Articles of Association of the Company and the approval of the relevant authorities and pursuant to Section 132D of the Companies Act, 1965, the Directors be and are hereby authorized to issue and allot shares in the Company from time to time at such price, upon such terms and conditions, for such purposes and to such person or persons whomsoever as the Directors may deem fit, provided that the aggregate number of shares to be issued pursuant to this resolution does not exceed 10 percent (%) of the issued share capital of the Company for the time being and that such authority shall continue to be in force until the conclusion of the next Annual General Meeting of the Company. RESOLUTION 10
NOTICE OF ANNUAL GENERAL MEETING
189
NOTICE OF BOOK CLOSURE AND DIVIDEND PAYMENT

NOTICE IS HEREBY GIVEN THAT the Register of Members of the Company will be closed on 14 September 2006 to determine shareholders entitlement to a final (tax exempt) dividend of 5 sen for the financial year ended 31 March 2006. The dividend, if approved by the shareholders at the Companys Third (3rd) Annual General Meeting, will be paid on 18 October 2006 to shareholders whose names appear in the Record of Depositors on 14 September 2006. FURTHER NOTICE IS ALSO HEREBY GIVEN THAT a Depositor shall qualify for entitlement to the dividend only in respect of:(a) (b) (c) securities deposited into the Depositors Securities Account on or before 4.00 p.m. on 14 September 2006 in respect of securities which are exempted from mandatory deposit; securities transferred into the Depositors Securities Account before 4.00 p.m. on 14 September 2006 in respect of ordinary transfer; securities bought on Bursa Malaysia Securities Berhad on a cum entitlement basis according to the Rules of Bursa Malaysia Securities Berhad.
NOTES:1. A member of the Company entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend and vote in his stead. A proxy may but need not be a member of the Company and the provision of Section 149(1)(b) of the Companies Act, 1965 shall not apply. The instrument appointing a proxy must be in writing under the hands of the appointor or his attorney duly authorised in writing or, if such appointor is a corporation, under its common seal or the hand of an officer or attorney duly authorised. The maximum number of proxies that may be appointed is two. Where a member appoints more than one proxy, the appointment shall be invalid unless he specifies the proportion of his shareholdings to be represented by each proxy. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, it may appoint at least one proxy in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. Every appointment submitted by an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, must specify the CDS Account Number. 5. The instrument appointing the proxy must be deposited at the office of the Registrar, Tenaga Koperat Sdn Bhd, 20th Floor, Plaza Permata, Jalan Kampar, Off Jalan Tun Razak, 50400 Kuala Lumpur not less than forty eight (48) hours before the time appointed for the meeting. For the purpose of determining a member who shall be entitled to attend the Meeting, the Company shall be requesting Bursa Malaysia Depository Sdn Bhd, in accordance with Article 67(b) of the Companys Articles of Association and Section 34(1) of the Securities Industry (Central Depositories) Act, 1991 to issue a General Meeting Record of Depositors as at 30 August 2006. Only a depositor whose name appears on the General Meeting Record of Depositors as at 30 August 2006 shall be entitled to attend the said meeting or appoint proxies to attend and/or vote in his stead.
By Order of the Board
2.
MOHD NIZAMUDDIN BIN MOKHTAR

(LS NO. 006128)
Company Secretary Shah Alam 17 August 2006
3.
4.
6.
EXPLANATORY NOTES TO THE SPECIAL BUSINESS:The Ordinary Resolution No. 10, if passed, will give the Directors of the Company the authority to issue shares in the Company up to an amount not exceeding in total 10% of the issued and paid up capital of the Company for such purposes as the Directors consider would be in the interest of the Company. This would avoid any delay and cost involved in convening a general meeting to specifically approve such an issue of shares. This authority, unless revoked or varied at a general meeting, will expire at the next Annual General Meeting of the Company.
190
STATEMENT ACCOMPANYING THE NOTICE OF ANNUAL GENERAL MEETING

STATEMENT ACCOMPANYING THE NOTICE OF THE THIRD (3RD) ANNUAL GENERAL MEETING
Pursuant to Paragraph 8.28(2) of the Listing Requirements of Bursa Malaysia Securities Berhad, appended hereunder are: DIRECTORS STANDING FOR RE-ELECTION Directors who are standing for re-election at the Third (3rd) Annual General Meeting of the Company which will be held at the Auditorium, PROTON Centre of Excellence, KM 33.8, Westbound Shah Alam Expressway, 47600 Subang Jaya, Selangor Darul Ehsan, Malaysia on Friday, 8 September 2006 at 3.30 p.m. pursuant to the Companys Articles of Association and Section 129 of the Companies Act, 1965 are as follows:Article 104 Dato Mohammed Azlan bin Hashim Abdul Jabbar bin Abdul Majid Article 111 Dato Ahmad bin Haji Hashim Syed Zainal Abidin bin Syed Mohamed Tahir Section 129 of the Companies Act Lt. Gen (R) Dato Seri Mohamed Daud bin Abu Bakar
Refer to Page 14 of the Annual Report Refer to Page 17 of the Annual Report
Refer to Page 21 of the Annual Report Refer to Page 15 of the Annual Report
Refer to Page 16 of the Annual Report
FORM OF PROXY
No. of Shares held CDS Account No. of Authorised Nominee

Company No: 623177-A
I/We NRIC No. of Berhad, hereby appoint capital letters) NRIC No. (new) (new)
(name of shareholder as per NRIC, in capital letters) (old) ID No./Company No. (full address) being a member/members of Proton Holdings (name of proxy as per NRIC, in (old) or failing him/her (new) (old)
(name of proxy as per NRIC, in capital letters) NRIC No.
or failing him/her, the CHAIRMAN OF THE MEETING as my/our proxy to vote for me/us on my/our behalf at the Third (3rd) Annual General Meeting of the Company to be held at the Auditorium, PROTON Centre of Excellence, KM 33.8, Westbound Shah Alam Expressway, 47600 Subang Jaya, Selangor Darul Ehsan, Malaysia on Friday, 8 September 2006 at 3.30 p.m. and at any adjournment thereof. My/Our proxy is to vote as indicated below:ORDINARY RESOLUTIONS 1. To approve the payment of a final (tax exempt) dividend of 5 sen per ordinary share. 2. To elect the following Directors who retire in accordance with the Companys Articles of Association:Article 104 i. Dato Mohammed Azlan bin Hashim ii. Abdul Jabbar bin Abdul Majid Article 111 iii. Dato Ahmad bin Haji Hashim iv. Syed Zainal Abidin bin Syed Mohamed Tahir 3. To elect the following Director who retires in accordance with Section 129 of the Companies Act, 1965 (CA) i. Lt. Gen (R) Dato Seri Mohamed Daud bin Abu Bakar 4. To approve the Directors fees for the year ended 31 March 2006. 5. To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company and to authorise the Directors to fix their remuneration. 6. To transact any other ordinary business for which due notice has been given. AS SPECIAL BUSINESS 7. To approve authority to Directors to allot and issue shares pursuant to Section 132D of the Companies Act, 1965. FOR Resolution 1 AGAINST
Resolution 2 Resolution 3 Resolution 4 Resolution 5
Resolution 6 Resolution 7 Resolution 8 Resolution 9
Resolution 10
(Please indicate with an X in the spaces provided how you wish your vote to be cast. If you do not do so, the proxy will vote or abstain from voting at his/her discretion.)
Dated this
day of
2006.
For appointment of more than one proxy, number of shares and percentage of shareholdings to be represented by the proxies:No. of shares Proxy 1 Proxy 2 Percentage % %
Signature/Common Seal of Appointer
NOTES:1. 2. 3. 4. A member of the Company entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend and vote in his stead. A proxy may but need not be a member of the Company and the provision of Section 149(1)(b) of the Companies Act, 1965 shall not apply. The instrument appointing a proxy must be in writing under the hands of the appointor or his attorney duly authorised in writing or, if such appointor is a corporation, under its common seal or the hand of an officer or attorney duly authorised. The maximum number of proxies that may be appointed is two. Where a member appoints more than one proxy, the appointment shall be invalid unless he specifies the proportion of his shareholdings to be represented by each proxy. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, it may appoint at least one proxy in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. Every appointment submitted by an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, must specify the CDS Account Number. 5. 6. The instrument appointing the proxy must be deposited at the office of the Registrar, Tenaga Koperat Sdn Bhd, 20th Floor, Plaza Permata, Jalan Kampar, Off Jalan Tun Razak, 50400 Kuala Lumpur not less than forty eight (48) hours before the time appointed for the meeting. For the purpose of determining a member who shall be entitled to attend the Meeting, the Company shall be requesting Bursa Malaysia Depository Sdn Bhd, in accordance with Article 67(b) of the Companys Articles of Association and Section 34(1) of the Securities Industry (Central Depositories) Act, 1991 to issue a General Meeting Record of Depositors as at 30 August 2006. Only a depositor whose name appears on the General Meeting Record of Depositors as at 30 August 2006 shall be entitled to attend the said meeting or appoint proxies to attend and/or vote in his stead.
Fold Here
STAMP
TENAGA KOPERAT SDN. BHD.

20th Floor, Plaza Permata Jalan Kampar, Off Jalan Tun Razak 50400 Kuala Lumpur
Fold Here
Registered Office
HICOM Industrial Estate Batu Tiga, 40000 Shah Alam, Selangor Darul Ehsan Tel: +603 8026 9741 Fax: +603 8026 9744
www.proton.com

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PROTON Holdings Berhad

(Company No. 623177-A)

ANNUAL REPORT 2006

THE PROTON WAY

ANNUAL REPORT 2006

Corporate Mantra & Core Values

KEY FINANCIAL INDICATORS

BASIC EARNINGS PER SHARE NET ASSETS

RETAINED PROFITS CARRIED FORWARD

ANNUAL REPORT 2006

SUMMARY OF FINANCIAL HIGHLIGHTS FOR FIVE YEARS

BALANCE SHEET AS AT 31 MARCH

1,389.0 1,244.0 212.0 1,586.0 4,431.0

967.1 1,403.2 201.5 2,454.7 5,026.5

795.8 930.0 182.0 2,877.4 4,785.2

813.6 822.5 166.4 3,713.7 5,516.2

689.4 871.5 185.0 3,591.8 5,337.7

Current Liabilities Payables Taxation

2,324.2 16.9 2,341.1

Shareholders Funds Share capital Other reserves Retained profits

549.2 412.7 4,908.7 5,870.6

549.2 393.8 4,916.9 5,859.9

549.2 406.0 4,611.8 5,567.0

549.2 421.8 4,195.1 5,166.1

543.1 459.5 3,197.2 4,199.8

INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH

28.1 46.7 4,963.6 (54.9) 4,908.7

412.3 442.4 5,054.2 (137.3) 4,916.9

576.7 510.3 4,705.1 (93.3) 4,611.8

1,326.9 1,086.0 4,283.0 (87.9) 4,195.1

1,495.7 1,173.7 3,275.9 (78.7) 3,197.2

8.5 10.0 10.69 549,213

80.6 25.0 10.67 549,213

92.9 17.0 10.14 549,213

197.7 16.0 9.41 549,213

216.1 14.5 7.73 543,144

PROTON was established on 7 May 1983

AWARDS & RECOGNITION

BOARD AUDIT COMMITTEE

BOARD RISK MANAGEMENT COMMITTEE

BOARD NOMINATION COMMITTEE

Datuk Tan Kim Leong

Dato Michael Lim Heen Peok

Abdul Jabbar bin Abdul Majid

REGISTRAR BOARD EXECUTIVE COMMITTEE BOARD REMUNERATION COMMITTEE

Md Ali bin Md Dewal

STOCK EXCHANGE LISTING

Mohammad Zainal bin Shaari

ENGINEERING SERVICES DIVISION

PROTON ENGINEERING RESEARCH TECHNOLOGY SDN. BHD. (100%)

Marco Acquisition Corporation (USA) (100%)

PROTON AUTOMOBILES CHINA LTD. (BVI) (100%)

Goldstar PROTON Automobiles Co. Ltd (49%)

PROTON EDAR SDN. BHD. (100%)

INVESTEE & ASSOCIATE COMPANIES

DATO MOHAMMED AZLAN BIN HASHIM

SYED ZAINAL ABIDIN BIN SYED MOHAMED TAHIR

ABDUL JABBAR BIN ABDUL MAJID

BADRUL FEISAL BIN ABDUL RAHIM

MOHAMMAD ZAINAL BIN SHAARI

ABDUL KADIR BIN MD KASSIM

DATO AHMAD BIN HAJI HASHIM

Syed Zainal Abidin bin Syed Mohamed Tahir