SILK Holdings Bhd - Malaysiastock.biz Holdings Bhd (405897-V) SILK Holdings Berhad (405897-V) ANNUAL REPORT 2011 SILK A.R. 2011 Cover.indd 1 03/10/2011 08:29:42. OPERATING SUBSIDIARIES

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SILK Holdings Berhad(405897-V)

ANNUAL REPORT 2011

SILK A.R. 2011 Cover.indd 1 03/10/2011 08:29:42

OPERATING SUBSIDIARIES

Sistem Lingkaran-Lebuhraya Kajang Sdn Bhd (“SILK”) is the concession owner of Kajang Traffic Dispersal Ring Road, better known as Kajang SILK Highway. The concession runs for a period of 33 years, ending in 2037. Kajang SILK Highway stretches for 37 km and is a primary urban road serving south eastern corridor of Klang Valley, linking Balakong, Sg. Long, Kajang, Bangi, Serdang and Putrajaya as well as these townships to the Sungai Besi Highway (Besraya), the North South Expressway, Cheras-Kajang Highway, Kajang-Seremban Highway (LEKAS), South Klang Valley Expressway, and in the future, to the KL Outer Ring Road.

Jasa Merin (Malaysia) Sdn Bhd, (“Jasa Merin”) commenced operation in 1982. For over 25 years, Jasa Merin has been providing offshore support vessel services to oil majors such as PETRONAS Carigali Sdn Bhd and ExxonMobil Exploration and Production Malaysia Inc. Presently, Jasa Merin operates a fleet of 14 vessels comprising 3 Straight Supply Vessels and 11 Anchor Handling Tug Supply Vessels. In addition, JM has 4 vessels under various stages of construction.

CORPORATE INFORMATION 2

PROFILE OF BOARD OF DIRECTORS 3 CHAIRMAN’S STATEMENT 6 FIVE-YEAR GROUP FINANCIAL SUMMARY 10

CORPORATE GOVERNANCE STATEMENT 11 AUDIT COMMITTEE REPORT 16 STATEMENT ON INTERNAL CONTROL 21 STATEMENT OF CORPORATE SOCIAL RESPONSIBILITY 24 FINANCIAL STATEMENTS 25

ADDITIONAL COMPLIANCE INFORMATION 109 SUBSTANTIAL SHAREHOLDERS 111

DIRECTORS’ INTERESTS IN SHARES AND LOAN STOCKS 112

ANALYSIS OF SHAREHOLDINGS 113

NOTICE OF ANNUAL GENERAL MEETING 115

PROXY FORM

CONTENTS

SILK Holdings Berhad • ANNUAL REPORT 2011 1

2 SILK Holdings Berhad • ANNUAL REPORT 20112 SILK Holdings Berhad • ANNUAL REPORT 2011

AUDIT COMMITTEE

Tai Keat Chai (Chairman) Dato’ Harun bin Md Idris Abdul Hamid bin Sh. Mohamed

RISK MANAGEMENT COMMITTEE

Johan Zainuddin bin Dzulkifli (Chairman) Nik Abdul Malik bin Nik Mohd AminJamaludin Mohd Nor

NOMINATION AND REMUNERATION COMMITTEE

Dato’ Mohd Azlan Hashim (Chairman) Datuk Razman M Hashim Dato’ Harun bin Md Idris

COMPANY SECRETARIES

Kwan Wai Kein (MAICSA 7055765)Sothirajen a/l S.Paranjothi (LS 0005734)Wan Rohayah Wan Hassan (MAICSA 0731667)

REGISTERED OFFICE

D2-3-2, Solaris Dutamas1, Jalan Dutamas 150480 Kuala LumpurTel No. : (03) 6207 8080Fax No. : (03) 6207 9933

PRINCIPAL PLACE OF BUSINESS

Infrastructure Division:Sistem Lingkaran-Lebuhraya Kajang Sdn BhdPlaza Tol Sungai BalakKM28.3A, Lebuhraya KAJANG SILK43000 KajangSelangor Darul EhsanMalaysiaTel No : (03) 8921 0000Fax No : (03) 8921 0001

Oil & Gas Support Services Division:Jasa Merin (Malaysia) Sdn BhdNo. 7776, Jalan Kubang Kurus24000 KemamanTerengganu Darul ImanMalaysiaTel : (09) 851 1100Fax : (09) 858 3237

SHARE REGISTRAR

Symphony Share Registrars Sdn BhdLevel 6, Symphony HousePusat Dagangan Dana 1Jalan PJU 1A/4647301 Petaling JayaTel No : (03) 7841 8000 Fax No : (03) 7841 8151 / 7841 8152

AUDITORS

Ernst & YoungChartered Accountants

SOLICITORS

Lee Ong & Kandiah

PRINCIPAL BANKERS

Affin Bank BerhadAffin Islamic Bank BerhadBank Pembangunan Malaysia BerhadMalayan Banking BerhadMaybank Islamic Berhad

STOCK EXCHANGE LISTING

Main Market of Bursa Malaysia Securities Berhad

WEBSITE ADDRESS

www.silk.my

CORPORATE INFORMATION

BOARD OF DIRECTORS

Executive Chairman,Non-Independent Executive DirectorDato’ Mohd Azlan Hashim

Deputy Chairman,Non-Independent Non-Executive DirectorDatuk Razman M Hashim

Non-Independent Non-Executive DirectorJohan Zainuddin bin Dzulkifli

Independent Non-Executive DirectorsDato’ Harun bin Md Idris Tai Keat Chai Abdul Hamid bin Sh. Mohamed Nik Abdul Malik bin Nik Mohd Amin

SILK Holdings Berhad • ANNUAL REPORT 2011 3SILK Holdings Berhad • ANNUAL REPORT 2011 3

PROFILE OF BOARD OF DIRECTORS

Dato’ Mohd Azlan HashimMalaysian, aged 54Executive Chairman (Non-Independent) Chairman, Nomination and Remuneration Committee

Dato’ Mohd Azlan Hashim was appointed to the Board of SILK as Non-Executive Director on 4 June 2008 and was subsequently appointed as Executive Chairman on 24 June 2008.

A Chartered Accountant by profession, he graduated with a Bachelor of Economics from Monash University, Australia. He is a Fellow Member of the Institute of Chartered Accountants, Australia, member of Malaysian Institute of Accountants, Fellow Member of Malaysian Institute of Directors, Fellow Member of the Institute of Chartered Secretaries and Administrators and Honorary Member of The Institute of Internal Auditors, Malaysia. He has extensive experience in the corporate sector including financial services and investments. Among others, he has served as Chief Executive of Bumiputra Merchant Bankers Berhad, Group Managing Director of Amanah Capital Malaysia Berhad and Executive Chairman of Bursa Malaysia Berhad Group.

Current directorships in public companies and other organisations include Khazanah Nasional Berhad, Labuan Financial Services Authority, D&O Green Technologies Berhad and Scomi Group Bhd. He is also a member of Employees Provident Fund and the Government Retirement Fund Inc. Investment Panels.

He has attended all of the 5 Board Meetings held in the financial year.

Datuk Razman M HashimMalaysian, aged 72Non-Executive Deputy Chairman (Non-Independent) Member, Nomination and Remuneration Committee

Datuk Razman M Hashim was appointed to the Board of SILK as Non-Executive Deputy Chairman on 10 June 2002.

A Member of Australian Institute of Bankers with more than 34 years of experience in the banking industry. Joined Standard Chartered Bank Malaysia Berhad in 1964 and served in various capacities including secondments to the Bank’s branches in London, Europe, Hong Kong and Singapore. In 1994, was appointed as Executive Director / Deputy Chief Executive of Standard Chartered Bank Malaysia Berhad until his retirement in June 1999. In the same month in 1999, was appointed as Chairman of MBf Finance Berhad by Bank Negara Malaysia as its nominee until January 2002 when the finance company was sold to Arab-Malaysian Group.

Current directorships in other public companies include Sunway City Berhad, Ranhill Berhad, Multi-Purpose Holdings Berhad, MAA Holdings Berhad and Berjaya Land Berhad.

He has attended 3 out of the 5 Board Meetings held in the financial year.

Dato’ Harun bin Md IdrisMalaysian, aged 60Independent Non-Executive DirectorMember, Audit Committee Member, Nomination and Remuneration Committee

Dato’ Harun bin Md Idris was appointed to the Board of SILK as Independent Non-Executive Director on 12 August 2009.

Graduate of the University Kebangsaan Malaysia with Diploma of Police Science, Dato’ Harun joined the Royal Malaysian Police (RMP) on 1 June 1970 as a Probationary Inspector. He served the RMP for 39 years and retired on 9 April 2009 with the rank of Deputy Commissioner of Police (DCP). His last post was as the Deputy Director 1, Special Branch.

In his long and distinguished career with the RMP, Dato’ Harun had served in various capacity including as the head of Special Branch of Perak, Kedah and Sarawak.

He has no directorship in other public companies.

He has attended 4 out of the 5 Board Meetings held in the financial year.


PROFILE OF BOARD OF DIRECTORS (Cont’d)

Johan Zainuddin bin DzulkifliMalaysian, aged 49Non-Executive Director (Non-Independent)Chairman, Risk Management Committee

Johan Zainuddin bin Dzulkifli was appointed to the Board of SILK as Non-Executive Director on 4 June 2008.

He is a Fellow of the Association of Chartered Certified Accountants and attained a Post Graduate Diploma in Islamic Banking and Finance from the International Islamic University, Malaysia. He began his career as a Financial Accountant with a multinational company in 1986 after his graduation. In 1989, he joined a merchant bank as an Assistant Manager in the Corporate Advisory department. He subsequently left and joined a public listed company as Vice President of Corporate and Business Development in 1992 and, in 1997 he joined another public listed company as the Head of Corporate Services until 2002. He is well versed in areas of corporate advisory and business development.



Tai Keat ChaiMalaysian, aged 57Independent Non-Executive DirectorChairman, Audit Committee

Tai Keat Chai was appointed to the Board of SILK as Independent Non-Executive Director on 18 August 2008.

He is a member of the Institute of Chartered Accountants in England & Wales and the Malaysian Institute of Accountants.

He began his career with KPMG in London in 1977 and a year later joined Price Waterhouse (now known as PwC) in Kuala Lumpur. In 1981, he joined Amanah Merchant Bank Berhad (now known as Alliance Investment Bank Berhad) where he worked for seven years. In 1990, he ventured into the stockbroking industry and has worked in SJ Securities Sdn Bhd, JB Securities Sdn Bhd (now known as A.A.Anthony Securities Sdn Bhd) and BBMB Securities Sdn Bhd (now known as ECM Libra Investment Bank Berhad) as General Manager, Director and dealer’s representative respectively. Currently he is a Director of Fiscal Corporate Services Sdn Bhd.

Current directorships in other public listed companies include Chuan Huat Resources Berhad, Disccomp Berhad, Cuscapi Berhad, Imaspro Corporation Berhad and Opensys (M) Berhad.


Abdul Hamid bin Sh. MohamedMalaysian, aged 46Independent Non-Executive DirectorMember, Audit Committee

Abdul Hamid bin Sh. Mohamed was appointed to the Board of SILK as Independent Non-Executive Director on 18 August 2008.

He is a Fellow of the Association of Chartered Certified Accountants. A graduate of the Emile Woolf School of Accountancy, London he began his career as Officer in the Corporate Banking department in Bumiputra Merchant Bankers Berhad in1989 and rose to the position of Manager. In 1994, he joined Amanah Capital Malaysia Berhad (formerly known as Komplek Kewangan Malaysia Berhad) as Senior Manager Corporate Planning, heading the newly created Corporate Planning department under the Corporate Services division and promoted to Assistant General Manager, Corporate Planning in 1997 and to Head of Corporate Services division in January 1998.

He joined Kuala Lumpur Stock Exchange (now known as Bursa Malaysia) in May 1998 as Senior Vice President in charge of Strategic Planning & International Affairs division and was promoted to Deputy President (Strategy & Development) in 2002. He was re-designated as Chief Financial Officer in 2003. Currently he serves as the Executive Director of Symphony House Berhad.

Current directorships in other public companies include Symphony House Berhad, Pos Malaysia Berhad, Hartalega Holdings Berhad, MMC Corporation Berhad and Scomi Engineering Berhad.



PROFILE OF BOARD OF DIRECTORS (Cont’d)

Nik Abdul Malik bin Nik Mohd AminMalaysian, aged 53Independent Non-Executive DirectorMember, Risk Management Committee

Nik Abdul Malik bin Nik Mohd Amin was appointed to the Board of SILK as Independent Non-Executive Director on 24 February 2009.

He graduated from the University of Leeds, United Kingdom with Bachelor of Science (Honours) in Civil Engineering. He is a graduate member of The Institute of Engineers Malaysia and Board of Engineers Malaysia.

He started his career as Project Engineer with FAO/United Nations Development Programme in 1981 in a pilot project collaboration with the Drainage and Irrigation Department of Terengganu Darul Iman (“DID Terengganu”). He subsequently joined DID Terengganu in 1983 as District Engineer, and was subsequently promoted to Planning and Design Engineer in 1984. Between 1986 and 1989, he served as Project Engineer and Executive Director in two private construction companies, before assuming his current position as Managing Director of ND Group of companies, an established property developer and Class A contractor.



NOTES:

1. Family Relationship with Director and/or Major Shareholder None of the Directors has any family relationship with any director and/or major shareholder of SILK.

2. Conflict of Interest None of the Directors has any conflict of interest with SILK Group.

3. Conviction for Offences None of the Directors has been convicted for offences within the past 10 years other than traffic offences, if any.


FINANCIAL PERFORMANCE

SILK Holdings Berhad (“SHB” or “the Group”) recorded a loss after tax and minority interest of RM 11.24 million for the year ended 31 July 2011. The result is below the profit after tax and minority interest of RM 10.03 million recorded by the Group for the year ended 31 July 2010. On the face of it, this result may give the impression that there has been a regression in performance. However, when examined closely, it will be noted that top-line performance for the year has actually improved, as illustrated by the 10.6% increase in revenue for the financial year to RM 247.73 million from RM 223.94 million recorded in the previous financial year.

The Group’s earnings before interest, taxation, depreciation and amortisation (“EBITDA”) of RM 129.39 million for the financial year ended 31 July 2011 also surpasses the EBITDA of RM 124.33 million recorded in the previous corresponding period. These clearly highlight that there have been improvements achieved at the operating level.

In addition, further examination will reveal that the final bottom-line performance was adversely impacted by the adoption of the new IC Interpretation 12 in compliance with accounting standards, which applies to all service concessions. This has resulted in a 45.1% increase in amortisation being recognised for the Group’s highway development expenditure, from RM 7.3 million to RM 10.59 million during the period under review. As a follow-on, SHB also had to change its accounting policies with respect to expenditures on heavy repairs to comply with FRS 137. This resulted in a provision for future expenditure having to be made during the financial year.

For the financial year ended 31 July 2011, the Group also had to account for a 62.7% increase in depreciation amounting to RM 33.37 million and a 64.1% increase in finance costs amounting to RM 27.76 million at its Oil & Gas Support Services Division, brought about by the entry of new vessels into its fleet. The depreciation and amortisation charges, although having a significant impact on the Group’s bottom-line, are essentially non-cash movements. The increase in finance costs meanwhile, is expected given the Group’s fleet renewal programme. The previous year’s performance also reflected the gains arising from the disposal of 2 vessels which contributed RM 21.9 million to the EBITDA.

Notwithstanding the dip in Group performance, the Highway Infrastructure Division continues to make strides with its financial performance. Revenue for the Division improved to RM 65.04 million compared to RM 50.95 million recorded for period ended 31 July 2010. The Highway Division enjoyed increased EBITDA of RM 51.53 million in the financial year under review, compared to RM 38.95 million recorded in the previous financial period, an increase of 32.3%. The improvement in revenue and EBITDA has translated into significantly reduced after-tax losses, where the Division recorded loss for the year of RM 19.08 million, a reduction from the RM 27.96 million loss for the year recorded previously.

The Oil & Gas Support Services Division recorded improved revenue of RM 182.69 million from RM 181.32 million recorded in the previous corresponding year. This represents a marginal improvement of 0.76% over the performance recorded previously. Given the prevailing soft conditions in the market for the supply of offshore marine support services for much of the period under review, the top-line performance put in by the Division is commendable.

CHAIRMAN’S STATEMENT

On Behalf Of The Board Of Directors, I Am Pleased To Present The Annual Report And Audited Financial Statements Of SILK Holdings Berhad For The Year Ended 31 July 2011.

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Group Comparative Financial Performance

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The Oil & Gas Support Services Division recorded an EBITDA of RM 78.24 million in the financial year under review compared to RM 90.74 million recorded in the previous financial year. The drop in divisional EBITDA is due to a 92.1% decline in miscellaneous income, primarily attributed to the absence of any vessel disposals during the financial year under review. A massive increase in depreciation and amortisation charges of RM 13.41 million to RM 35.82 million weighed down divisional profit after-tax and minority interest to RM 8.89 million for the financial year ended 31 July 2011, compared with RM 26.57 million in the previous corresponding period. This represents a 66.5% decline in profitability.

OPERATING CONDITIONS

Highway Infrastructure Division

The Highway Infrastructure Division experienced steady traffic growth during the financial year under review, continuing the trend set for the last few years. This increase in traffic has consequently led to improvements in its operational performance.

The concession operated by Sistem Lingkaran Lebuhraya Kajang Sdn Bhd recorded total traffic volume of 45.4 million vehicles for the period January until December 2010, a 17% increase over the total traffic volume of 38.8 million recorded a year earlier. Average Daily Traffic Volume (“ADTV”) for January until December 2010 improved to 124,404 vehicles per day, which is also a 17% improvement over the ADTV of 106,241 vehicles per day recorded in the previous calendar year.

Total traffic volume for the financial year under review also improved by 17% to 49.5 million vehicles from 42.3 million vehicles recorded in the previous financial year. ADTV for the financial year ended 31 July 2011 improved to 135,728 vehicles per day, which is a 17% improvement over the ADTV of 115,987 vehicles per day recorded in the previous financial year.

In the first 7 months of the calendar year 2011, there has been further marked increase in traffic performance. The ADTV for the period January to July 2011 stands at 139,955 vehicles per day. The increase in traffic plying the highway is in part due to SHB’s continuing efforts to raise public awareness of the highway, particularly that it serves as a time-saving and convenient linkage to existing highway networks. The Board is extremely pleased with this trend and is confident that the Division will be able to show similar improvements in the current financial year.

Oil & Gas Support Services Division

Despite prevailing soft conditions in the market throughout much of the previous 12-months, the Group’s Oil & Gas Support Services Division continues to remain market competitive. Utilisation rates continued to be reasonably robust, at above the industry average of 80%.

CHAIRMAN’S STATEMENT (Cont’d)

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During the period, the Division via Jasa Merin Sdn Bhd (“Jasa Merin”) continued to pursue opportunities with vigour, capitalising on the value proposition offered by Jasa Merin’s safety track record, availability of vessels for deep water operations and young average fleet age. The approach adopted was appropriate, as during the financial year under the review, the Division managed to secure six new long-term charters and had three existing charters renewed. The majority of these were secured towards the end of the financial year, and therefore its impact will only be felt in this current financial year onwards.

Despite the competitive market for the supply of offshore support vessels (“OSVs”) during the financial year 31 July 2011, the Oil & Gas Support Services Division continued to enjoy reasonably good performance. Overall profitability was affected by an increase in finance costs, depreciation and amortisation charges amounting to RM 63.58 million compared to RM 39.33 million previously. However, this increase in expenses is within expectations, in line with the Division’s fleet expansion and modernisation program.

Notwithstanding the decline in profitability, the Division continues to be recognised as a trusted offshore marine support services provider, winning the Bronze Award from Petronas Carigali Sdn Bhd’s Development Division, for its good health, safety and environmental (“HSE”) performance in the year 2010. Out of the five recipients, Jasa Merin is the only offshore support vessel provider to have won the award for 2010. The entire Group is extremely pleased and proud of this recognition and will continue to ensure safety remains a priority in how it operates.

CORPORATE DEVELOPMENTS

SILK has during the course of the period under review, carried out various strategic and tactical initiatives aimed at strengthening the foundation for future growth.

Continuation of the fleet renewal programme

In line with the Group’s strategic objectives and to ensure the Oil & Gas Support Services Division is able to continue to meet customer expectations, Jasa Merin continued with its renewal and replacement programme for its Offshore Support Vessels (“OSVs”). During the financial year under review, Jasa Merin launched three new vessels and took delivery of four new vessels into its fleet. Of the four vessels, two are capable of operating in deeper waters, which will be a positive factor, as more exploration works move to deeper waters.

All four vessels delivered during the financial year are now fully operational, bringing the total fleet size to 14 owned vessels. The new vessels have been deployed to their respective charter clients and will be contributing towards the company’s performance in the current financial year.

PROSPECTS

Highway Infrastructure Division

The Division continues to have good growth prospects with increased awareness of the connectivity it provides to the adjacent network of highways. Given this, efforts are currently underway to further improve the highway’s traffic flow via better signage at critical intersections and enhancing cooperation with other highway operators.

At the operating level, efforts are on-going to continue to contain and manage operational costs, including detailed identification of critical and non-critical costs and optimising of highway maintenance works. Moving forward, the Highway Infrastructure Division is expected to incur accounting losses in the immediate to medium term, albeit on a declining trend, as the traffic volume increases and its borrowing cost is further trimmed down. Irrespective of this, it is expected to remain cashflow positive and maintain its operational profitability as a result of the restructuring of the long-term debt, whereby the Sukuk Mudharabah obligation payments until January 2015 will be limited to the available cash flow generated from the highway.Despite the efforts to contain costs, there remains some concern with respect to regulatory actions that could have a significant impact on the Division’s bottom line. The Division is not averse to regulatory changes that enhance utility to road-users, promote safety as well as improve transparency and investor protection. However, it is mindful that some regulatory changes can have a significant impact on the Division’s overall financial performance despite there being no drop in actual operating performance.

One of these regulatory actions, in the form of changes to accounting rules has already made a significant impact on the Division’s accounting performance for the period under review. Although the changes in themselves do not have an impact on the ability of the business to generate cash, it nevertheless provides an additional consideration when evaluating operational strategies.


In view of the impact that regulatory changes can have on bottom-line performance, the Division aims to maintain a close view of prospective regulatory changes, particularly those that do not directly improve utility to road-users or investors.

Oil & Gas Support Services Division

The Fukushima incident in Japan earlier this year has raised doubts about the long-term safety of nuclear energy. As such, the use of hydro-carbon products as primary source of fuel is expected to continue. Consequently, demand for these products will likely spur an increase in exploration and production (“E&P”) activities. Malaysia, being one of the largest oil and gas producers in South East Asia and one of the largest global exporters of liquefied natural gas, is also likely to follow this trend. An increase in E&P activities, particularly offshore, will drive demand up for offshore marine support services. However, in order to fill this demand, the oil majors will subject operators to stringent requirements, particularly with respect to safety track record.

The new charters awarded to the Division, were awarded in part due to the excellent safety and delivery track record of Jasa Merin. In addition, the fact that Jasa Merin operates a fairly young and modern fleet resulting from the on-going fleet renewal and replacement programme instituted, has also meant it is able to keep up with changing requirements and the increasingly higher specifications required by charterers.

The addition of the new vessels to the fleet and the company’s established track record provides Jasa Merin with the ability to remain competitive and be able to provide compelling value proposition to current and prospective customers. As such, barring any unforeseen circumstances, this Division is expected to continue to contribute positively to the Group in the current financial year.

That said, the Board is mindful of the dynamic nature of this industry. One of the shifts being witnessed with respect to offshore exploration is the move away from shallow waters to deeper waters and more remote fields. The hardware, technology and expertise required to be successful in this environment, not to mention financial resources required, will undoubtedly be different. These bring a set of unique challenges to the offshore marine support services operators, which will require them to be more agile and proactive in their plans going forward.

As such, the Division has started to study and explore opportunities for collaboration to supplant gaps in the Division, as well as institutionalise the capacity to alter strategies as business conditions change. This will enable it to continually adapt to changes in the business landscape. With these in place, we are confident that the Division will be better prepared to “ride out” future challenges.

DIVIDENDS

In order to continue building the foundations for the Group so as to enable it to achieve long-term and sustainable growth, the Board of Directors are not able to recommend the declaration of any dividend for the financial year ended 31 July 2011. With improved operating and financial performance in the future, and sustainable growth, the Board will revisit and review this position for the benefit of its shareholders.

ACKNOWLEDGEMENT

On behalf of the Board of Directors, I wish to extend our sincere appreciation to the Group’s management, staff and employees, at all levels and across the various functions. The Board is indeed appreciative of the efforts shown by the Group staff throughout the financial year. It is my hope that the entire SHB family will sustain this level of effort to propel the Group further forward.

My sincerest gratitude also goes out to our Board of Directors for their vision and counsel in guiding SHB forward. The contribution of the Board to SHB’s transformation is also deeply appreciated. It is hoped that the Board will continue to be committed to the Group as it charts its way forward.

I would also like to take this opportunity to convey the Board’s appreciation to all our customers for their continued support. The Group’s progress is in no small part a reflection of this support. It is our sincere hope that our customers continue with us for the foreseeable future. Likewise, I would also like to thank the Group’s bankers and financiers for their continued trust in SHB and its plans for the future.

The Group’s progress is also partly owed to the various regulatory bodies and Governmental agencies entrusted to oversee the industries the Group operates in. Therefore it is appropriate that I also extend my gratitude to these bodies.

Lastly, on behalf of the Board, I would also like to convey our gratitude to all our shareholders, who collectively have played a significant role in enabling the Group to complete its turnaround from the difficulties faced in previous years. I sincerely thank you all for the support and hope that you will continue to support the Board in its objective to take the Group forward.

Thank you.

Dato’ Mohd Azlan HashimExecutive Chairman



FIVE-YEAR GROUP FINANCIAL SUMMARY

2011 *2010 **2009 2008 2007

RM’000 RM’000 RM’000 RM’000 RM’000

RESULTS

REVENUE 247,726 223,939 40,926 33,127 28,952

(Loss)/profit before taxation (5,725) 34,499 (37,323) 178,029 (82,870)

Taxation (6,176) (12,861) (95) (13) (13)

(Loss)/profit after taxation (11,901) 21,638 (37,418) 178,016 (82,883)

Less non-controlling interests 665 (11,604) - - -

(LOSS)/PROFIT ATTRIBUTABLE TO SHAREHOLDERS (11,236) 10,034 (37,418) 178,016 (82,883)

(LOSS)/EARNINGS PER SHARE (SEN) (2.9) 3.1 (20.8) 98.9 (46.0)

FINANCIAL POSITIONGoodwill 647 647 - - -

Available for sale financial assets 600 600 - - 17

Property, vessels and equipment 871,329 684,765 2,797 2,637 3,234

Concession intangible assets 901,648 912,242 920,277 921,110 925,325

Current assets 123,035 118,916 5,893 26,779 121,114

Non-current assets classified as held for sale 1,071 - - - -

TOTAL ASSETS 1,898,330 1,717,170 928,967 950,527 1,049,690

Current liabilities 272,208 296,225 60,931 37,572 1,066,988

Long-term liabilities 1,434,401 1,237,791 764,736 772,237 20,000

TOTAL LIABILITIES 1,706,609 1,534,016 825,667 809,809 1,086,988

TOTAL NET ASSETS/(LIABILITIES) 191,721 183,154 103,300 140,718 (37,298)

SHARE CAPITAL 99,262 96,959 90,000 90,000 90,000

SHAREHOLDERS’ FUNDS 191,721 183,154 103,300 140,718 (37,298)

NET ASSETS/(LIABILITIES) PER SHARE (SEN) 48.3 47.2 57.4 78.2 (20.7)

* The comparative results and financial position as at 31 July 2010 have been restated to include effects of adopting IC Interpretation 12: Service Concession Arrangements. ** The Company changed its financial year end from 30 June to 31 July with effect from the financial period ended 31 July 2009 and accordingly, results for that financial period are for 13 months.


The Board is committed to implementing the Malaysian Code on Corporate Governance (“the Code”) wherever applicable in the best interest of the shareholders of the Company.

A. DIRECTORS

THE BOARD AND ITS RESPONSIBILITIES

The Board leads and controls the Group. It regularly meets to perform its main functions, amongst others, as follows:-

• Setting the objectives, goals and strategic plans for the Group with a view to maximising shareholders’ value.

• Adopting and monitoring progress of the Group’s strategies, budgets, plans and policies.

• Overseeing the conduct of the Group’s businesses to evaluate whether the businesses are properly managed.

• Identifying principal risks of the Group and ensuring the implementation of appropriate systems to mitigate and manage these risks. The Board through the Audit Committee sets, where appropriate, objectives, performance targets and policies to manage the key risks faced by the Group.

• Considering Management’s recommendations on key issues including acquisitions, divestments, restructuring, funding and significant capital expenditure.

• Human resources planning and development.

• Reviewing the adequacy and integrity of the Group’s internal control systems and management information systems, including systems for compliance with applicable laws, regulations, rules, directives and guidelines.

The Board delegates certain responsibilities to the Board Committees, all of which operate within defined terms of reference.

BOARD COMPOSITION

The current Board consists of 7 members, 4 of whom are Independent Non-Executive Directors. The composition reflects a balance of Executive and Non-Executive Directors with a mix of suitably qualified and experienced professionals in the fields of construction, civil engineering, accountancy, finance, and banking. This combination of different professions and skills working together enables the Board to effectively lead and control the Company. The Board composition also fairly reflects the investment in the Company by shareholders other than the significant shareholder.

A brief profile of each Director is presented on pages 3 to 5 of the Annual Report.

MEETINGS AND SUPPLY OF INFORMATION

The Board normally meets at least once every quarter to review the Group’s financial, operational and business performances. Notices and agendas of meetings duly endorsed by the Executive Chairman together with relevant board papers are normally given at least 1 week prior to the meetings, for the Directors to study and evaluate.

The board papers provided include inter alia, financial results, business plan and budget, progress report on the Group’s developments, minutes of meetings of Board Committees, regulatory/statutory updates and other operational and financial issues for the Board’s information and/or approval.

All Directors are entitled to information pertaining to the Company. In addition, all Directors have direct access to all members of the Management should there be a need for clarification of any operational issue, and the advice and services of the Company Secretaries.

There is a formal procedure approved by the Board for all Directors, whether as a full Board or in their individual capacity, to obtain independent professional advice, when necessary, at the Company’s expense.

The Board met 5 times during the financial year ended 31 July 2011 and the attendance of the respective Directors was as follows:-

CORPORATE GOVERNANCE STATEMENT


CORPORATE GOVERNANCE STATEMENT (Cont’d)

Number of Percentage of Name of Directors Meetings Attended Attendance (%)

Dato’ Mohd Azlan Hashim 5/5 100

Datuk Razman M Hashim 3/5 60

Dato’ Harun bin Md Idris 4/5 80

Johan Zainuddin bin Dzulkifli 5/5 100

Tai Keat Chai 5/5 100

Abdul Hamid bin Sh. Mohamed 5/5 100

Nik Abdul Malik bin Nik Mohd Amin 5/5 100

DIRECTORS’ TRAINING

During the financial year, the Directors had attended various training programmes and seminars organised by the relevant regulatory authorities and professional bodies to broaden their knowledge and to keep abreast with the relevant changes in law, regulations and the business environment.

The training programmes, seminars and workshops attended by the Directors during the financial year are, inter-alia, on areas relating to corporate governance, capital markets, and financial reporting.

Training Programmes, Seminars and Workshops Attended by Directors

COURSE TITLE / ORGANISER DATE

Global Trend & Market Strategy : Global Finance and Challenging Issues (Advancement in Business Training) 23 August 2010

Techventure 2010: Discovering Opportunities in Asia’s New Decade of Growth (Asiasons WFG Financial Limited) 6 to 7 October 2010

MSC-ICM/IAP 2010: Economic Transformation Programme Briefing for IAP Members (PEMANDU) 7 October 2010

Forensic Accounting and Fraud (Multi-Purpose Holdings Berhad) 8 October 2010

UBS Global Economic Outlook (UBS) 20 October 2010

Legal Workshop – Personal Data Protection Act (PDPA) 2010 (Symphony House Berhad) 13 December 2010

Half Day Programs on Corporate Governance Guide: Towards Boardroom Excellence (Bursa Malaysia) 3 March 2010

MICG Directors Duties & Governance 2011 (Employees Provident Fund Malaysia) 3 March 2011

Invest Malaysia 2011 (Bursa Malaysia Berhad) 12 April 2011

Update on Financial Reporting Standards (MAA Takaful Berhad) 4 May 2011

Governance Series for Directors : The Board’s Resposibility for Corporate Culture - Selected Governance Concerns and Tools for Addressing Corporate Culture and Board Performance (Bursa Malaysia) 5 May 2011

The Makings of a Global Leader (Cranfield Executive Leadership Forum) 5 July 2011

Institute of Internal Auditors International Conference 2011 (IIAM) 10 to 13 July 2011

High Level Conference Enhancing Financing Linkages Towards Economic Prosperity (Malaysia International Islamic Financial Centre) 19 July 2011

All Directors were also constantly updated by the Company Secretaries on changes to the relevant guidelines on the regulatory and statutory requirements.


RETIREMENT BY ROTATION AND RE-ELECTION

The Company’s Articles of Association provides that 1/3 of the Board are subject to retirement by rotation at each Annual General Meeting. Each Director shall retire at least once every 3 years but shall be eligible for re-election. The Directors to retire in each year are those who have been longest in office since their last election or appointment.

To assist the shareholders in their decision, sufficient information such as personal profile, attendance of meetings and the shareholdings of each Director standing for re-election are disclosed in the Statement Accompanying Notice of Annual General Meeting.

BOARD COMMITTEES

The Board has set up the following Committees and will periodically review their terms of reference and operating procedures. The Committees are required to report to the Board on all their deliberations and recommendations and such reports are incorporated in the minutes of the Board Meetings.

1. Audit Committee

The Audit Committee comprises Tai Keat Chai as Chairman, Dato’ Harun bin Md Idris and Abdul Hamid bin Sh. Mohamed.

The Audit Committee was set up to play an active role in assisting the Board in discharging its governance responsibilities. The composition of the Audit Committee, its terms of reference, attendance of meetings and a summary of its activities are set out on pages 16 to 20 of the Annual Report.

2. Risk Management Committee

The Risk Management Committee comprises Johan Zainuddin bin Dzulkifli as Chairman, Nik Abdul Malik bin Nik Mohd Amin and Jamaludin Mohd Nor.

The Risk Management Committee is tasked with the responsibility to oversee the investment activities of the Group, approving appropriate investment appraisal as well as identification of strategic investment opportunities for the Group.

3. Nomination and Remuneration Committee

The Nomination and Remuneration Committee comprises Dato’ Mohd Azlan Hashim as Chairman, Datuk Razman M Hashim and Dato’ Harun bin Md Idris.

B. DIRECTORS’ REMUNERATION

The remuneration of the Executive Directors is structured on the basis of linking rewards to corporate and individual performance. For Non-Executive Directors, the level of remuneration reflects the experience and level of responsibilities.

The Board as a whole recommends the fees for the Directors with individual Directors abstaining from decisions in respect of their individual remuneration. The fees payable to the Directors are subject to the approval of shareholders.

The breakdown of the remuneration for the Directors of the Company during the financial year is as follows:-

Executive Non-Executive Directors Directors Total RM RM RM

Fees 10 150 160 Other emoluments 577 80 657 Salaries, bonus and other remunerations 1,373 - 1,373 Benefits-in-kind 63 - 63

Total 2,023 230 2,253



The number of directors whose remunerations falls under the following bands is as follows:-

Non- Executive Executive Directors Directors TotalRange of remunerationUp to RM50,000 - 3 3 RM50,001 to RM100,000 - 2 2 RM750,001 to RM800,000 1 - 1 RM1,200,001 to RM1,250,000 1 - 1

Total 2 5 7

C. SHAREHOLDERS

DIALOGUE BETWEEN THE COMPANY AND INVESTORS

The Board values constant dialogue and is committed to clear communication with its shareholders and investors. In this respect, as part of the Group’s active investor relations programme, discussions and dialogues are held with fund managers, financial analysts and shareholders to convey information about the Group’s performance, corporate strategy and other matters affecting shareholders’ interests.

In addition to published Annual Reports and Quarterly Reports announced to Bursa Securities, the Group has established a website at http://www.silk.my from which investors and shareholders can access for information.

While the Group endeavours to provide as much information as possible to its shareholders and stakeholders, it is mindful of the legal and regulatory framework governing the release of material and price-sensitive information. To achieve this, the Board had approved and adopted a Corporate Disclosure Policy which outlines the Group’s approach toward the determination and dissemination of material information, the circumstances under which the confidentiality of information will be maintained, response to market rumours and restrictions on insider trading. This Policy also provides guidance and structure in disseminating corporate information to, and in dealing with, investors, analysts, media and the investing public.

ANNUAL GENERAL MEETING

The annual general meeting of the Company provides the principal forum for dialogue and interaction between the Board and the shareholders. The participation of shareholders, both individual and institutional, at general meetings on clarifications of pertinent and relevant information is encouraged.

D. ACCOUNTABILITY AND AUDIT

FINANCIAL REPORTING

In presenting the annual financial statements, annual report and quarterly announcement of results to shareholders, the Board aims to provide a balanced and understandable assessment of the Group’s financial position, performance and prospects. The Board is assisted by the Audit Committee to oversee the Group’s financial reporting processes and the quality of its financial reporting.

INTERNAL CONTROL

The Statement on Internal Control set out on pages 21 to 23 of the Annual Report provides an overview of the state of internal controls within the Group.

RELATIONSHIP WITH THE AUDITORS

The Board maintains, via the Audit Committee, an active, transparent and professional relationship with its Auditors. The role of the Audit Committee in relation to the Independent Auditors is disclosed in the Audit Committee Report set out on pages 16 to 20 of the Annual Report.



E. DIRECTORS’ RESPONSIBILITY STATEMENT ON ANNUAL AUDITED FINANCIAL STATEMENTS

The Directors are responsible in the preparation of the Annual Audited Financial Statements to give a true and fair view of the state of affairs, results and cash flows of the Company and of the Group at the end of the financial year.

In preparing the financial statements, the Directors will ensure that suitable accounting policies have been applied consistently, and that reasonable and prudent judgments and estimates have been made. All applicable approved accounting standards and provisions of the Companies Act, 1965 have been complied with.

The Directors are also responsible for ensuring that proper accounting and other records are kept which disclose with reasonable accuracy, the financial position of the Company and of the Group and which enables them to ensure that the financial statements comply with the relevant statutory requirements.

F. COMPLIANCE WITH THE CODE

The Group has complied substantially with the principles and best practices outlined in the Code except for the following:-

1. Appointment of Senior Independent Non-Executive Director

The Board has not found it necessary to identify a Senior Independent Non-Executive Director to whom concerns relating to the affairs of the Group may be conveyed, as there are a number of experienced and competent independent directors on the Board. In addition, the Executive Chairman encourages full deliberation of issues affecting the Group by all members of the Board.

This Corporate Governance Statement was approved by the Board of Directors on 27 September 2011.

Dato’ Mohd Azlan HashimExecutive Chairman



AUDIT COMMITTEE REPORT

FORMATION

The Audit Committee was formed by the Board of Directors at its meeting on 16 August 2002.

The objective of the Audit Committee is to assist the Board of Directors in fulfilling its fiduciary responsibilities relating to internal controls, financial and accounting records and policies as well as financial reporting practices of the Company and its subsidiaries (“the Group”).

COMPOSITION

The members of the Audit Committee during the year were as follows:

1. Tai Keat Chai – Chairman (Independent Non-Executive Director)

2. Dato’ Harun bin Md Idris (Independent Non-Executive Director)

3. Abdul Hamid bin Sh. Mohamed (Independent Non-Executive Director)

MEETING AND ATTENDANCE

The Audit Committee held 5 meetings during the financial year and the attendance of the Committee Members was as follows :

Name of Committee Member Number of Meetings Attended

Tai Keat Chai 5/5Dato’ Harun bin Md Idris 5/5Abdul Hamid bin Sh. Mohamed 5/5

The Company Secretaries, the Internal Auditors and the Chief Financial Officer were present at all meetings. At two of the meetings, the Independent Auditors were present.

TERMS OF REFERENCE

1. Membership

1.1 The Committee shall be appointed by the Board of Directors from amongst the Directors of the Company and shall consist of not less than 3 members.

1.2 The majority of the members including the Chairman of the Committee shall be Independent Directors as defined in Chapter 15 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”).

1.3 The Committee shall include at least 1 person :

(a) who is a member of the Malaysian Institute of Accountants; or

(b) who must have at least 3 years working experience and:-

(i) have passed the examinations specified in Part I of the 1st Schedule of the Accountants Act, 1967; or

(ii) is a member of one of the Associations specified in Part II of the 1st Schedule of the Accountants Act, 1967; or

(c) who must have at least 3 years post qualification experience in accounting or finance and:-

(i) has a degree/masters/doctorate in accounting or finance; or

(ii) is a member of one of the professional accountancy organisations which has been admitted as a full member of the International Federation of Accountants; or


AUDIT COMMITTEE REPORT (Cont’d)

(d) who must have at least 7 years experience being a chief financial officer of a corporation or having the function of being primarily responsible for the management of the financial affairs of a corporation.

1.4 No Alternate Director shall be appointed as a member of the Committee.

1.5 The members of the Committee shall elect a Chairman from amongst their number.

1.6 If a member of the Committee resigns, dies or for any reason ceases to be a member with the result that the number of members is reduced below 3, the Board shall, within 3 months appoint such number of new members as may be required to make up the minimum of 3 members.

1.7 The terms of office and performance of the Committee and each of its members shall be reviewed by the Board no less than once every 3 years. However, the appointment terminates when a member ceases to be a Director.

1.8 Each member of the Committee is entitled to one (1) vote in deciding the matters deliberated at the meeting. The decision that gained the majority votes shall be the decision of the Committee.

1.9 Chairman’s casting vote In the event of an equality of votes, the Chairman of the Committee shall be entitled to a second or casting vote.

2. Meetings

2.1 The quorum for a Committee Meeting shall be a least 2 members, the majority of whom must be Independent Directors.

2.2 The Committee shall meet at least 4 times a year and such additional meetings as the Chairman shall decide.

2.3 Notwithstanding paragraph 2.2 above, upon the request of any member of the Committee, non-member Directors, the Internal or Independent Auditors, the Chairman shall convene a meeting of the Committee to consider the matters brought to its attention.

2.4 Members’ Circular Resolution

A Resolution in writing signed by all members shall be effectual as if it had been passed at a meeting of the Committee.

All such resolutions shall be described as “Members’ Circular Resolutions” and shall be forwarded or otherwise delivered to the Company Secretary without delay and shall be recorded by the Company Secretary in the Minutes Book. Any such resolution may consist of several documents in the like form, each signed by one (1) or more members.

The expressions “in writing” or “signed” include approval by legible confirmed transmission by facsimile, telex, cable, telegram or other forms of electronic communications.

2.5 Participation at Committee Meeting by way of electronic means

Members may participate in a meeting of the Committee by means of a conference telephone or similar electronic tele- communicating equipment by means of which all persons participating in the meeting can hear each other and participate throughout the duration of the communication between the members and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting.

2.6 The Independent Auditors have the right to appear and be heard at any meeting of the Committee and shall appear before the Committee when required to do so.

2.7 The non-member Directors and employees of the Company and of the Group shall normally attend the meetings to assist in its deliberations and resolutions of matters raised. However, at least twice a year, the Committee shall meet with the Independent Auditors without the presence of the executive member of the Committee.

2.8 The Internal Auditors shall be in attendance at all meetings to present and discuss the audit reports and other related matters as well as the recommendations relating thereto and to follow-up on all relevant decisions made.

2.9 The Company Secretaries shall act as Secretaries of the Committee and shall be responsible, with the concurrence of the Chairman, for drawing up and circulating the agenda and the notice of meetings together with the supporting explanatory documentation to members prior to each meeting.



2.10 The Secretaries of the Committee shall be entrusted to record all proceedings and minutes of all meetings of the Committee.

2.11 In addition to the availability of detailed minutes of the Committee Meetings to all Board members, the Committee at each Board Meeting will report a summary of significant matters and resolutions.

3. Rights and Authority

The Committee is authorized to:-

3.1 Investigate any matter within its terms of reference.

3.2 Have adequate resources required to perform its duties.

3.3 Have full and unrestricted access to information, records and documents relevant to its activities.

3.4 Have direct communication channels with the Independent and Internal Auditors.

3.5 Engage, consult and obtain outside legal or other independent professional advise and to secure the attendance of outsiders with relevant experience and expertise it considers necessary.

4. Functions and Duties

4.1 To review and recommend for the Board’s approval, the Internal Audit Charter which defines the independent purpose, authority, scope and responsibility of the internal audit function in the Company and the Group.

4.2 To review the following and report to the Board:-

(a) With the Independent Auditors;-

(i) the audit plan and audit report and the extent of assistance rendered by employees of the Group.

(ii) their evaluation of the system of internal controls;

(iii) the audit fees and on matters concerning their suitability for nomination, appointment and re-appointment and the underlying reasons for resignation or dismissal as Auditors;

(iv) the management letter and management’s response; and

(v) issues and reservations arising from audits.

(b) With the Internal Auditors:-

(i) the adequacy and relevance of the scope, functions and resources of the Internal Auditors and the necessary authority to carry out its work;

(ii) the results of internal audit processes including recommendations and actions taken;

(iii) the extent of cooperation and assistance rendered by employees of the Group; and

(iv) the appraisal of the performance of the internal audit including that of the senior staff and any matter concerning their appointment and termination.

(c) The quarterly results and year end financial statements prior to the approval by the Board, focusing particularly on:-

(i) changes and implementation of major accounting polices and practices;

(ii) significant and unusual issues;

(iii) going concern assumption; and

(iv) compliance with accounting standards, regulatory and other legal requirements.

(d) The major findings of investigations and management response.

(e) The propriety of any related party transaction and conflict of interest situation that may arise within the Company or the Group including any transaction, procedure or course of conduct that raises questions of management integrity.



4.3 To report any breaches of the Main Market Listing Requirements which have not been satisfactorily resolved, to Bursa Securities.

4.4 To prepare the Audit Committee Report for inclusion in the Company’s Annual Report covering:-

(a) the composition of the Committee including the name, designation and directorship of the members;

(b) the terms of reference of the Committee;

(c) the number of meetings held and details of attendance of each members;

(d) a summary of the activities of the Committee in the discharge of its functions and duties; and

(e) a summary of the activities of the internal audit function.

4.5 To review the following for publication in the Company’s Annual Report;-

(a) the disclosure statement of the Board on;-

(i) the Company’s applications of the principles set out in Part I of the Malaysian Code on Corporate Governance; and

(ii) the extent of compliance with the best practices set out in Part II of the Malaysian Code on Corporate Governance, specifying reasons for any area of non-compliance and the alternative measures adopted in such areas.

(b) the statement on the Board’s responsibility for the preparation of the annual audited financial statements.

(c) the disclosure statement on the state of the internal control system of the Company and of the Group.

(d) other disclosure forming the contents of the annual report spelt out in Part A of Appendix 9C of the Main Market Listing Requirements of Bursa Securities.

The above functions and duties are in addition to such other functions as may be agreed to from time to time by the Committee and the Board.

5. Internal Audit Functions

5.1 The Company had appointed Messrs. Columbus Advisory Sdn Bhd as the Internal Auditor to undertake the Group’s internal audit function.

5.2 The Internal Auditor shall have unrestricted access to the Committee Members and report to the Committee whose scope of responsibility includes overseeing the development and the establishment of the internal audit function.

5.3 In respect of routine administrative matters, the Internal Auditor shall report to the Executive Chairman or his designate.

5.4 The total costs incurred for the internal audit function of the Group for the financial period ended 31 July 2011 was RM50,000.

ACTIVITIES OF THE COMMITTEE FOR THE FINANCIAL YEAR ENDED 31 JULY 2011

The summary of activities of the Committee in the discharge of its duties and responsibilities is as follows:-

(a) Reviewed the adequacy and relevance of the scope, functions, resources, risk based internal audit plan and results of the internal audit processes with the Internal Auditor.

(b) Reviewed the audit activities carried out by the Internal Auditor and the audit reports to ensure corrective actions were taken in addressing the risk issues reported.

(c) Reviewed with the Independent Auditors, the audit plan of the Company and of the Group for the year (inclusive of risk and audit approach, system evaluation, audit fees, issues and management responses) prior to the commencement of the annual statutory audit.



(d) Reviewed the financial statements, the audit report, issues and reservations arising from the statutory audit with the Independent Auditors.

(e) Reviewed and discussed the management accounts with Management.

(f) Reviewed the quarterly results and financial statements for the financial year ended 31 July 2011 with management and the Independent Auditors for recommendation to the Board of Directors for approval and release to Bursa Securities.

(g) Reviewed all recurrent related party transactions entered into by the Company and the Group at the Committee’s quarterly meetings to ensure that the transactions entered into were at arm’s length basis and on normal commercial terms.

(h) Reviewed and approved the Circular to Shareholders and the statements by the Audit Committee in respect of the Proposed Shareholders’ Mandate for Recurrent Related Party Transactions.

(i) Discussed the implications of any latest changes and pronouncements on the Company and the Group issued by the statutory and regulatory bodies.

(j) Reported to the Board on significant issues and concerns discussed during the Committee’s meetings together with applicable recommendations. Minutes of meetings were tabled, discussed and noted by all Board members.

INTERNAL AUDIT ACTIVITIES REPORT FOR THE FINANCIAL YEAR ENDED 31 JULY 2011

The summary of activities of the Internal Auditor is as follows:-

(a) Prepared the annual audit plan for approval by the Audit Committee.

(b) Performed risk based audits on strategic business units of the Company and of the Group, which covered assessment on adequacy and integrity of the internal control systems for the management and key operating processes.

(c) Performed follow-up on status of management’s implementation on internal audit recommendations.

(d) Issued audit reports to the Committee and management by identifying weaknesses and improvement opportunities as well as highlighting recommendations for improvements.

(e) Acted on suggestions made by the Committee and/or senior management on concerns over operations or controls and significant issues pertinent to the Company and of the Group.

(f) Reported to the Committee on results of audit assessment on the adequacy and appropriateness of internal controls (including compliance with the procedures established) on the management and key operating processes of strategic management, toll operations, highway maintenance, traffic safety & security, vessel health, safety & environmental management and human capital development.

(g) Reviewed the appropriateness of the disclosure statements in regard to compliance with the Malaysian Code on Corporate Governance and the state of internal controls as well as the Audit Committee Report.

(h) Attended Committee meetings to table and discuss the audit reports and followed up on matters raised.


STATEMENT ON INTERNAL CONTROL

INTRODUCTION

The Malaysian Code on Corporate Governance stipulates that the Board of Directors of listed companies shall maintain a sound system of internal control to safeguard shareholders’ investment and Group assets. Set out below is the Group Statement on Internal Control (“Statement”), made in compliance with Paragraph 15.26(b) of the Main Market Listing Requirements of Bursa Securities and the Statement on Internal Control: Guidance for Directors of Public Listed Companies.

THE BOARD’S RESPONSIBILITY

The Board places importance on, and is committed to maintaining a sound system of internal control and effective risk management practices in the Group to ensure good corporate governance. The Board affirms its responsibility for reviewing the adequacy and integrity of the Group’s system of internal control and management information systems, including systems for compliance with applicable laws, rules, directives, guidelines and risk management practices.

Notwithstanding this, as with any internal control system, the Group’s system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives. It follows, therefore, that the system of internal control can only provide reasonable but not absolute assurance against material misstatement or loss.

The Group has in place an on-going process of identifying, evaluating, monitoring and managing the key risks affecting the achievement of its business objectives throughout the period. The Board reviews this process on a quarterly basis.

THE GROUP’S SYSTEM OF INTERNAL CONTROL

Monitoring Mechanisms and Management Style

Scheduled periodic meetings of the Board, Board Committees and Management represent the main platform by which the Group’s performance and conduct is monitored.

The daily running of the business is entrusted to the respective General Managers/ Operational Heads and their management team. Under the purview of the General Managers/ Operational Heads, the heads of department are empowered with the responsibility of managing their respective operations. The General Managers/ Operational Heads actively communicates the Board’s expectations to management at management meetings as well as through attendance at various operations meetings. At these meetings, operational and financial risks are discussed and dealt with.

The Board is responsible for setting the business direction and for overseeing the conduct of the Group’s operations through various management reporting mechanisms. Through these mechanisms, the Board is informed of all major control issues pertaining to internal controls, regulatory compliance and risk taking.

Enterprise Risk Management Framework

In dealing with its stewardship responsibilities, the Board recognises that effective risk management is part of good business management practice. The Board acknowledges that all areas of the Group’s activities involve some degree of risk, and is committed to ensuring that the Group has an effective risk management framework which will allow the Group to be able to identify, evaluate and manage risks that affect the achievement of the Group’s business objectives within defined risk parameters in a timely and effective manner.

The risk management framework has been embedded in the Company’s management systems. The Management assists the Board in implementing the process of identifying, evaluating and managing significant risks applicable to their respective areas of business and in formulating suitable internal controls to mitigate and control these risks.


STATEMENT ON INTERNAL CONTROL (Cont’d)

The key elements of the Enterprise Risk Management (ERM) activities include:• Establishing ERM framework• Risk assessment process• Risk action implementation process• Risk action monitoring process• Continuous ERM monitoring and communicationThe Group has completed a comprehensive risk assessment process whereby significant risks are summarised into a risk map and presented to the Audit Committee for its consideration. Detailed risk registers have been developed for each of the risk identified. Having identified those risks that can significantly affect the business and operations, dedicated risk owners were appointed (from the management team) to work on the development of key risk action plans required (as well as the implementation of such action plans) together with a group of risk co-owners across the various departments. New developments in business and operations are subject to the risk assessment process as the risk profile of the business changes.

Key Elements of the Group’s System of Internal Control

The current system of internal control in the Group has within it, the following key elements:

• Clear Group vision, mission and corporate philosophy and strategic direction, which is communicated to employees at all level.• An effective Board which retains control over the Group with appropriate management reporting mechanisms which enable the Board to review the Group’s progress.• Board approved annual budgets and management plans.• Management meetings involving discussions on operational issues at subsidiary level.• Comprehensive and clearly documented standard operating policies and procedures manuals that provide guidelines on, and authority limits over various operating, financial and human resource matters, which are subject to regular review for improvement.• The use of the intranet as an effective means of communication and knowledge sharing.• Communication of policies and guidelines in relation to human resource matters to all employees through a staff handbook which is also available on the intranet. • A systematic performance appraisal system for all levels of staff.• Relevant training provided to personnel across all functions to maintain a high level of competency and capability. • An internal audit function that carries out internal audits based on an annual risk-based audit plan approved by the Audit Committee (see also Assurance Mechanisms below).

Assurance Mechanisms

The Audit Committee (“AC”) is tasked by the Board with the duty of reviewing and monitoring the effectiveness of the Group’s system of internal control. In carrying out its responsibilities, the Company had appointed Messrs. Columbus Advisory Sdn Bhd (“CASB”) to carry out internal audits based on a risk-based audit plan approved by the AC. Based on these audits, the AC was provided by CASB with periodic reports highlighting observations, recommendations and management action plans to improve the system of internal control.

In addition, the AC also reviews and deliberates on any matters relating to internal control highlighted by the independent external auditors in the course of their statutory audit of the financial statements of the Group. There were no major internal control weaknesses identified during the financial year.

The Report of the AC is set out on pages 16 to 20 of the Annual Report.


STATEMENT ON INTERNAL CONTROL (Cont’d)

THE BOARD’S COMMITMENT

The Board recognises that the Group operates in a dynamic business environment in which the internal control system must be responsive in order to be able to support its business objectives. To this end, the Board remains committed towards maintaining a sound system of internal control and believes that a balanced achievement of its business objectives and operational efficiency can be attained.

REVIEW OF THE STATEMENT BY INDEPENDENT AUDITORS

Pursuant to paragraph 15.24 of Bursa Malaysia Securities Berhad’s Listing Requirements, the Independent Auditors have reviewed the Statement on Internal Control and reported: “ Based on our review, nothing has come to our attention that causes us to believe that the Statement on Internal Control intended to be included in the annual report is inconsistent with our understanding of the process the Board of Directors has adopted in the review of the adequacy and integrity of internal control of the Group.”

This Statement on Internal Control was approved by the Board of Directors on 27 September 2011.

Dato’ Mohd Azlan Hashim Executive Chairman

24 SILK Holdings Berhad • ANNUAL REPORT 2011

CORPORATE SOCIAL RESPONSIBILITY

The SILK Group is committed to meeting its aspirations of improving the long-term shareholder value of the company. In meeting this objective, it will do so via policies and arrangements that recognise its social, economic and environmental responsibilities.

In giving effect to this, the Group is committed to:

• Setting high standard and expectations for its employees to act ethically, professionally and with integrity whenever dealing with external stakeholders;• Support collaborations with stakeholders, particularly those that are most affected by the Group’s business activities, where it is feasible to do so; and• Pursuing a culture of delivering value for the funds invested in its activities whilst effectively managing risks to the organisation and its stakeholders.

The Group is also committed to providing high standards of safety in the working conditions for its employees and to the continual improvement of its safety performance. During the period under review, the Group’s Oil & Gas Support Services Division, via Jasa Merin, was awarded with the Bronze Award from Petronas Carigali Sdn Bhd’s Development Division, for its good health, safety and environmental (“HSE”) performance in the year 2010. Out of the five recipients, Jasa Merin is the only offshore support vessel provider to have won the award for 2010, adding to a long list of safety awards it has earned over the years.

The well-being of external stakeholders is another area of concern to the Group. Hence, during the financial year under review, the Group’s Highway Infrastructure Division continued its participation in the road Safety Campaigns in conjunction with the 2010 Aidilfitri and 2011 Chinese New Year celebrations to ensure its road users are able to get to their destination safely and in relative comfort. In addition to the Safety Campaigns mentioned, the Highway Infrastructure Division also provided discounts to travellers using its highway during the two festive periods and for the recent 2011 Aidilfitri celebrations, as a way to thank road users.

The well-being of the communities in which the Group operates is also important to its long-term development and success. It is with this in mind that during the period under review, the Group took an active step to strengthen ties with its immediate community by contributing to various local community activities.

In addition, as customary in previous years, both Divisions hosted orphans from orphanages nearby its respective base of operations during the 2010 Aidilfitri celebration. On top of that, the Oil & Gas Marine Support Services Division, through Jasa Merin, also made contributions to various educational institutions situated in Terengganu, to further co-curricular activities at the institutions.

In addition to the above, the Group is also mindful that there are times where it needs to look beyond the local community and stakeholders. With this in mind, the Group had participated in a donation drive organised by Lembaga Lebuhraya Malaysia to alleviate the burden suffered by a number of schools in Kedah Darul Aman as a result of flooding in November 2010.

It is SILK’s aspiration for initiatives such as these to continue well into the future.


DIRECTORS’ REPORT 26 STATEMENT BY DIRECTORS 30 STATUTORY DECLARATION 30 INDEPENDENT AUDITORS’ REPORT 31 STATEMENTS OF FINANCIAL POSITION 33

STATEMENTS OF COMPREHENSIVE INCOME 35

STATEMENTS OF CHANGES IN EQUITY 36 STATEMENTS OF CASH FLOWS 38

NOTES TO THE FINANCIAL STATEMENTS 40

FINANCIAL STATEMENTS


DIRECTORS’ REPORT

Directors' report

Principal activities

ResultsGroup Company

RM RM'000 '000

Loss net of tax (11,901) (780)

Loss attributable to:Owners of the parent (11,236) (780)Non-controlling interests (665) -

(11,901) (780)

Directors

Dato' Mohd Azlan Hashim Datuk Razman M Hashim Dato' Harun bin Md IdrisTai Keat Chai Johan Zainuddin bin Dzulkifli Abdul Hamid bin Sh MohamedNik Abdul Malik bin Nik Mohd Amin

The principal activity of the Company is investment holding. The principal activities of the subsidiaries are tolledhighway concessionaire and the provision of offshore marine support services.

The directors hereby present their report together with the audited financial statements of the Group and of theCompany for the financial year ended 31 July 2011.

There have been no significant changes in the nature of the principal activities during the financial year.

In the opinion of the directors, the results of the operations of the Group and of the Company during the financialyear were not substantially affected by any other item, transaction or event of a material and unusual nature otherthan effects arising from the changes in accounting policies due to adoption of IC Interpretation 12: ServiceConcession Arrangements which resulted in increase in the Group's loss net of tax by RM4,820,000 as disclosed inNote 2.2 to the financial statements.

The names of the directors of the Company in office since the date of the last report and at the date of this reportare:

There were no material transfers to or from reserves or provision during the financial year other than as disclosed inthe financial statements.


DIRECTORS’ REPORT


Issue of shares

The new ordinary shares rank pari passu in all respects with the existing ordinary shares of the Company.

Employee trust shares

Other statutory information

(a)

(i)

(ii)

(b) At the date of this report, the directors are not aware of any circumstances which would render:

(i)

(ii)

(c)

(d)

the values attributed to the current assets in the financial statements of the Group and of the Companymisleading.

At the date of this report, the directors are not aware of any circumstances which have arisen which wouldrender adherence to the existing method of valuation of assets or liabilities of the Group and of the Companymisleading or inappropriate.

At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in thisreport or financial statements of the Group and of the Company which would render any amount stated in thefinancial statements misleading.

During the financial year, the Company increased its issued and paid-up ordinary share capital from RM96,958,845 toRM99,262,349 by way of the conversion of Cumulative Convertible Redeemable Preference Shares ("CC-RPS") anddividends payable to 9,214,018 ordinary shares at RM0.25 each.

to ascertain that proper action had been taken in relation to the writing off of bad debts and the making ofallowance for impairment and satisfied themselves that all known bad debts had been written off and thatno allowance for impairment was necessary; and

to ensure that any current assets which were unlikely to realise their values as shown in the accountingrecords in the ordinary course of business had been written down to an amount which they might beexpected so to realise.

the amount written off for bad debts inadequate to any substantial extent or it necessary to make anyallowance for impairment in respect of the financial statements of the Group and of the Company; and

Employee trust shares of RM6,688,000 relate to 15,200,000 shares of the Company issued to Jasa Merin EmployeeTrust (a trust set up by a subsidiary, Jasa Merin (Malaysia) Sdn. Bhd. ("Jasa Merin")) pursuant to the acquisition ofAQL Aman Sdn. Bhd. ("AQL") in the previous year.

Before the statements of comprehensive income and statements of financial position of the Group and of theCompany were made out, the directors took reasonable steps:

DIRECTORS’ REPORT


Other statutory information (contd.)

(e) At the date of this report, there does not exist:

(i)

(ii)

(f) In the opinion of the directors:

(i)

(ii)

Significant events

Details of significant events are disclosed in Note 34 to the financial statements.

Subsequent event

Details of subsequent event are disclosed in Note 35 to the financial statements.

Auditors

The auditors, Ernst & Young, have expressed their willingness to continue in office.

Signed on behalf of the Board in accordance with a resolution of the directors dated 27 September 2011.

DATO' MOHD AZLAN HASHIM JOHAN ZAINUDDIN BIN DZULKIFLI

no contingent or other liability has become enforceable or is likely to become enforceable within the periodof twelve months after the end of the financial year which will or may affect the ability of the Group or ofthe Company to meet their obligations when they fall due; and

no item, transaction or event of a material and unusual nature has arisen in the interval between the end ofthe financial year and the date of this report which is likely to affect substantially the results of theoperations of the Group or of the Company for the financial year in which this report is made.

any charge on the assets of the Group or of the Company which has arisen since the end of the financial yearwhich secures the liabilities of any other person; or

any contingent liability of the Group or of the Company which has arisen since the end of the financial year.

DIRECTORS’ REPORT


Statement by directors Pursuant to Section 169(15) of The Companies Act, 1965 We, DATO’ MOHD AZLAN HASHIM and JOHAN ZAINUDDIN BIN DZULKIFLI, being two of the directors of SILK HOLDINGS BERHAD, do hereby state that, in the opinion of the directors, the accompanying fi nancial statements set out on pages 33 to 108 are drawn up in accordance with the provisions of the Companies Act, 1

Documents

SILK Holdings Bhd - Malaysiastock.biz Holdings Bhd (405897-V) SILK Holdings Berhad (405897-V) ANNUAL REPORT 2011 SILK A.R. 2011 Cover.indd 1 03/10/2011 08:29:42. OPERATING SUBSIDIARIES