NOTES TO THE FINANCIAL STATEMENTS

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25. RESERVES

Share premium

Share premium arose from the following:

Capital reserve
In 2002, an amount of BD60 equivalent to RM606 of a subsidiary company, Yeo Hiap Seng (Middle East) Co. Ltd. has been transferred to the capital reserve. The capital reserve arose from the provisions of the Bahrain Commercial Companies Law 1975 (Amended), which represents an amount equivalent to 10% of a subsidiary company, Yeo Hiap Seng (Middle East) Co. Ltd. E.C.'s net profit before appropriation to be transferred to a non-distributable reserve account until such time as a minimum of 25% of the issued share capital is set aside.

Foreign exchange reserve
Exchange differences arising on translation of foreign controlled entities are taken to the foreign exchange reserve.

Unappropriated profit
Distributable reserves are those available for distribution by way of cash dividends. Based on estimated tax credits available and prevailing tax rates applicable to dividends, the unappropriated profit of the Company is available for distribution by way of cash dividends without additional tax liability being incurred.

As of 31st December, 2003, the Group and the Company have unutilised reinvestment allowances, investment tax credits and tax exempt income amounting to about RM32,299,000 (RM40,167,000 in 2002) and RM23,214,000 (RM31,261,000 in 2002) respectively, under the Investment Incentive Act, 1968 (revised 1978), Promotion of Investment Act, 1986 and Section 12 of the Income Tax Act, 1967. These reinvestment allowances, investment tax credits and tax exempt income, if confirmed by the Inland Revenue Board, will enable the Company and its subsidiary companies to distribute tax exempt dividends up to the same amount. As of 31st December, 2003, the Group and the Company have reinvestment allowances and investment tax credits approved by the tax authorities amounting to about RM14,049,000 and RM11,216,000 (RM22,096,000 and RM19,263,000 in 2002) respectively.

26. DIVIDENDS

Dividends consist of the following:

A final dividend of 6.5%, tax exempt, amounting to RM8,326,210 proposed in the previous financial year and dealt with in the previous directors' report was paid by the Company during the current financial year.

An interim dividend of 2%, less tax, amounting to RM1,844,576 was paid in respect of the current financial year.

A special dividend of 3%, less tax, amounting to RM2,766,862 was paid in respect of the current financial year.

The directors proposed a final dividend of 9%, less tax, amounting to RM8,300,591 in respect of the current financial year. This dividend is subject to approval by the shareholders at the forthcoming Annual General Meeting of the Company and has not been included as liability in the financial statements.

The proposed final dividend for 2003 is payable in respect of all ordinary shares in issue as at the date of the financial statements.

27. CONTINGENT LIABILITIES

(a) During the year, a legal action for damages of approximately RM6.7 million and interest thereon for an alleged breach of a lease agreement of the land where the Chenderiang mineral water plant was situated, was brought by the lessor against the Company. The Company is disputing the claim and based on advice received from its legal advisors, the directors are of the opinion that this claim is unsustainable. Accordingly, no provision for loss has been made in the financial statements. The outcome of the case is not presently known.

(b) As of 31st December, 2003, the subsidiary companies have credit and loan facilities amounting to RM200,000 (RM200,000 in 2002) obtained from local financial institutions, which are guaranteed by the Company. Accordingly, the Company is contingently liable to the extent of the amount of the credit and loan facilities utilised by its subsidiary companies. None of the credit and loan facilities is secured against the assets of the Company or of the Group.

28. COMMITMENTS

As of the end of the financial year, the Group and the Company have commitments in respect of the following:

29. CASH AND CASH EQUIVALENTS

Cash and cash equivalents included in the cash flow statements comprise the following balance sheet items:

30. FINANCIAL INSTRUMENTS

Financial Risk Management Objectives and Policies
The operations of the Group is subject to a variety of financial risks, including market risk, credit risk, liquidity risk and cash flow risk. The Group has formulated a financial risk management framework whose principal objective is to minimise the Group's exposure to risk and/or costs associated with the financing, investing and operating activities of the Group.

Various risk management policies are made and approved by the Board for observation in the day-to-day operations for the controlling and management of the risks associated with financial instruments.

Market Risk
The Group has in place policies to manage the Group's exposure to fluctuation in the prices of the key raw materials and commodities used in the operations. The Group enters into fixed price contracts to establish determinable prices for raw materials and commodities used.

Credit Risk
The Group has no major concentration of credit risk and manage these risks by monitoring credit ratings and limiting the aggregate financial exposure to any individual counterparty.

The Group extends credit to its customers based upon careful evaluation of the customer's financial condition and credit history.

Liquidity Risk
The Group practices prudent liquidity risk management to minimise the mismatch of financial assets and liabilities and to maintain sufficient credit facilities for contingent funding requirement of working capital.

Cash flow risk
The Group reviews its cash flow position regularly to manage its exposure to fluctuations in future cash flows associated with its monetary financial instruments.

Fair Values
The carrying amount and the estimated fair value of the Group's and the Company's investment in quoted securities as of

31st December, 2003 is RM115,040.

Cash and cash equivalents, trade and other receivables, inter-company indebtedness and trade and other payables
The carrying amount approximate fair value because of the short maturity of these financial assets and liabilities.