NOTES TO THE FINANCIAL STATEMENTS

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1 GENERAL INFORMATION

The principal activities of the Company are in the production, marketing and sale of beverage and food products. The principal activities of the subsidiaries are in the production, marketing and distribution of beverage and food products. The number of employees at the end of the financial year in the Group was 1,388 (2003: 1,487) and in the Company was 722 (2003: 773). The Company is a public limited liability company, incorporated and domiciled in Malaysia. The ultimate holding company of the Company is Yeo Hiap Seng Limited, a company incorporated in Singapore. The address of the registered office of the Company and principal place of business is as follows: No. 7, Jalan Tandang 46050 Petaling Jaya Selangor Darul Ehsan

2 BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

The financial statements of the Group and of the Company are prepared under the historical cost convention except as disclosed in the summary of significant accounting policies. The financial statements comply with the applicable approved accounting standards in Malaysia and the provisions of the Companies Act, 1965. The preparation of the financial statements in conformity with the applicable approved accounting standards in Malaysia and the provisions of the Companies Act, 1965 requires the use of estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported financial year. Although these estimates are based on the Directors' best knowledge of current events and actions, actual results may differ from these estimates.

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements.

a)	Basis of consolidation

(i)	Subsidiaries
	The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to the end of the financial year. Subsidiary company is a company in which the Group has power to exercise control over the financial and operating policies so as to obtain benefits from its activities. Subsidiaries are consolid ated using the acquisition method of accounting. Under the acquistion method of accounting, subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The cost of an acquisition is the amount of cash paid and the fair value at the date of acquisition of other purchase consideration given by the acquirer, together with directly attributable expenses of the acquisition. At the date of acquisition, the fair values of the subsidiary's net assets are determined and these values are reflected in the consolidated financial statements. The difference between the cost of acquisition over the Group's share of the fair value of the identifiable net assets of the subsidiary acquired at the date of acquisition is reflected as goodwill on consolidation. Minority interest is measured at the minorities' share of fair values of the identifiable assets and liabilities of the acquiree. Separate disclosure is made of minority interest. Intragroup transactions, balances and unrealised gains on transactions are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group. The gain or loss on disposal of a subsidiary is the difference between net disposal proceeds and the Group's share of its net assets together with any unamortised balance of goodwill on acquisition, if any.
(ii)	Associates
	Associates are companies in which the Group exercises significant influence, but which it does not control. Significant influence is the power to participate in the financial and operating policy decisions of the associates but not the power to exercise control over those policies. Investments in associates are accounted for in the consolidated financial statements by the equity method of accounting. Equity accounting involves recognising the Group's share of the post acquisition results of associates in the income statement and its share of post acquisition reserves. The cumulative post acquisition movements are adjusted against the cost of the investment which includes goodwill on acquisition (net of accumulated amortisation). Equity accounting is discontinued when the carrying amount of the investment in an associate reaches zero, unless the Group has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of impairment. Where necessary, in applying the equity method, adjustments are made to the financial statements of associates to ensure consistency of accounting policies with those of the Group.

b)	Revenue recognition

Revenue from the sale of goods is recognised upon delivery of products and when significant risks and rewards of ownership have passed to the buyer. Revenue of the Group and of the Company represents gross invoiced value of sale of goods less discounts and returns. All significant intercompany sales are eliminated on consolidation. Group sales do not include the applicable share of associates' sales. Interest income and rental income are recognised on an accrual basis. Dividend income is recognised when the Group's right to received payment is established.

c)	Foreign currency

(i)	Reporting currency
	The financial statements are presented in Ringgit Malaysia.
(ii)	Foreign entities
	The Group's foreign entities are those operations that are not an integral part of the operations of the Company. Income statements of foreign entity is translated into Ringgit Malaysia at average exchange rates for the period and the balance sheet is translated at exchange rates ruling at the balance sheet date. Exchange differences arising from the retranslation of the net investment in foreign entity are taken to 'Foreign exchange reserve' in shareholders' equity. On disposal of the foreign entity, such translation differences are recognised in the income statement as part of the gain or loss on disposal.
(iii)	Foreign currency transactions and balances
	Transactions in foreign currencies during the financial year are converted into Ringgit Malaysia at the rates of exchange ruling on the transaction dates unless hedged by forward foreign exchange contracts, in which case the rates specified in such forward contracts are used. Monetary assets and liabilities in foreign currency at the balance sheet date are translated into Ringgit Malaysia at rate of exchange approximating those ruling on that date unless hedged by forward foreign exchange contracts, in which case the rates specified in such foreign contracts are used. Exchange differences arising from settlement of foreign currency transactions and from the translation of foreign monetary assets and liabilities are included in the income statement.
(iv)	Closing rate
	The principal closing rates used in translation of foreign currencies amounts are as follows:

Year-end rates

	2004 RM	2003 RM
Singapore Dollar	0.432	0.448
US Dollar	0.263	0.263
Thai Baht	10.081	10.428
Canadian Dollar	0.317	0.342

d)	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 and real property gains taxes payable on disposal of properties. 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 and associates except where 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.

e)	Property, plant and equipment

Property, plant and equipment are stated at historical cost/valuation less accumulated depreciation and impairment losses. The Directors have applied the transitional provisions of International Accounting Standard No. 16 (Revised) Property, Plant and Equipment as adopted by the Malaysia Accounting Standard Board which allows the land and building to be stated at their valuation less depreciation and does not require the asset to be revalued on a periodic basis. Accordingly, these valuations have not been updated. Property, plant and equipment that is held for disposal is carried at its carrying amount at the date when the asset is reclassified as assets held for disposal. Freehold land, property, plant and equipment under construction and assets held for disposal are not depreciated. Land under long and short leases are amortised evenly over the term of the lease. Depreciation of all other property, plant and equipment is computed on the straight-line method based on the estimated useful lives of the various assets. The annual depreciation rates are as follows:

%

Land under long and short leases	1.0	-	2.0
Buildings and improvements	2.0	-	10.0
Machinery and equipment	6.67	-	33.33
Furniture, fixtures and fittings, and office equipment	10.0	-	33.33
Vehicles and vehicles under hire-purchase	10.0	-	20.0

Depreciation on assets under construction commences when the assets are ready for their intended use. Gain or loss arising from the disposal of an asset is determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset, and is recognised in the income statement. At each balance sheet date, the Group assesses whether there is any indication of impairment. If such indications exist, an analysis is performed to assess whether the carrying amount of the asset is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. See accounting policy Note (i) on impairment of assets. Repairs and maintenance are charged to the income statement during the financial year in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset.

f)	Assets under lease arrangements

Assets acquired under finance lease arrangements are included in property, plant and equipment and the capital element of the leasing commitments is shown under borrowings. The lease rentals are treated as consisting of capital and interest element. The capital element is applied to reduce the outstanding obligations and the interest element is charged to income statement so as to give a constant periodic rate of interest on the outstanding liability at the end of each accounting period. Assets acquired under finance lease are depreciated over the useful lives of equivalent owned assets in accordance with the property, plant and equipment policy in Note 3(e) above. Finance leases Leases of property, plant and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a periodic constant rate of charges, are included in borrowings. The interest element of the finance charge is charged to the income statement over the lease period. Property, plant and equipment acquired under finance leases is depreciated over the shorter of the estimated useful life of the asset and the lease term.

g)	Operating leases

	Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on the straight line basis over the lease period.

h)	Investments

Investments in subsidiaries and associates are shown at cost. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. See accounting policy Note (i) on impairment of assets. 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 period in which the decline is identified. On disposal of an investment, the difference between net disposal proceeds and its carrying amount is charged/credited to the income statement.

i)	Impairment of assets

Property, plant and equipment, investment in subsidiaries and associates and 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 asset's 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. Any subsequent increase in recoverable amount is recognised in the income statement. The increased carrying amount of an asset due to a reversal of an impairment loss should not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years.

j)	Inventories

Inventories, other than bottles and cases, are valued at the lower of cost (determined on the first-in, firstout basis) and net realisable value. The cost of raw materials and other inventories comprises the original cost of purchase plus cost of bringing the inventories to present location. The cost of finished goods and work-in-progress includes the cost of raw materials, direct labour and a proportion of the manufacturing overheads. Net realisable value represents the estimated selling price in the ordinary course of business less selling and distribution costs and all other estimated costs to completion.

(k)	Receivables

	Trade and other receivables are stated at invoice amount as reduced by the appropriate allowances for estimated irrecoverable amounts. Allowance for doubtful receivables is made based on estimates of possible losses which may arise from non-collection of certain receivable accounts.

l)	Cash and cash equivalents

	The Group and the Company adopt the indirect method in the preparation of the cash flow statement.
	For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

m)

Dividends

	Dividends on ordinary shares are recognised as liabilities when declared before the balance sheet date. A dividend declared after the balance sheet date, but before the financial statements are authorised for issue, is not recognised as a liability at the balance sheet date. Upon the dividend becoming payable, it will be accounted for as a liability.

n)	Intangible assets

Intangible asset represents the rights acquired to manufacture products for its immediate holding company, YHS (Singapore) Pte Ltd. The initial cost of acquiring the licence is capitalised and amortised on a straight line basis over 20 years. Goodwill is capitalised and amortised using the straight line method over a period of 20 years. At each balance sheet date, the Group assesses whether there is any indication of impairment. If such indications exist, an analysis is performed to assess whether the carrying amount of the asset is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. See accounting policy Note (i) on impairment of assets.

(o)	Employee benefits

(i)	Short term employee benefits
	Wages, salaries, 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
	Defined benefit plan
	Post employment benefits relates to retirement benefits given to employees and is a non-contributory unfunded retirement benefits scheme for employees who are eligible under a collective bargaining agreement. The liability in respect of a defined benefit plan is the present value of the defined benefit obligation at the balance sheet date, together with adjustments for actuarial gains/losses and past service cost. The Group determines the present value of the defined benefit obligation every 3 years 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, considering the estimated future cash outflows using market yields at balance sheet date of government securities which have currency and terms to maturity approximating the terms of the related liability. 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 MASB 29 and is charged or credited to income over the average remaining service lives of the related employees participating in the defined benefit plan.
	Defined contribution plans
	A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior periods. The defined contribution plan of the Group relates to the contribution to the Employee Provident Fund, the national defined contribution plan. The Group's 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.

(p)	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 instrument 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 statement associated with each item.
(iii)	Financial instruments not recognised on the balance sheet
	The Group is a party to financial instruments which comprise foreign currency forward contracts. The instrument is not recognised in the financial statements on inception. Exchange gains and losses arising on contracts entered into as hedges of anticipated future transactions are deferred until the dates of such transactions, at which time they are included in the measurement of such transactions.
(iv)	Fair values for disclosure purposes
	The fair value of financial liabilities with maturity of more than one year is estimated by discounting the future contractual cash flows at the current market interest rate available to the Company for similar financial instruments. The fair value, less any estimated credit adjustments, for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date.

(q)	Segment reporting

Segment reporting is presented for enhanced assessment of the Group's risks and returns. Segment revenue, expense, assets and liabilities are those amounts resulting from the operating activities of a segment that are directly attributable to the segment and the relevant portion that can be allocated on a reasonable basis to the segment. Segment revenue, expense, assets and segment liabilities are determined before intragroup balances and intragroup transactions are eliminated as part of the consolidation process, except to the extent that such intragroup balances and transactions are between group enterprises within a single segment. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those components operating in other economic environments.

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