OUM BUSINESS SCHOOL

SEMESTER MAY 2015

BBPW3203

FINANCIAL MANAGEMENT II

MATRICULATION NO: 921207-03-5304-001IDENTITY CARD NO.: 921207-03-5304TELEPHONE NO.: 017-9335644E-MAIL : lam1207@oum.edu.myLEARNING CENTRE: Kelantan Learning Centre

BBPW 3203 1

contents1. Introduction Of The Selected Companies 1.1 Poh Kong Holdings Berhad...2 5 1.2 Khind Holdings Berhad...6 10

2. Poh Kong Holdings Berhad Financing Sources.....................................11 25

3. Khind Holdings Berhad Financing Sources.......26 32

4. Comparison Of The Companies Financing Sources.33 34 4.1 Similarities Between The Companies Financing Sources35 36 4.2 Differences Between The Companies Financing Sources37 38

5. Summary39 40

6. References..41 43

7. Attachment.44 51

1. INTRODUCTION OF THE SELECTED COMPANIES

1.1 POH KONG HOLDINGS BERHADPoh Kong Holdings Berhad was established on 26 March 1976 with its first outlet at Jalan 52/4, Petaling Jaya. This business address has been the Poh Kong Headquarters until today. Poh Kong continues to be at the forefront of the jewellery industry and enjoys tremendous growth. In 2011, Poh Kong reached its 100th outlet in Peninsular Malaysia. Later, they were listed in Bursa Malaysia since 2004 has driven Poh Kong to even more success since its inception. Today, Poh Kong has its own manufacturing facility in Shah Alam and thus earning its position as Malaysias largest jewellery retail chain store.

The Poh Kong Group is an integrated one-stop jeweller, from manufacturer to retailer of gems, diamonds, precious stones, gold jewellery and gold investment products in Malaysia.

With 39 years of experience, the Group has evolved from a modest outlet in Petaling Jaya to a full-fledged, retail chain store specialising in jewellery retailing nationwide. Poh Kongs passion in the business and its dedication to providing fine jewellery of top-notch quality and international standards has always played a pivotal role. For quality assurance, Poh Kong ensures that stringent measures are constantly undertaken without compromising design excellence.

Poh Kong is synonymous with design excellence, meticulous craftsmanship and exceptional quality jewellery ranging from gold to diamonds and gems. Its brands are recognised as household names in Malaysia and abroad.

Their expansion in setting up outlets in booming commercial and residential townships are strategically located for convenience and easy accessibility, as well as providing a total shopping experience to its customers.Furthermore, expanding product offerings are geared to meet the unique demands of different customer profiles. Poh Kongs in-house brands, Tranz, Happy Love, Anggun and The Art of Auspicious Jewellery successfully gained popularity with its innovative design, superior quality and meticulous craftsmanship in yellow gold jewellery. Poh Kong continues to enhance its Love Collection wedding bands and rings in yellow, white, rose gold, as well as in platinum, which caters to rising consumer demands in these segments.

Poh Kong differentiates its retail concept to meet the needs of a range of shoppers with speciality stores, via its Poh Kong Gallery, Jade Gallery, Gold Boutique, Diamond & Gold, Diamond Boutique and Oro Bianco.

The Group is also associated with world renowned international jewellery brands, such as Schoeffel pearls from Germany, Luca Carati and Moraglione 1922 diamonds and coloured gems jewellery from Italy.

In identifying the rising demand for quality diamonds, Poh Kong successfully launched the exclusive brand Hemera, the worlds most brilliant 101 cut diamond, a breakthrough in its superior light performance which gained overwhelming positive response from the market.

Vision:To achieve product and service excellence.

Mission:1. To be the largest jewellery retail chain with different retail concepts and provide wide distribution network for customers convenience and easy accessibility;2. To offer extensive range of local and international renowned jewellery brands to cater to customers diverse preferences and needs;3. To continue leading the gold market and establish in-house brands;4. To be the most preferred jewellery brand for all occasions as our jewellery is closely connected with the most important and meaningful events in life;5. To improve our employees performance and quality of service;6. To improve production and operation efficiency;7. To implement effective and timely communication between management and employees; and8. To implement an effective IT system.

Financial Highlight:

The Groups sales revenue for the FYE 2013 increased by 18% to RM975.78 million as compared to the revenue of RM830.12 million in the previous FYE2012. This represents a rise of RM145.66 million in sales. The increase in revenue was the result of stronger sales from the Groups operations.

Pre-tax profit registered RM40.57 million in FYE2013, a decline of 43% or a decrease of RM30.37 million over the previous FYE2012 of RM70.94 million. Profit after tax at RM33.97 million for FYE2013 was lower compared to RM51.57 million in the corresponding period of FYE2012 reflecting a decline of 34% or RM17.60 million.

The decline in profit in FYE2013 was mainly due to sharp fluctuations in gold prices between the time of purchases of gold jewellery and their sales to customers. This time lag exposes Poh Kongs profit performance to volatile gold prices. Profit margins rise when gold prices increase and compress when prices fall. Although the steep drop in global gold prices from April to June triggered a gold rush creating a strong demand for gold jewellery and gold investment products, this plunge in gold prices at a two year low inevitably affected Poh Kongs operating profits in FYE2013.1.2 KHIND HOLDINGS BERHADKhind Holdings Berhad was established in 1961. Mr. Cheng King Fa, aged 77, is the founder of the Khind group, which commenced as a small family business 54 years ago. He started a modest business in Sekinchan trading electrical goods. Under his vision and guidance, the business has grown into one of Malaysias leading local electrical products manufacturer. With 54 years experience in the electrical industry, he provides invaluable advice to the Group on production, marketing, new product research and development.

Mr. Cheng King Fa was appointed Executive Chairman of the Group on 20 April 1998 prior to the Companys listing on the Second Board of Bursa Malaysia Securities Berhad on 12 August 1998.

Today, the Khind Group, which was listed on the KLSE on 12 August 1998, manufactures and distributes world-class electrical home appliances across Malaysia and exports to over 50 countries worldwide.

Over the years, the Group has undergoes a natural evolution, from Khind 1.0 to Khind 3.0 as of today. Khind 3.0 was rolled out to address a changing business landscape that took into consideration the needs and wants of a new generation of audiences that wanted to see a more responsive, responsible and resolute company that could bring a little ray of happiness to their lives. And in so doing, We Deliver Happiness - is the Companys new vision going forward. This new vision will be firmly supported by the core foundation of Quality and five core values of: Kindness, Harmony, Interesting, Novelty and Development - depicted by its acronym of K.H.I.N.D.

A Natural Evolution:

During the year, the Group embarked on a worthy and much needed self-introspective exercise to define where it wanted to be in the 21st Century and beyond. With an ever growing audience of technologically-savvy consumers and users around the globe, there was a need for Khind to re-visit its core vision and mission. Over the last 53 years of Khinds development, one constant remained - change.

During its initial first two decades of growth, the Group was focused on providing sustenance to its founders and scions. This was generally known as Khind 1.0. Subsequently, the next three decades represented the fruitful years of success or better identified as Khind 2.0.

As the Group arrived to maturity after five decades of success and challenges, it was timely to reinvigorate what the Company stood for going into the new century. This resulted in Khind 3.0 - We Deliver Happiness being launched in 2013.

Vision:We deliver happiness to all stakeholders.

Mission:Quality MissionDelight customers at all times

Service MissionMake service excellence our way of life

Branding MissionCreate positive brand awareness for Khind & Mistral

People Development MissionMaximise our people Potential to deliver result

Customer Relationship MissionBuild a rewarding and lasting partnership

Financial Highlight:

The Group turned in a revenue of RM325.0 million in FYE2013 - representing a 12.6% increase over the previous year of RM288.6 million.

Profit before tax came in at RM20.1 million, a 50% increase over the previous year of RM13.4 million. Domestic sales contributed approximately 58% to revenue, while the remaining 42% from international contributions. The Groups Consumer business continued to spearhead sales with 86%, with the Industrial products side turning in the remaining 14%.

Better turnaround performance by subsidiary Khind Alliances Sdn Bhd helped bring in higher sales as this subsidiary was able to reorganize its product mix, specifically its Honeywell range of air cooling products that attracted more Malaysian consumers.

Given the macro-economic and socio-political changes during the year, overall the Group and its subsidiaries still managed to return a positive performance and managed to declare a total Dividend of 10% for the year ended December 31, 2013.

2. POH KONG HOLDINGS BERHAD FINANCING SOURCES

According to the Balance Sheet of Poh Kong Holdings Berhad, we have determined the following financing sources:Sources of Short Term Financing

Non-spontaneous Financing: Bank Overdraft Bankers Acceptance Revolving Credit Short-term loan Term loan Hire Purchase Finance LeaseSpontaneous Financing: Accruals Trade and other payables

Sources of Intermediate / Long Term Financing

Finance LeaseHire PurchaseTerm LoansICP/IMTN (Islamic Commercial Paper / Islamic Medium Term Notes

Short-Term Spontaneous Financing:Spontaneous financing is defined as financing which flows with the volume of sales activity during normal business operation that requires no additional assistance from lenders or creditors. Also, this financing originally scheduled for repayments within a year. These spontaneous financing sources also have no explicit cost attached to them. Therefore, these types of financing are more attractive to firms for daily operations. This kind of financing is unsecured and does not require the pledge of specific assets as collateral. The most common resources for this kind of financing include accruals and trade and other payables.

Accruals:Accruals are liabilities for service received for which payment has yet to be made. An accrual is a kind of debt that has been incurred or accumulated over a period of time, but has not been paid yet. For example, the accrual expenses include the wages, bonus and audit fees.

This type of debt is free and the company can use it without having to pay any explicit interest. For instance, a company pays its employees at the end of each month for their hours worked through the 25th day of the month. To fully record the wage expense for the entire month, it also accrued RM32,000 in additional wages, which represents the cost of wages for the remaining days of the month, and this additional wages will be pay at the following month.

In Poh Kong, the Group has an accruals of RM9,132,200 in FYE2013 representing a 18.36% decrease over the previous year of RM11,185,282. The decrease in accruals indicate a good situation for Poh Kong Group, this may due to the increase in Groups sales revenue from 830.12 million in FYE2012 to 975.78 million in FYE2013, thus generate a strong cash flow for the Group to pay their debts.

Trade and other payables:Trade payable is the aggregate amount of an entity's short-term obligations to pay suppliers for products and services which the entity purchased on credit. If trades payable are not paid within the payment terms agreed to with the supplier, the payables are considered to be in default, which may trigger a penalty or interest payment, or the revocation or curtailment of additional credit from the supplier.

Trades payable are considered a source of cash, since they represent funds being borrowed from suppliers. When trades payable are paid, this is a use of cash. Given these cash flow considerations, suppliers have a natural inclination to push for shorter payment terms, while creditors want to lengthen the payment terms.

From a management perspective, it is of some importance to have accurate trade payable records, so that suppliers are paid on time and liabilities are recorded in full and within the correct time periods. Otherwise, suppliers will be less inclined to grant credit, and the financial results of a business may be incorrect.

Whereas, other payables that are not considered trade payable are those payment that not related with trade supplier.

Group2013 (RM)2012(RM)Variance (RM)%

Trade Payable13,328,95433,032,216(19,703,262)-59.65%

Other Payable16,536,30611,357,5455,178,76145.60%

Total29,865,26044,389,761(14,524,501)-32.72%

The Poh Kong Groups trade payable has decrease by 59.65%. This is because the normal credit terms granted to the Group has shortened from 7 to 180 days in FYE 2012 to 1 to 180 days in FYE2013. The Group are able to settle the creditors debt in a shorter period if compared with previous year.

Short-Term Non-Spontaneous Financing:Non-spontaneous sources of financing are those fund sources that do not occur on the day-to-day operating level of a firm and this liability originally scheduled for repayments within a year.

For example, a firm purchases raw materials on credit from a supplier. They must pay off this account after 30 days. During this time period, the firm turns these raw materials into consumer goods. Consumers purchase these goods on credit. Before the firm receives the money from the customers who purchased their goods on credit, the firm must pay off the suppliers they purchased the initial materials from (that they used to manufacture the goods that in turn were sold to the customers). This creates a cash flow deficit. The firm must generate the funds needed to pay off their suppliers as they will not receive the money from their own customers until after they are due to pay off their suppliers.

These non-spontaneous sources of funds are borrowed from lenders or banks that they will pay back at a later time period. The loan can be divided into two basic categories. These are secured loans and unsecured loans.

A secured loan is a form of debt in which specific assets have been pledged to guarantee payment. A secured loan is a promise to pay a debt, where the promise is secured by granting the creditor an interest in specific property belonging to the debtor. If the debtor defaults on the loan, the creditor can recover the money by seizing and liquidating the specific property used as collateral on the debt. In Poh Kong, examples of secured loans are bank overdraft, bankers acceptance, revolving credit, short-term loan and term loan.

An unsecured loan is also a promise to pay a debt. But unlike a secured loan, the promise in an unsecured loan is not supported by granting the creditor an interest in any specific property. The lender is relying on the creditworthiness and reputation of the borrower to repay the obligation. In Poh Kong, examples of unsecured loans are hire purchase and finance lease.

Bank Overdraft:According to Investopedia, bank overdraft is defined as an extension of credit from a lending institution when an account reaches zero. An overdraft allows the individual or company to continue withdrawing money even if the account has no funds in it. In other words, the customers can have a negative balance in the bank's records for the company's checking account.

In Poh Kong, the bank overdrafts of the Group are denominated in RM and incurs weighted average effective interest at 8.10% in FY2013 (31.7.2012:8.46%) per annum.

The bank overdrafts of the Group are secured by a combination of the following :-(a) corporate guarantees and indemnity from the Company;(b) a legal charge over properties of certain subsidiaries; (c) a negative pledge on certain subsidiaries assets; and(d) fixed deposits place with licensed banks of the Group

The Group has a bank overdraft of RM973,372 in FYE2013, representing a 71.84% decrease over the previous year of RM3,456,139. This decrease in bank overdraft may due to the huge increase in bankers acceptance, there are almost 100% increase in bankers acceptance from RM52.16mil in FYE 2012 to RM104.3mil in FYE 2013. Thus, the Group need not to keep so much bank overdraft and pay high interest for that.

The weighted effective interest for bank overdraft is between 8.10% to 8.46% per annum, whereas the weighted effective interest for bankers acceptance is between 4.17% to 4.57% per annum. This shows that the bankers acceptance offers the better interest rate if compared to bank overdraft.

Bankers Acceptance, Revolving Credit and Short-term Loan:Bankers acceptance is a short-term debt instrument issued by a firm that is guaranteed by a commercial bank. They are issued by firms as part of a commercial transaction. Banker's acceptances are traded at a discount from face value on the secondary market, which can be an advantage because the banker's acceptance does not need to be held until maturity. They vary in amount, according to the size of the commercial transaction. The date of maturity typically ranges between 30 and 180 days from the date of issue. However, banker's acceptances are considered to be relatively safe investments, since the bank and the borrower are liable for the amount that is due when the instrument matures.

Revolving credit is a line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customer's current cash flow needs. It can be taken out by both corporations and individuals. The bank that is in agreement with the customer guarantees a maximum amount that can be loaned to the customer. Along with the commitment fee there are also interest expenses for corporate borrowers and carry forward charges for consumer accounts. (Investopedia, n.d.)

When your business does not qualify for a line of credit from a bank, you might still have success in obtaining money from then in the form of a one-time, short-term loan (less than a year) to finance your temporary working capital needs. If you have established a good banking relationship with a banker, he or she might be willing to provide a short-term note for one order or for a seasonal inventory or accounts receivable buildup.

The bankers acceptance, revolving credit and short-term loan facilities of the Group are denominated in RM and are secured by a combination of the following :-(a) corporate guarantees and indemnity from the Company;(b) a legal charge over properties of certain subsidiaries;(c) a negative pledge on certain subsidiaries assets; and(d) fixed deposits place with licensed banks of the Group.

The Groups weighted average effective interest rates at the reporting period for bankers acceptance, revolving credit and short-term loan were as follows :-

Group2013 (%)2012 (%)

Bankers Acceptance4.17 4.274.57

Revolving Credit6.456.45

Short-term loan3.223.22

As per the Groups balance sheet, the following information obtained:-Group2013 (RM)2012 (RM)Variance (RM)%

Bankers Acceptance104,300,00052,160,00052,140,00099.96

Revolving Credit3,000,0003,000,000--

Short-term loan6,731,1608,442,311(1,711,151)-20.27

Based on the table above, there is a huge increase in bankers acceptance, there are almost 100% increase in bankers acceptance from RM52.16mil in FYE 2012 to RM104.3mil in FYE 2013. This may due to the lower interest rate offers by the bank if compared with the previous year, which is from 4.57% per annum in FYE2012 to 4.17% - 4.27% per annum in FYE2013.

Whereas, the Groups short-term loan has decreased by 20.27%, this may also due to the increase in Groups sales revenue from 830.12 million in FYE2012 to 975.78 million in FYE2013, thus generate a strong cash flow for the Group to pay their short-term loan.

Term Loan:Term loan is a loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate. Term loans almost always mature between one and 10 years.

The term loan that need to repay within one year are categorised as current liabilities, and the term loan that need to repay after one year are categorised as non-current liabilities or it is also known as a kind of intermediate / long-term financing sources.

The term loans of the Group are secured by way of:-(a) A legal charge over properties of certain subsidiaries; and(b) Corporate guarantees and indemnity from the Company.

Term loan facilities of the Group are denominated in RM, incur weighted average effective interest at rates of 4.60% in FY2013 (31.7.2012: 5.13%).

The disclosure of term loans are as following:-Term Loan2013 (RM)2012 (RM)

Non-Current

- later than one year but not later than two years663,538639,444

-later than two years but not later than five years2,135,9622,047,534

-more than five years3,826,7994,894,286

Total Non-Current Term Loans6,626,2997,581,264

Current

-not later than one year939,764619,417

Total Current Term Loans939,764619,417

Based on the disclosure above, we noticed that the current term loan is increase by 51.72%, this may due to the lower interest rate offered by the bank which is from 5.13% per annum in FYE2012 to 4.60% per annum in FYE2013. Thus, the Group borrows more term loan in current year FYE2013.

Whereas, with the strong cash flow generate from sales activities, the Group also pays their non-current term loan in FYE2013, and this cause a decrease of 12.60% in non-current term loan from RM7,581,264 in FYE2012 to RM6,626,299 in FYE2013.

Hire Purchase:Hire purchase is a type of asset finance that allow firms or individuals to possess and control an asset during an agreed term, while paying instalments covering interest to cover capital cost.

Hire purchase is a financing solution suitable for businesses wishing to purchase assets without paying the full value immediately. The customer pays an initial deposit, with the remainder of the balance and interest paid over a period of time. Although the total sum of capital payments for hire purchase will be higher than the full payment on the asset purchase, but it allows companies to control and deploy assets without significant drain on working capital and fixed-rate funding makes budgeting easy as the lessee has clear sight of future expenditures. On completion, ownership of the asset transfers to the customer.

The Poh Kong Groups hire purchase payables bear effective interest rates at 3.07% in FY2013 (31.7.2012: 3.07%).

The Groups hire purchase payable is disclosed as following:Hire Purchase Payable2013 (RM)2012 (RM)

Current

- not later than one year 1,392,0041,594,008

Non-Current

- later than one year but not later than five years3,755,6513,192,980

Total Hire Purchase Payable5,147,6554,786,988

Based on the disclosure above, we noticed that there is an increase of 7.53% in hire purchase payable; this is due to the additional purchase of motor vehicles in FYE2013. According to notes to the financial statements 2(d), the net carrying amount of motor vehicles acquired under hire purchase arrangements of which instalments are still outstanding in FYE2013 is RM5,204,291 (FYE2012:RM5,132,035).

Finance Lease:A finance lease is a form of financing that transfers substantially all the risks and rewards incidental to ownership over a leased asset from the lessor to the lessee. By signing the contract and delivering the leased asset, the lessor transfers economic ownership over the leased asset, while legal ownership is transferred only upon the expiration of lease, on payment of the final instalment. In a finance lease, the lessee uses the leased asset for most of its lifecycle, as with loans.

Advantages of finance lease: There is typically an option to buy equipment at end of lease term. Typically, it is easier to obtain lease financing than loans from commercial lenders. You can keep upgrading; as new equipment becomes available you can upgrade to the latest models each time your lease ends. There is less upfront cash outlay; you do not need to make large cash payments for the purchase of needed equipment. Leasing is inflation friendly. As the costs go up over five years, you still pay the same rate as when you began the lease. In addition, the lease is not connected to the success of the business. Therefore, no matter how well the business does, the lease rate never changes.

Disadvantages of finance lease: You have an obligation to continue making payments. Typically, leases may not be terminated before the original term is completed. Therefore, the renter is responsible for paying off the lease. This can pose a major financial problem for the owners of a business experiences a downturn. You have no equity until you decide to purchase the equipment at the end of the lease term, at which point the equipment has depreciated significantly. Although you are not the owner, you are still responsible for maintaining the equipment as specified by the terms of the lease. Failure to do so can prove costly.

The Poh Kong Groups finance lease facilities bear effective interest rates at 3.50% in FY2013 (31.7.2012: 4.16%).

The Groups finance lease payable is disclosed as following:

Finance Lease Payable2013 (RM)2012 (RM)

Current

- not later than one year 1,311,9602,832,633

Non-Current

- later than one year but not later than five years98,4531,057,370

Total Finance Lease Payable1,410,4133,890,003

Based on the disclosure above, we noticed that there is a decrease of 63.74% in finance lease payable. According to notes to the financial statements 2(e), the net carrying amount of equipment, furniture and fittings acquired under finance lease arrangement of which instalments are still outstanding in FYE2013 is RM3,137,890 (FYE2012: RM5,263,111). Thus, there is no much addition of assets acquired under finance lease arrangement, oppositely there are more payments made for the finance lease payables.

Intermediate / Long-Term Financing Sources:Intermediate / long term sources of finance are those that are needed over a longer period of time - generally over a year. Intermediate / long term financing services are provided to those business entities that face a shortage of capital. It is different from short term financing which is normally used to provide money that has to be paid back within a year. The period may be shorter than one year as well.

It is important to remember that in most cases, a firm will not use just one source of finance but a number of sources. There might be a dominant source of funds but when you are raising hundreds of millions of money it is unlikely to come from just one source.

In Poh Kong Group, the intermediate / long-term financing sources are term loans, hire purchase, finance lease and ICP/IMTN.

Whereas term loans, hire purchase and finance lease already provide the clearly explanations in above statement. Now, lets us have a look on ICP/IMTN.

ICP/IMTN (Islamic Commercial Paper / Islamic Medium Term Notes)According to notes to financial statement 17.2, the ICP/IMTN programme is a facility denominated in RM of up to RM150 million granted to the Group and to the Company and is based on Islamic financing principles in accordance with Syariah concept and principle of Al-Kafalah.

The proceeds of the ICP/IMTN programme shall be utilised for the following purpose:-(a) To finance group wide restructuring programme; and(b) To finance capital expenditure.

The ICP/IMTN bear interest at rates ranging from 3.85% to 4.20% (31.7.2012: 3.85% to 4.20%) per annum, with Danajamin to act as guarantor to guarantee the repayment obligations and is secured by way of third party first fixed legal charge over the following properties of the Group :- a four storey leasehold shop office (expiring in 2059) located at No.16, Jalan 52/4, 46200 Petaling Jaya, a four storey leasehold shop office (expiring in 2060) located at No.18, Jalan 52/4, 46200 Petaling Jaya, freehold commercial shoplot located at G-19, Subang Parade, Selangor, leasehold commercial shoplot (expiring in 2090) located at G-14, Mahkota Parade, Melaka, leasehold commercial shoplot (expiring in 2090) located at G-29, Mahkota Parade, Melaka, leasehold commercial shoplot (expiring in 2095) located at GF-119, Queensbay Shopping Mall, Penang, leasehold commercial shoplot (expiring in 2095) located at GF-120, Queensbay Shopping Mall, Penang, freehold commercial shoplot located at G-13, Summit Parade, Batu Pahat, Johor; unconditional and irrevocable corporate guarantee of PKJ for the entire amount of the facility and any guarantee fee, profit accruing and other payment obligations thereon; a legal assignment/charge over present and future rights, title, benefits and interest in and to the designated accounts and all monies from to time standing to the credit of the designated accounts; and any other security/support as may be deemed applicable by Danajamin.

The ICP/IMTNs programme contained financial covenants which required the Group to maintain its debt to tangible net worth and finance service cover ratios.

The Groups ICP / IMTN are disclosed as following:ICP / IMTN2013 (RM)2012 (RM)

Current

- not later than one year --

Non-Current

- later than one year but not later than two years--

- later than two year but not later than five years80,000,00070,000,000

- more than five years50,000,00050,000,000

Total ICP / IMTN130,000,000120,000,000

Based on the disclosure above, obviously, there is an additional borrowing of RM10 million from ICP/IMTN, this may due to the Poh Kong Group need additional funding to expand their operations, as Poh Kong will continue to strengthen and strive to be the best and the leading jeweller in Malaysia predominantly in manufacturing, retailing of gold jewellery, diamonds and gems, and other jewellery, such as pearls, jade and coloured stones. The Group is confident of maintaining its market position as the premier and largest jewellery retail chain as it look towards expansion by identifying strategic locations for future growth, refurbish existing stores, enhance its merchandise mix and invest in brand development.

3. KHIND HOLDINGS BERHAD FINANCING SOURCES

According to the Balance Sheet of Khind Holdings Berhad, we have determined the following financing sources:Sources of Short Term Financing

Non-spontaneous Financing: Bank Overdraft Bankers Acceptance Term loan Hire PurchaseSpontaneous Financing: Accruals Trade and other payables

Hire PurchaseTerm LoansSources of Intermediate / Long Term Financing

Accruals:As mentioned previously, accruals are short-term liabilities such as wages, bonus and audit fee which continually occur during an accounting period but are not supported by an invoice or a written demand for payment. When preparing financial statements for that accounting period, such liabilities are estimated on the basis of experience or previous payments.

In Khind Holdings Berhad, the Group has an accruals of RM15,110,000 in FYE2013 representing a 28.18% increase over the previous year of RM11,788,000.

With the new evolution of Khind 3.0, the Khind Group has the objective to deliver happiness to all their stakeholders who are the shareholders, employees, customers, suppliers, community and company. As such, there is an effort to be made in order to fulfil these objectives.

For example, the Group has made an efforts to improve overall work surroundings for employees. At Khinds headquarters in Bukit Jelutong, Shah Alam additional amenities such as: a yoga area and karaoke room were put in place to further improve its Wellness Centre catering to employees. Similarly, at its manufacturing facility at Sekinchan, improved landscaping and the creation of a mini garden park helped green the environment and provided a more pleasant surrounding for Khinds manufacturing employees.

With these all additional efforts made, there are no doubts that there will be an increase in the accruals expenses.

Trade and other payables:Trade payable is the aggregate amount of an entity's short-term obligations to pay suppliers for products and services which the entity purchased on credit. If trades payable are not paid within the payment terms agreed to with the supplier, the payables are considered to be in default, which may trigger a penalty or interest payment, or the revocation or curtailment of additional credit from the supplier.

Whereas, other payables that are not considered trade payable are those payment that not related with trade supplier.

The disclosure of trade and other payables in Khind Holdings Berhad are as follow:Group2013 (RM)2012(RM)

Trade

Trade Payables19,385,00022,221,000

Total Trade19,385,00022,221,000

Non-trade

Other Payables19,103,00015,350,000

Accrued Expenses15,110,00011,788,000

Total Non-trade34,213,00027,138,000

Total 53,598,00049,359,000

Based on the disclosure above, the trade payables has decreased by 12.76% which is from RM22,221,000 in FYE2012 to RM19,385,000 in FYE2013. This may due to the Group turned in a revenue of RM325.0 million in FYE2013 - representing a 12.6% increase over the previous year of RM288.6 million. This generate a strong cash flow for Khind Group to pay their creditors debt.

Bank Overdraft:Bank overdraft is defined as an extension of credit from a lending institution when an account reaches zero. An overdraft allows the individual or company to continue withdrawing money even if the account has no funds in it. In other words, the customers can have a negative balance in the bank's records for the company's checking account.

In Khind Holdings Berhad, the bank overdrafts of the Group are categorized into secured bank overdraft and unsecured bank overdraft. Secured bank overdrafts are secured by ways of fixed charges over the Groups office building are guaranteed by the Company.

The bank overdrafts of the Group are denominated in RM and the carrying amount and contractual interest rate are as following:Bank Overdraft20132012

Carrying Amount (RM)Contractual Interest Rate / CouponCarrying Amount (RM)Contractual Interest Rate / Coupon

-Secured906,0007.28%415,0008.09% - 11.25%

-Unsecured382,0007.28%1,075,0001.09%

Total1,288,0001,490,000

Based on the table above, the Group has a bank overdraft of RM1,288,000 in FYE2013, representing a 13.56% decrease over the previous year of RM1,490,000. But, there is an increase of RM491,000 in secured bank overdraft from RM415,000 in FYE2012 to RM906,000 in FYE2013, this may due to the drop in contractual interest rate which is from 8.09% - 11.25% per annum in FYE2012 to 7.28% per annum in FYE2013. This situation encourages Khind Group to borrow more secured bank overdraft.

However, there is a decrease of RM693,000 in unsecured bank overdraft from RM1,075,000 in FYE2012 to RM382,000 in FYE2013. This is because the interest rate for unsecured bank overdraft becomes higher which increase from 1.09% per annum in FYE2012 to 7.28% per annum in FYE2013. This situation discourage the Group to borrows more unsecured bank overdraft.Bankers Acceptance:Bankers acceptance is a short-term debt instrument issued by a firm that is guaranteed by a commercial bank. They are issued by firms as part of a commercial transaction. Banker's acceptances are traded at a discount from face value on the secondary market, which can be an advantage because the banker's acceptance does not need to be held until maturity. They vary in amount, according to the size of the commercial transaction. The date of maturity typically ranges between 30 and 180 days from the date of issue. However, banker's acceptances are considered to be relatively safe investments, since the bank and the borrower are liable for the amount that is due when the instrument matures.

In Khind Holdings Berhad, the unsecured bankers acceptances are supported by negative pledge executed by subsidiaries and guaranteed by the Company.

The bankers acceptances of the Group are denominated in RM and the carrying amount and contractual interest rate are as following:Bankers Acceptance20132012

Carrying Amount (RM)Contractual Interest Rate / CouponCarrying Amount (RM)Contractual Interest Rate / Coupon

-Unsecured44,206,0001.49% - 5.75%41,661,0003.53% - 5.89%

Total44,206,00041,661,000

Based on the table above, the Group has a bankers acceptance of RM44,206,000 in FYE2013, representing a 6.11% increase over the previous year of RM41,661,000. This is because the contractual interest rate drop from 3.53% - 5.89% per annum in FYE2012 to 1.49% - 5.75% per annum in FYE2013. This situation will definitely encourage the Group to borrow more bankers acceptance.

Term Loan:Term loan is a loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate. Term loans almost always mature between one and 10 years.

The term loan that need to repay within one year are categorised as current liabilities, and the term loan that need to repay after one year are categorised as non-current liabilities or it is also known as a kind of intermediate / long-term financing sources.

The secured term loans are:i) secured by way of fixed charges over the Groups leasehold land and office buildings; ii) supported by corporate guarantee from the Company.

Term loan facilities of the Group incur contractual interest rate at 1.68% - 7.78% (31.12.2012: 2.61% - 5.34%).

The disclosure of term loans are as following:-Term Loans2013 (RM)2012 (RM)

Non-Current

- later than one year 22,346,00020,417,000

Current

-not later than one year1,150,0001,120,000

Total Term Loans23,496,00021,537,000

Bases on the disclosure above, the Group has a term loans of RM23,496,000 in FYE2013, representing a 9.10% increase over the previous year of RM21,537,000. The increase may also due to the lower interest rate offered by the bank, in FYE2013 the lowest interest rate of term loan can go to 1.68% per annum, whereas in FYE2012 the lowest interest rate of term loan only 2.61%, which is higher than FYE2013. Futhermore, the Group also use this term loan to acquire property, plant and equipment. In FYE2013, there are RM8,938,000 were acquired by means of term loans (FYE2012: nil).Hire Purchase:Hire purchase is a financing solution suitable for businesses wishing to purchase assets without paying the full value immediately. The customer pays an initial deposit, with the remainder of the balance and interest paid over a period of time. On completion, ownership of the asset transfers to the customer.

The Groups hire purchase payable is disclosed as following:Hire Purchase Payable2013 (RM)2012 (RM)

Current

- not later than one year 837,000795,000

Non-Current

- later than one year but not later than five years1,031,0001,222,000

Total Hire Purchase Payable1,868,0002,017,000

The hire purchase that need to repay within one year are categorised as current liabilities, and the hire purchase that need to repay after one year are categorised as non-current liabilities or it is also known as a kind of intermediate / long-term financing sources.

Based on the disclosure above, we noticed that there is a decrease of 7.39% in hire purchase payable. According to the notes to financial statements 3.2, the motor vehicles acquired under hire purchase arrangements with a carrying amount of RM3,433,581in FYE2013 (FYE2012: RM3,992,372). Thus, there is no much addition of assets acquired under finance lease arrangement, oppositely there are more payments made for the finance lease payables.

4. COMPARISON OF THE COMPANIES FINANCING SOURCESFINANCING SOURCESPOH KONGKHIND

2013201220132012

Non-Current:

Secured

Term Loans6,626,2997,581,26422,346,00020,417,000

ICP / IMTN130,000,000120,000,000--

Unsecured

Hire Purchase3,755,6513,192,9801,031,0001,222,000

Finance Lease98,4531,057,370--

Current:

Secured

Bank Overdraft973,3723,456,139906,000415,000

Bankers Acceptance104,300,00052,160,000--

Revolving Credit3,000,0003,000,000--

Short-term loan6,731,1608,442,311--

Term Loans939,764619,4171,150,0001,120,000

FINANCING SOURCESPOH KONGKHIND

2013201220132012

Current:

Unsecured

Trade Payables13,328,95433,032,21619,385,00022,221,000

Other Payables16,536,30611,357,54519,103,00015,350,000

Accruals9,132,20011,185,28215,110,00011,788,000

Hire Purchase1,392,0041,594,008837,000795,000

Finance Lease1,311,9602,832,633--

Bank Overdraft--382,000 1,075,000

Bankers Acceptance--44,206,000 41,661,000

4.1 SIMILARITIES BETWEEN THE COMPANIES FINANCING SOURCESSimilaritiesDescription

Both companies using secured term loans as their financing sources. And, both of their term loans are secured by charges over properties and corporate guarantee from the Company.The term loans of the Poh Kong Group are secured by way of:-(a) A legal charge over properties of certain subsidiaries; and(b) Corporate guarantees and indemnity from the Company.

The term loans of the Khind Group are secured by way of:-(a) secured by way of fixed charges over the Groups leasehold land and office buildings; (b) supported by corporate guarantee from the Company.

Both companies using hire purchase to finance their property, plant and equipment.Net carrying amount of Poh Kongs Group property, plant and equipment acquired under hire purchase arrangements in FY2013 and FY2012 are RM 5,204,291 and RM 5,132,035 respectively.

Net carrying amount of Khinds Group property, plant and equipment acquired under hire purchase arrangements in FY2013 and FY2012 are RM3,433,581 and RM3,992,372 respectively.

SimilaritiesDescription

Both companies short-term spontaneous financing sources are trade & other payables and accruals.They help to ensure good information about the financial health of your company i.e.: the liabilities obligation do not understated.

Both companies using bankers acceptance as their financing resources and both companies need to repay this debts within one year.Bankers acceptance is a short-term debt instrument issued by a firm that is guaranteed by a commercial bank. Poh Kong Group has a bankers acceptance in FY2013 and FY2012 of RM104,3000,000 and RM52,160,000 respectively. Whereas, Khind Group has a bankers acceptance in FY2013 and FY2012 of RM44,206,000 and RM41,661,000 respectively.

4.2 DIFFERENCES BETWEEN THE COMPANIES FINANCING SOURCESDifferencesPoh KongKhindReasons

Financing Sources: ICP / IMTNUse this as their financing sources.Does not use this as their financing sources.This is mainly because of the special condition attached:- (a) The Issuer shall ensure that the Minister of Finance (Incorporated) holds directly or indirectly at least 51% of the ordinary paid-up share capital of the Issuer at all times.(b) The Islamic Principle must be utilized. *Khind Group does not attached to this special condition.

Financing Sources: Finance LeaseUse this as their financing sources.Net carrying amount of Poh Kong Groups property, plant and equipment acquired under finance lease arrangement in FY2013 and FY2012 are RM3,137,890 and RM5,263,111 respectively.Does not use this as their financing sources.This is mainly because by using finance lease Poh Kong Group can keep upgrading new equipment to the latest models each time after the lease ends whereas Khind Group does not require this features.

DifferencesPoh KongKhindReasons

Financing Sources: Revolving CreditUse this as their financing sources.

Does not use this as their financing sources.This is mainly because of the commitment fees that need to pay before the fund is provided. Poh Kong Group is willing to pay for it then they believe they will be a greater return with this, whereas Khind Group does not require this features.

Financing Sources: Short-term loanUse this as their financing sources.

Does not use this as their financing sources.Poh Kong Group has a short-term loan in FY2013 and FY2012 of RM6,731,160 and RM8,442,311 respectively. This short-term loan probably provide for a seasonal inventory or accounts receivable buildup, whereas Khind Group does not require this features.

5. SUMMARY

One of the most important issues facing all businesses, whether a business in the start-up phase or well-established, is the obtaining of appropriate levels of financing. Whether it is needed for investing in land, buildings or equipment, hiring new employees, investing in inventory or moving into new markets, obtaining sufficient financing to accomplish these goals is a dilemma nearly all business owners face.

Debt financing means a method of financing in which a company receives a loan and gives its promise to repay the loan. Debt financing often comes with strict conditions or covenants in addition to having to pay interest and principal at specified dates. Failure to meet the debt requirements will result in severe consequences. Adding too much debt will increase the company's future cost of borrowing money and it adds risk for the company. Debt financing includes both secured and unsecured loans.

Security involves a form of collateral as an assurance the loan will be repaid. If the debtor defaults on the loan, that collateral is forfeited to satisfy payment of the debt. Most lenders will ask for some sort of security on a loan. For example, guarantors sign an agreement stating they'll guarantee the payment of the loan or equipment provides 60 to 65 percent of its value as collateral for a loan.

On the other hand, in unsecured loan, your credit reputation is the only security the lender will accept. You may receive a personal loan for several thousand dollars--or more--if you have a good relationship with the bank. But these are usually short-term loans with very high rates of interest.

Most outside lenders are very conservative and are unlikely to provide an unsecured loan unless you have done a tremendous amount of business with them in the past and have performed above expectations. Even if you do have this type of relationship with a lender, you may still be asked to post collateral on a loan due to economic conditions or your present financial condition.In addition to secured or unsecured loans, most debt will be subject to a repayment period. There are three types of repayment terms:(a) Short-term (b) Intermediate-term (c) Long-term

Generally, short term financing is defined as a loan or credit facility with a maturity of one year or less. In short-term financing, it can be categorized into two group which are spontaneous financing and non-spontaneous financing.

Spontaneous financing is defined as financing which flows with the volume of sales activity during normal business operation that requires no additional assistance from lenders or creditors. Non-spontaneous sources of financing are those fund sources that do not occur on the day-to-day operating level of a firm.

Furthermore, intermediate / long term sources of finance are those that are needed over a longer period of time - generally over a year. These financing services are provided to those business entities that face a shortage of capital. Such obligations would include company bond issues or long-term leases that have been capitalized on a firm's balance sheet.

(4215 WORDS)

6. REFERENCES

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Danainfra Nasional Berhad. (n.d.). ICP/IMTN Programme. Available:http://www.danainfra.com.my/index.php?option=com_content&view=article&id=240&Itemid=308#(Retrieved on June 08, 2015)

Entrepreneur Staff. (n.d). Term LoanAvailable: http://www.entrepreneur.com/encyclopedia/term-loan(Retrieved on June 09, 2015)

Financial Glossary. (2011). Banker's Acceptance. Available: http://financial-dictionary.thefreedictionary.com/Banker%27s+Acceptance(Retrieved on June 07, 2015)

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Harold Averkamp. (n.d.). What is the difference between equity financing and debt financing?Available: http://www.accountingcoach.com/blog/equity-financing-debt-financing(Retrieved on June 06, 2015)

Investopedia. (n.d.). Revolving Credit.Available: http://www.investopedia.com/terms/r/revolvingcredit.asp(Retrieved on June 07, 2015)

Jim Riley. (April 2015). Bank Loans and Overdrafts (GCSE)Available: http://beta.tutor2u.net/business/reference/bank-loans-and-overdrafts(Retrieved on June 09, 2015)

Khind Holdings Berhad FY2012 & FY 2013 Annual ReportAvailable: http://klse.i3investor.com/servlets/staticfile/216543.jsphttp://klse.i3investor.com/servlets/staticfile/238519.jsp(Retrieved on June 04, 2015)

Khind Holdings Berhad Official WebsiteAvailable: http://khind.com.my/(Retrieved on June 04, 2015)

Poh Kong Holdings Berhad FY2012 & FY 2013 Annual ReportAvailable: http://ir.chartnexus.com/pohkong/docs/ar/2012.pdfhttp://ir.chartnexus.com/pohkong/docs/ar/2013.pdf(Retrieved on June 04, 2015)

Poh Kong Holdings Berhad Official WebsiteAvailable: http://www.pohkong.com.my/(Retrieved on June 04, 2015)

Robert Ching (Nov 2014). Press Release: RAM Ratings reaffirms ratings of Poh Kongs ICP/IMTNAvailable: http://www.mifc.com/index.php?ch=ch_contents_media_centre&pg=pg_media_centre&ac=7181(Retrieved on June 09, 2015)

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7. ATTACHMENT

Poh Kong Holdings Berhads Financial Statement Extracts

Khind Holdings Berhad Financial Statement Extracts