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PRODUCT DEVELOPMENT

Developing new models and variants of high quality while meeting

the market's needs are amongst PROTON's top priorities.

In early 2007, PROTON introduced a brand new facelift for its

highly popular WAJA sedan. The facelift focuses on a simpler, more

contemporary design at the front that gives the car a bolder

appearance and improves engine cooling. There were also interior

and exterior colour changes as well as quality upgrades based on

customer feedback.

The Waja's facelift was closely followed with the unveiling of a

cosmetic freshening of our award-winning Savvy and the addition

of a premium model with standard ABS and airbags. Key features

include a new honeycomb radiator grille, a more modern, simplified

design for the rear liftgate and new exterior colours. This upscale

Savvy was developed alongside a Savvy Lite model that is

equipped and positioned at a lower price point to bring in a new

set of younger customers. Though development began late in the

calendar year 2006, the Savvy Light went on sale in July of financial

year 2007-2008.

The year under review also saw tangible efforts to enhance

linkages within our product development and motorsports

divisions. In the third quarter of 2006, PROTON unveiled a limited

edition of WAJA & GEN.2 variants that were designed and

developed by our motorsports division, R3. These enhanced

models have improved handling and performance, and are tuned

for the enthusiast.

Built to commemorate PROTON R3's overall victory in the Merdeka

Millennium Endurance Race 2005 & 2006, only 200 units of each

model were planned. These unique variants feature one-of-its-kind

bodykit styling and performance upgrades.

In the near future, PROTON plans to introduce a limited edition

series of the Satria NEO and Savvy to commemorate the 50th

anniversary of Malaysia's nationhood. These Merdeka editions will

commemorate the founding of the nation and will be produced in a

limited series of 200 cars each. Both the Neo and Savvy will be

finished in unique colours and feature styling accents derived from

traditional Malaysian Batik themes.

As testament to the dynamism of our Product Development team,

the PROTON Savvy has recorded various awards and

achievements during the year under review. A notable accolade

was the setting of a new record by our 1.2 litre Savvy for the Most

Fuel-Efficient Drive around Peninsular Malaysia as verified by the

PROTON 2007 ANNUAL REPORT60operations review

Malaysia Book of Records. The Savvy also walked away with the

New Straits Times/AmBank Group Cars, Bikes & Trucks 2006 Car

of the Year Award for the Supermini category, as an additional

testament to its abilities and virtues.

Kudos were not limited to our products, either. One of PROTON's

CAE (Computer Aided Engineering) Engineers, Noor Hisham Ismail,

contributed a study on Optimisation Technology that was named

Best Paper at the Altair CAE User Conference in Bangalore, India,

in August 2006.

An even greater adventure lies ahead, with the financial year

2006-2007 seeing the formative stages of development of two

new products that are key to a major renewal of PROTON's

complete portfolio of products. These models, to be introduced

in the second half of the financial year 2007-2008, will provide

the first step in the redefinition of PROTON as a manufacturer of

high value, high quality affordable cars.

PROTON 2007 ANNUAL REPORT 61operations review

Savvy’s entry into the Malaysia Book ofRecords for achieving ‘The Most Fuel-EfficientDrive Around Peninsular Malaysia’.

RESEARCH & DEVELOPMENT

R&D remains an integral platform for PROTON to improve its

capabilities of developing products and offering services that meet

domestic and global market requirements.

Experience is a crucial factor for our R&D team, more so in an

operating environment where a short learning curve is imperative.

As such, during the year under review, our state-of-the-art R&D

facilities were put to productive use both internally to support

PROTON's initiatives as well as for external clients.

One of the core areas managed by our R&D team is in the area

of automotive testing. Spearheaded by PROTON's

Homologation, Testing & Prototype (HTP) Department, the year

under review saw a multitude of tests being conducted using our

facilities including testing of components, materials, safety and

strength (CMSS), exhaust emissions and fuel consumption and

complete vehicle testing.

Studies into applied research are currently focusing on the

application of natural gas as a clean and affordable fuel to

supplement petrol. The Government of Malaysia is promoting

natural gas as a supplement to petrol, and PROTON is taking a

lead position in the development of a NGV (Natural Gas Vehicle)

aimed at private buyers as well as one aimed at fleet usage,

currently the primary users of natural gas as a motor fuel. The NGV

models will cover a range of PROTON models, the first of which will

be introduced in calendar year 2008.


PROTON's subsidiary, Lotus Engineering, has developed a first

proof-of-concept petrol/electric hybrid car that was displayed at

the 2007 Geneva motor show in Switzerland. This vehicle uses its

combination of petrol engine and electrical drive to offer greatly

reduced exhaust emissions and improved fuel economy that are

well ahead of clean-air legislation in the region. Both the hybrid

vehicle project and the NGV programme are indicators as to how

PROTON is investigating and implementing ways to use

technology to overcome automotive-related environmental and

social issues facing the world today.

In addition to bolstering the skill-set of our R&D team, various tests

of components and systems conducted for external clients have

proven to be a revenue generator for the Group. PROTON has

provided testing and validation services and facilities to a number

of component manufacturers in the ASEAN region.

Lotus EVE Hybrid made its debut at the Geneva Motor Show

TECHNICAL ENHANCEMENT

PROTON is cognisant that our human capital is the engine of

growth that powers the advancement and evolution of our

engineering capabilities. As such, consistent and relevant training

is crucial to ensure that our employees have the knowledge and

tools to help drive PROTON forward.

During the year under review, the Group participated in the

MAJAICO Programme, which is a government to government

programme between Malaysia and Japan focusing on industrial

development. A total of 14 PROTON engineers were sent to Japan

to learn and understand Japanese manufacturing theory and

processes while enhancing cross-cultural communications.

In the last calendar year, a number of PROTON senior engineers

were seconded to Lotus, assisting the company's development of

a new model that will serve as a keystone product for the

renowned British manufacturer of sports cars. PROTON engineers

are not merely supporting Lotus, but are in lead positions in the

development team in the areas of product development and

production process for the new car.

In addition, the Lotus Suspension Dynamics Simulation and NVH

(Noise, Vibration and Harshness) analysis knowledge transfer to

PROTON have provided us with the industrial know-how to

improve and manage our Ride & Handling Programme and NVH

feature during the concept and planning stage of product

development.


Participants of the MAJAICO Programme

Manufacturing

The manufacturing capacity and cabability comprises two main plantsin Malaysia as well as two plants overseas. These are PROTON ShahAlam in Selangor, PROTON Tanjung Malim in Perak, Chikarang inIndonesia and Norwich in the United Kingdom.


The total combined installed capacity for vehicle manufacturing is

400,000 units per year. As of today, over 2.8 million units of cars

and 2.6 million units of engines have been produced in these

Malaysian plants.

With a reputation of being one of the most integrated

manufacturing facilities in the region, the Malaysian facilities

comprise casting and foundry, machining, stamping, assembling


including painting and complete vehicle testing facilities which have

enabled PROTON to evolve from being a mere assembler to an

entity with full-fledged manufacturing capabilities.

Production volume was 104,485 units (comprising main plant

42,628 units, MVF 19,310 units, Tanjong Malim 41,107 units and

CKD 1,440 units). There was a negative variance of 98,515 units

from AMP production volume plan of 203,000 units. Delivery

volume is 99,956 units (comprising domestic 79,008 units and

export 20,588 units) and average channel inventory stock is 2.3

months. All models have an average of more than two months

holding stock except for Satria Neo, Perdana and Iswara.

In order to support the best production and delivery volume,

among the key initiatives that were implemented included the Saga

Sub-27K Program from March 2007; introduction of PROTON

Production System and Total Productive Maintenance; build-up

quality improvement through on-line quality activities and

optimisation of productivity level and operation ratio that were

impacted by the lower than planned volume.

Among the mitigation initiatives taken to immediately respond to the

changes due to volume reduction included reduction of production

volume to meet required orders from June 2006, revising working

conditions from two shifts to one shift operations from June 2006,

line-shutdown in November and December 2006, manpower

rearrangement through reassignment to non-manufacturing

functions, rearrangement of production processes to reduce

utilities consumption and readjustment of CKD and Local Parts

ordering to reduce inventory and container retention charges.

PROTON SHAH ALAM

The Shah Alam plant has a combined capacity of 200,000 units

per year and this is made up of the medium volume factory, with a

capacity of 50,000 units per year and the main factory with a

capacity of 150,000 units per year. The casting, engine and

transmission factories are also located within Shah Alam and are

capable of producing 180,000 units of the CamPro engines per

year, serving not only Shah Alam but also the Tanjong Malim plant.

While the main plant produces the Saga, Wira, Perdana and Arena

models, the medium volume factory produces the Waja and

Chancellor models for domestic as well as for export markets.

Within the financial year, operations were severely impacted by the

changes in the market resulting in lower than planned volume as

well as high channel inventory. Due to volume reduction, mitigation

initiatives were taken to immediately respond to the changes and

focus was mainly on improving the quality of products, operational

efficiency, and new product variants and introductions. Amongst

the new products introduced were the Saga Sub-27K and

Waja enhancement with the CamPro engines. Concurrently,

preparations for the new Saga were undertaken and this model is

expected to be ready by the next financial year. New initiatives such

as Visual Information Control (VIC), PROTON Production System

(PPS) and PROTON Total Productive Maintenance (PTPM) will be

the main driver for further manufacturing efficiency improvement.

The built-up quality measurement has also been refined to include

customer perception and ensuring satisfaction during delivery. The

total production was 61,938 units with average production facilities

utilization rate of 31% due to strong competition in the domestic

market. The Shah Alam plant is also supplying Completely

Knocked-Down parts and components to Zagros-Khodro in Iran to

assemble and market PROTON vehicles in the region. Within the

financial year, 1,440 vehicle sets have been delivered for assembly.


PROTON TANJUNG MALIM

This ultra-modern manufacturing and assembly plant has an

installed capacity of 150,000 units per year and is capable of

producing three different platforms and multiple variants. The plant

complex consists of engine, stamping, body assembly, painting

and final assembly facilities, inclusive of end-of-line vehicle testing

equipment fully integrated with the application of PROTON's

Automated-Assembly Line Controller. A community of suppliers is

housed within the vicinity of the plant complex to ensure effective

and efficient logistics network. To date, more than 10 major

modules and system suppliers are in operation in the Proton City

Vendor Park. The plant produces the Gen.2, Savvy and Satria Neo

models, which are all new platforms and products from the

PROTON stable.

Similarly, within the financial year, operations were severely

impacted by the changes in the market, resulting in lower than

planned volume as well as high channel inventory. Various initiatives

were implemented and focused mainly on improving quality of

products, operational efficiency, new product variants and

introduction of new products. Amongst the products introduced

were the Satria Neo, Gen.2 enhancement and Savvy face lift for

the domestic and export markets. Concurrently, preparations for

the Gen.2 sedan and CPS for domestic and export market are

being undertaken and are expected to be ready by the next

financial year.

To further enhance supply of parts in November 2006, the

consolidated logistics provider was implemented. To date, 22

vendors have signed on and the rest are expected to participate in

the second phase of the program which took place in April 2007

onwards.

New initiatives such as VIC, PPS and PTPM will be the main drivers

for further manufacturing efficiency improvement. Total production

was 41,107 units with average production facilities utilisation rate of

27% as a result of strong competition in the domestic market.

While the built-up quality measured in Defect per Unit (DPU) at

the PROTON Tanjung Malim plant has improved by almost 58%,

cost per unit however, has increased by 37% due to low

production volume.



CHIKARANG, INDONESIA

P.T. Proton Tracoma Motors is a wholly owned company of

Perusahaan Otomobil Nasional Sdn Bhd and its main operation is

to manufacture PROTON products not only for Indonesia but also

for the ASEAN markets. Assembly equipment and facilities have

been fully commissioned with an installed capacity of 40,000 units

per year and the plant is ready for the assembling of the

appropriate model expected in the next financial year.


PROSPECTS

Production and Delivery Volume Plan is based upon the base

domestic sales of 115,500 units (with a market share of 30%) and

exports sales of 29,200 units. However, the manufacturing division

is geared towards achieving the best domestic sales plan of

141,000 units (resulting in a market share of 37%) whilst

maintaining the export volume of 30,000 units. This plan has taken

into consideration domestic channel stock of 18,800 units as well

as export inventory of 3,000 units based on estimates as at the

end of March 2007.

Moving forward, in order to support the best production and

delivery volumes, the following key initiatives will be implemented

and these include puting into motion the Saga Sub-27K Program

from March 2007, the introduction of new models such as the new

Sedan by June 2007 and P2-110 by January 2008, the

introduction of the Integrated Air-Fuel Module and Cam Profile

Switching for the CamPro Engine by the second quarter of 2007,

adoption of the PROTON Production System and PROTON Total

Productive Maintenance also in the second quarter; build-up

quality of less than 2.0 DPU and out-going quality of less than 1.0

DPU for the new models; working towards achieving productivity

levels of 20 man-hours per unit for main-line and MVF and 18 man-

hours per unit for Tanjung Malim, whilst operation ratios are

targeted at 90% and ensuring that parts supply index and parts

quality index are more than 90% to ensure the quality and

productivity level targets are met.


As a specialist in the global automotive industry, Group Lotus is a

successful manufacturer of sports cars under its iconic Lotus

brand as well as a leading high technology engineering

consultancy, worldwide.

The manufacture and sale of sports cars are carried out by Lotus

Cars Limited (Lotus Cars) while its automotive engineering

consultancy business is primarily undertaken by Lotus Engineering

and is complemented by the other global automotive engineering

companies within the Group. Lotus Engineering carried out 287

projects for 123 clients last year.

LOTUS CARS

PERFORMANCE OVERVIEW

The financial year under review was a challenging year for Lotus

Cars given the high level of stock in its sales pipeline, particularly in

North America, at the beginning of the year.

Nevertheless, due to the company's dedicated and focused

initiatives to stimulate demand while at the same time managing

the production levels of new cars, Lotus Cars’ global stock

inventories were reduced by a significant 937 units or over 55%.

The reduction of inventories resulted in a cash in-flow of £20

million during the year.

With production for the year realigned to 2,633 units coupled with

the impact of a weaker dollar, Lotus Cars posted lower revenue of

£93.3 million compared to £121.8 million the previous year.

However, the negative impact of internal and external factors was

mitigated by an increase in average revenue per car as well as

aftersales revenue during the year under review.

NORWICH, UNITED KINGDOM

With a recapitalised, strengthened balance sheet, a 5-year strategicbusiness plan and a more streamlined operational structure, coupledwith record sales in Japan and Europe due to new and exciting classleading products coming on stream, Group Lotus Plc., a subsidiary ofPROTON, is set for exciting times ahead.

Lotus Elise - S (Hard Top)


With the introduction of the Lotus Exige S variant in the USA in

December 2006, gross margins for Lotus Cars improved during

the year due to higher average margins per unit and improvement

in revenue for aftersales parts and services.

Overheads during the 2006 / 2007 financial year were addressed

by way of a “rightsizing” programme which resulted in the lowering

of fixed costs in 2007 / 2008 by approximately £5.2 million per

annum and lowered Lotus Cars breakeven volume by 50%.

Lotus Europa - S

OPERATIONS

During the first quarter of 2006/2007 financial year, Group Lotus

saw Mr. Michael J. Kimberley taking over the helm of the company

as Chief Executive Officer. Mr. Kimberley, along with his

management team, has been tasked to deliver an aggressive 5-

year strategic plan that is tailored to turn the company into a

sustainably profitable long term business.

In line with this strategic plan, the year under review saw the

streamlining of the Lotus Cars workforce through a voluntary

separation scheme. The completion of this exercise has positively

impacted direct and indirect operating costs while creating a more

productive workforce with profitable results.

PROSPECTS

Moving forward, Lotus Cars plans to aggressively expand into its

core markets of North America, the UK, Europe and International

markets such as those in the vibrant Asia Pacific region including

Malaysia and China. To achieve this objective and to meet set

targets of its 5-year plan, the company is set to enhance its dealer

network worldwide while introducing 3 brand new models into the

market. New distributors have just been appointed in Thailand,

Hong Kong and Korea.

In the near future, Lotus fans worldwide can look forward to an all-

new sports car currently code-named Project Eagle. This will be

followed closely by a new car to replace the iconic Lotus Esprit.

There is also a third car set to be introduced as part of the strategic

5-year initiative.

We expect sales volumes to improve as new models are

introduced, whilst overheads are kept in check to ensure

economies of scale are achieved.

Lotus Cars will also continue to invest in new research and

development that is creating revenue and profit opportunities

for the company in the future. A notable undertaking for the

2007/ 2008 financial year is the manufacturing of an electric

sports car for a USA confidential client which has already

gained substantial publicity worldwide.


Lotus Elise - S

LOTUS ENGINEERING

PERFORMANCE OVERVIEW

Lotus Engineering recorded a profit for the year under review due

to one-off exceptional items such as the recapitalisation initiative

and an adjustment made on the postponement of a specific

project. Third party sales worldwide improved by £9.3 million or

36% over the previous year.

Operating profits were affected by lower revenues (particularly

with the cessation of projects from PROTON) and higher

overheads as well as unrealised savings of £1.3 million. Higher

expenditure on third party sales activities undertaken during the

year, as well as costs at the Lotus Engineering Malaysia/China

subsidiaries, were also factors.

OPERATIONS

In a bid to streamline operations to enhance productivity and

efficiencies, the year under review saw Lotus Engineering

implementing a new “fast to market” project delivery process. Part

of this initiative was the formation of the Project Management Office

(PMO) that has been tasked to oversee all engineering projects. A

new “lean and mean” project management group was also created

to manage projects relating to Lotus Cars. In addition, resource

managers were appointed to control resources more effectively

based on a global delivery model while performance objectives

were introduced to enhance management and delivery initiatives.

In tandem with improvements made internally, the year under review

also saw the development and implementation of a more robust

customer satisfaction feedback process that is conducted upon

completion of a project. This is aimed at ensuring brand recognition

is enhanced further via superior customer satisfaction levels.

PROSPECTS

The global market outlook for the automotive industry is positive for

the coming year with substantial growth forecast for all Lotus

Engineering's primary territories, particularly China and India.

Significant new business has now been agreed and contracted in

China.

Given the trend of going 'green', Lotus is paving the way with

increased investment in the R&D of environmentally-friendly

products and services that include electric vehicles and hybrid

projects, a bio fuel prototype programmes for the Lotus Exige

and the installation of wind turbines to supply Lotus power

utilities.

Lotus Engineering is proactively pursuing third party high tech

engineering globally and has achieved major successes in Asia,

particularly in China, as well as in Europe, India and the USA.

Management has been strengthened by the elevation to Vehicle

Engineering Director of the world's most renowned Vehicle

Dynamics expert and the appointment of a new Managing Director

of Lotus Engineering Limited from Jaguar.


PRODUCTION

On the production front, the year under review saw increased

assessment at vital stages of the production process. Problems

were identified and communicated to the relevant Quality

Improvement Teams who then worked alongside the respective

departments and individuals to solve them.

Improvements made by our Quality Improvement Teams were

discussed and monitored by the QIC, which chaired its

inaugural meeting in May 2006. The year under review saw the

QIC being convened a total of 42 times in which 98 quality

issues were addressed and resolved.

SERVICE

On the external front, the Group's Quality Management Division via

its Quality Customer Satisfaction department continues to work

closely with its domestic and overseas distributors to continuously

improve service quality.

Quality Management

In line with PROTON's long-term commitment towards embracing asystem and culture that is centered on quality, the Group successfully re-established and fortified its quality procedures and standardsthroughout its manufacturing plants during the year under review. At the same time, an aggressive Group-wide quality awareness campaignwas also introduced to instill the understanding and significance of quality in all aspects and activities of PROTON.

QUALITY OPERATIONS

On an operational perspective, a cross-functional Quality

Improvement Committee (QIC) comprising senior representatives

of core divisions throughout PROTON was formed to address and

resolve quality issues impacting the Group internally as well as

externally.

The Group's quality enhancement initiatives were specifically

targeted at five core areas of the Quality Value Chain, namely new

product development, manufacturing, vendors, technical &

warranty, and sales & services.

Ultimately, the primary objective is to derive total customer

satisfaction by delivering the highest standards of quality from the

production stage of a car to the after sales service experience.


In the fourth quarter of 2006, PROTON successfully brought its

warranty policy and management of claims procedures to be on

par with current market standards. This will positively impact our

competitiveness in our primary markets.

At the end of the financial year under review, all Proton Edar service

branches will be audited to comply with the 4Ms (Man, Machine,

Material & Methods) of the Customer Oriented Service Delivery

System.

In line with fostering a closer relationship with end users, PROTON,

under its Gerak CAT (Customer Action Team) initiative has

throughout the year conducted on site face to face meetings with

customers as well as our dealership personnel to address

concerns and rectify problems.

MOVING FORWARD

Our efforts in relation to quality have translated into improved

feedback and response from end-users, specifically for our new

SAVVY and Satria NEO models. It remains a priority that

PROTON continues to enhance quality Group-wide for the

coming financial years.

In the 2008 financial year, we intend to benchmark our existing ISO

9001 Quality & Service levels at Key Processes & Gateways to the

best practices of TS16949 and address issues and seal any gaps.

Additionally, we aim to improve our Warranty Management System

through software upgrades and better training for our employees

resulting in more accurate diagnosis of defects, faster

countermeasures and less 'comeback' jobs.

PROTON also aims to resolve any other existing quality issues

based on the newly established Global Priority Index, which

focuses on prioritising issues for the correct attention level.

Alongside Proton Edar, we also intend to establish a new CS

(Customer Satisfaction) Manual as a basic guideline for all

distributors to meet the desired quality standards.

The Group's Quality Management Division intends to speed up the

understanding of the Asian Multi-Local Original Equipment

Manufacturer operating (AMLO EM) environment while driving

changes in quality processes of complete-knock-down factories

and our contract assemblers. The Group will also be bolstering its

human resources in the Group Quality Management Division to

drive forward our overall quality improvement objectives.


DOMESTIC MARKETS

OVERVIEW

While the year under review may be challenging to say the least,

given depressed consumer demand, an over-saturated market and

a highly competitive operating environment, PROTON has been all

the more committed and adamant in our marketing efforts to

position the brand and our products ahead of our competitors.

On this score, PROTON Savvy took the limelight in 2006 when the

model successfully made it into the Malaysia Book of Records for

being the most fuel-cost efficient vehicle above 1000cc. This coup

was achieved when we took the Savvy on a 1,614 km journey

across Peninsular Malaysia using about 68 litres of petrol, which

amounted to only RM131.

Our marketing efforts for the Savvy were also bolstered by a

refreshing facelift for the model in response to consumer feedback.

At the same time, our Waja Campro with design enhancements

Marketing

including standard leather seats for added comfort and luxury was

introduced into the market. PROTON's marketing team was able to

capitalize on these introductions to attract potential buyers.

All in all, the year under review saw Proton Edar Sdn Bhd mounting

a series of aggressive sales and marketing campaigns

encompassing trade-in values, financial assistance packages,

step-up financing, insurance subsidies, free petrol & service

vouchers and consumer contests nationwide during the festive

season when traditionally, car sales are at its peak. Our campaigns

were supported with the 5-year extended warranty for all PROTON

models, introduced to further add confidence to car buyers.

In line with the Government’s call to promote road safety and

reduce the number of road accidents in the country, PROTON's

Customer Management Center (CMC) introduced a novel one-on-

one driving course, namely DSSW which stands for Drive, Safe,

Smart & Wise, for its car buyers as part of its on-going customer

relations management initiatives. The course covers both


classroom and practical defensive driving sessions conducted in

collaboration with certified trainers at PROTON's semi-high speed

test-track. Interested customers/prospects could inquire further or

request for registration either by calling:

PROTON i.care at 1300 880 888 or email to i.care@proton-

edar.com.my.

Since December 2005, CMC has organized 15 classes (about one

every month with a minimum of 15 - 20 participants) and the

outcome has been very encouraging with most of the participants

requesting for intermediate and advance classes.

From an operational perspective, the year under review saw Proton

Edar taking the bull by its horns in terms of solidifying positive brand

association and building closer rapport with its market segments.

On a tangible plane, the year saw Proton Edar's service centers

recording an increased throughput of 13% year-on-year.


Mohd Mazran Dato’ Mohd Mazlan, 25Mohd Mazran has been driving his Gen.2 for the past two years and is lookingforward to being a satisfied owner formany more years to come.

Mohd Fauzi Johari, 45Mohd Fauzi Jauhari is the proud owner of a PROTON Wira for the past ten years.

In January 2007, Proton Edar Service Center also introduced a

1-hour fast service a la “Pit Stop” concept, much to the delight

of customers, especially the working class, whose time is of the

essence.

Notable marketing initiatives undertaken by Proton Edar included

the set up of a flood relief center during the recent floods in Johor.

We also offered a 30% discount for vehicle parts to our buyers in

order to mitigate their hardship due to the floods.

CUSTOMER TESTIMONY

Our focus in developing our export market was on the after sales

network and capabilities, as well as developing a better

understanding of the customers in the respective markets. To

achieve this, the Group augmented its International Sales &

Services Division with human resources and capacity.

As a result, the year under review saw PROTON recording

improved sales in all its core overseas markets, namely the United

Kingdom, Australia, the Middle East and Africa.

EXPORT MARKETS

OVERVIEW

The export market is fast becoming an attractive revenue generator

for PROTON. This augurs well for the Group in light of an

oversaturated and highly competitive domestic market. Exports for

the year under review saw a significant 64% jump in volume. Key

to this growth is the expansion of PROTON's market share in

strategic countries as well as the opening up of four new markets

across the Middle East and Asia.


PROTON Savvy launch in Cyprus

PERFORMANCE AND OPERATIONS

PROTON's market share in the strategic countries of Iran and

South Africa saw an increase during the year. Our market share in

Iran almost doubled to 0.39% from 0.19% and South Africa

registered an increase of five times to1.0% from 0.2%.

The introduction of the Gen.2 as a complete built-up unit (CBU)

into Iran, was well received with orders exceeding expectations by

44%. As such, a program to produce the Gen.2 in a complete

knocked-down (CKD) form in Iran is now underway and expected

to be in operation within the new financial year. Similarly, in South

Africa, orders for the Satria Neo after its launch were beyond the

initial estimates.

The Left-Hand Drive Savvy was also introduced in the export

market during the year. A “Shootout” for A-Segment cars was done

by a “Taiwan Motor” magazine in their October 2006 edition in

which the PROTON Savvy was rated the No.1 Choice as

compared to several other Japanese and Korean brands.

Since technical support and after sales services have been

identified as our keys-to-success in our export market, we initiated

several “Service Campaigns” in our core markets with PROTON

technical personnel in attendance. Also known as PROTON

“STAR” (Service Technical Attribute And Image Rebuilding), these

campaigns involve customer focused promotions & activities

including free 43-point check with no labor cost and discounts for

spare parts and give-away vouchers valued at US$200.


Prospects

Looking forward, in the new financial year, Iran is expected to

continue to be a major source of growth for PROTON. The

production of the Gen.2 in CKD form should lead to a reduction in

the “On-The-Road” price in Iran, thereby increasing volume.

Closer to home, Indonesia continues to be a focus growth market.

We also plan to expand into Thailand given the recent and most

welcomed, policy development.

PROTON GEN.2 cars are currently being used aspolice cars in parts of the U.K.

Proton Cars (UK)

The year under review saw Proton Cars (UK) Limited moving

forward positively despite operating in difficult market conditions.

OVERVIEW

The new car market in UK fell by over 4% in 2006, denoting a third

successive year of declining TIV. In particular, private buyers, which

make up one of the Group's main segments, performed less than

par with total market conditions falling further to just 44% of total UK

sales. Overall, with consumer buying patterns continuing to

fluctuate and change, the vehicle segments where PROTON's

products are featured, also fell. On this score, the first quarter of

2007 echoed similar market trends as experienced in 2006.

The background to these market conditions relates mostly to

economic factors in the private sector with record levels of personnel

debt, substantial interest rate hikes, high fuel prices and increasing

taxes on vehicle emissions. High fuel prices and C02 emission-

based taxes have led to private buyers switching demand to dual

fuel, diesel and small highly efficient fuel-based vehicles.

PERFORMANCE & OPERATIONS

Against this backdrop, Proton Cars (UK) Limited achieved a 63%

increase in sales during 2006 with average dealer throughput up 38%.

The additional appointment of 30 new dealers along with the

introduction of the Savvy model were major factors in volume growth

with improvements also seen in many other areas of the business, such

as increased brand and product awareness, higher customer

satisfaction levels with a class leading 88% CSI rating and improved

internal efficiencies including overhead and resource reductions.

Whilst volume and operational improvements have seen

encouraging results, the UK market conditions over the last 12

months have led to far greater levels of competitor activity from all

manufacturers creating heightened challenges in the trading

landscape and financial pressures.

PROSPECTS

All industry forecasts point to continued difficult market conditions

in the 2007-2008 financial period with an upturn predicted in the

year after. In view of the launch of Satria Neo and continued

expansion within the dealer networks in key open points to

increase geographical coverage of the United Kingdom car buying

population, Proton Cars (UK) Limited is bullish on increasing sales

by over 10% this coming year.


A PROTON GEN.2 cruising through United Kingdom

Proton Cars (Australia)

It was a progressive year for Proton Cars Australia Pty Ltd with the

successful induction of five new dealers and the launch of two new

models in the market, resulting in an increase in volume of over

10% during the financial year in review.

OVERVIEW

In 2006, when compared to the industry record of 988,269

achieved in 2005, sales for the Australian car industry fell by 2.6%.

The shift between the various vehicle segments was primarily

influenced by the rising cost of fuel which resulted in an increase in

the light and small segments and a dramatic decline in large vehicle

sales. The imported vehicles segment grew by 3% despite the

decline in overall sales with diesel powered vehicle sales increasing

16.5% and reinforcing the shift toward more fuel efficient models.

PERFORMANCE & OPERATIONS

Despite supply difficulties in the first quarter, Proton Cars Australia

successfully increased its sales by 10% and the introduction of the

Savvy model in the early part of 2006 resulted in incremental sales,

as the vehicle was well-received by both the franchised dealers

and public at large. The subsequent release of Satria Neo in 2007

was also well-received with press reports complementing the

vehicle on its class leading ride and handling capabilities. Market

competition has increased due to slowing sales resulting in heavy

discounting in an effort to maintain market share. Reductions in

overheads have allowed Proton Cars Australia to maintain the profit

forecasts.

PROSPECTS

The industry forecast for 2007-2008 is pointing to a record year of

growth in all PROTON competing segments. One of the major

obstacles for the coming year will be competitor activity as the

smaller marques have employed the strategy of reducing pricing

and increasing standard features in an effort to establish

themselves in the growing Australian market. There are currently 55

brands marketing over 350 different models which allow

consumers unprecedented choice when selecting a new vehicle.

Proton Cars Australia plans to increase sales by over 29% this

coming year, leveraging on the back of Satria Neo and the new

dealers inducted in open points in the 2006-2007 fiscal period.


PROTON Savvy

Properties

PROTON continues to be a significant participant in the country'sproperty sector via its subsidiary Proton Hartanah Sdn Bhd, whichwholly-owns Proton Properties Sdn Bhd and has a 40% stake inProton City Development Corporation Sdn Bhd.


PROTON plant in Tanjung Malim

Main PROTON plant in Shah AlamPROTON Centre of Excellence

The Group's properties are primarily located at its management

and manufacturing hub namely in Shah Alam, Selangor, and

Tanjung Malim, Perak.

During the year under review, PROTON's new administrative office in

Tanjung Malim reached its final stage of construction. Upon

completion, this new building would be able to house the required

administrative and support staff now at the Group's Shah Alam office.

The Proton City remaining land bank in Tanjung Malim, which totals

2720 acres, is currently being developed by Proton City

Development Corporation into a mixed-development township with

residential, recreational, commercial, institutional and industrial

units. Embedded in this township are state-of-the-art features such

as super high-speed integrated network, 'smart' homes and

schools as well as a number of information technology-based

amenities and utilities.


Financial Services

PROTON has entered into relationships with reputablefinancial institutions to provide convenient services thatinclude financing packages for customers and operationalfacilities for authorised dealers.

• Proton Commerce Sdn. Bhd. is a joint venture between

Proton Edar Sdn. Bhd. and Bumiputra Commerce Bank

Berhad;

• Proton Finance Ltd. is a joint venture between Proton Cars

UK Ltd. and Llyods TSB Bank;

• Lotus Finance Ltd. is a joint venture between Group Lotus

Plc. and Chartered Trust, which provides financial services

solely for Lotus cars.


Proton Commerce's e-Finance system enables customers to apply

for hire purchase facilities via the Internet. By simply logging onto

www.proton-edar.com.my or www.bcb.com.my from any

Internet terminal, customers are immediately advised as to whether

their applications have been rejected or conditionally approved,

subject to the submission of relevant supporting documents.


PROTON's involvement in CSR activities is based on the triple

bottom line - management, environment and society which

focuses on environmental protection, human rights, employee

welfare, customer service, vendor and supplier partnerships,

community involvement as well as ethical business behaviour.

A CSR Committee was set up at the tail end of the year under

review with an objective to promote good CSR practices

throughout the organisation and its subsidiaries. Headed by the

Group Chairman, this committee is made up of senior

management and personnel spanning the various divisions and

serves as a means of check and balance for the Group in relation

to the initiatives executed.

PROTON's Commitment To CorporateSocial Responsibility

Corporate Social Responsibility (CSR) is a vital component toPROTON as it is the national car manufacturer's tangible way ofcontributing to the society that it operates within. As a GovernmentLinked Company and as a means of achieving and deliveringsustainable value to its stakeholders, PROTON's CSR platform worksin tandem with and fully supports the National Economic Policy and 9th Malaysia Plan.


ENVIRONMENTALPROTECTION

PROTON's environment philosophy revolves around sustainable

development that is defined as ‘economic and social

development to meet the needs of the present without

compromising the ability of future generations to meet their own

needs. It continues to be the mainstay for our CSR initiatives and

seeks to achieve the objective of protecting the environment by

minimising the impact on the environment as a result of our

business operations. Steps such as management of pollution,

emissions, toxic wastes and recycling are consciously taken to

protect the environment.

Environment friendly manufacturing processes are in position and

the Group as a whole is working aggressively towards total

compliance to ISO14001 Environment Management System

which is certified by an external assessment body and is an

internationally accepted standard of compliance. Naturally, this

commitment enables us to proactively contribute towards the

realisation of a sustainable society.

The Group ensures that good waste management practices are

in place as this is an indicator of a high degree of corporate

responsibility and commitment to comply with national waste

management requirements. Among the methods employed to

protect and minimise the impact on the environment are recycling

of by-products such as paper and boxes, scrap metal recycling,

utilising reusable plastic boxes and containers, water recycling

and the execution of energy saving methods.

PROTON is pleased to note that all efforts undertaken as far as

environment protection is concerned have borne fruit. A tangible

example is how all wastewater effluence discharged after

treatment complies with the requirements of the Environment

Quality Act and Regulations 1974. Efforts are consistently taken

to protect the environment by striving to minimise waste and

pollution, and by setting environmental objectives and targets

which meet or exceed all legal requirements.

In order to realise this environmental policy, we are committed to

put into practice the use of environmentally friendly material and

cleaner production technology throughout the various stages of

product development, from designing, manufacturing, and

utilisation to disposal. In addition, we worked hand-in-hand with

suppliers by providing information and assistance to increase

product recycling, resources reuse rate, and minimise the use of

environmental restricted substances.

As a means of encouraging our youth to cherish the environment,

the Green Project was launched and through this, PROTON

seeks to promote environmental awareness among school

children via tree-planting programmes, environmental picture

book and essay competitions.


SOCIAL CONTRIBUTIONS

PROTON is involved in providing financial aid and support in kind

to deserving members of the society in the form of donations and

sponsorships. In the area of education, PROTON participates in

the Adopt-A-School Programme, themed Program Pintar, starting

with two schools in Penang, namely Sekolah Kebangsaan Bagan

Tuan Kechil, Butterworth, and Sekolah Menengah Kebangsaan

Paya Keladi, Kepala Batas. This programme commenced in

January 2007 and will continue until 2009. PROTON is also

involved in various motivational and educational programmes in

schools within the areas of Shah Alam and Tanjung Malim from

which it operates.

On a national interest level, PROTON is one of the main sponsors

of the prestigious Le Tour de Langkawi race. In the past,

PROTON has taken on the role of official car provider for a

number of international, regional and national events,

conferences and meetings including NAM, ASEAN and OIC and

has participated in several local and international exhibitions

relevant to the automotive industry and its core business.

In sports, PROTON is also the corporate custodian for badminton

in the country, and in 2007, it is the title sponsor for the World

Badminton Championships to be held in August. In the area of

motorsports, PROTON has a presence in the Petronas Malaysian

Formula 1 Grand Prix and in events such as the Merdeka

Millennium Endurance Race and the Malaysian Rally

Championship. It is also a partner to the A1 Team Malaysia.


Yayasan PROTON is the Group's way of investing and

contributing to the education needs of the underprivileged

segments among the young. Yayasan PROTON was established

with the intention of providing educational assistance to

deserving candidates in the form of scholarships.

Humanity assistance and contributions in aid of disaster victims,

environmental conservation and awareness programmes were

also provided in the wake of the floods in Johor. PROTON

initiated and activated a series of programmes to aid victims, from

extending financial assistance, donations in the form of food and

essential items to providing special discounts on parts and

repairs to victims' whose PROTON cars were damaged by the

natural disaster. We also set up a dedicated flood relief service

and repair centre at the Tampoi Centre equipped with tools and

equipment specific to PROTON cars, well-trained technicians

with experience in rectifying flood-damaged cars and dedicated

Service Advisors to assist customers in finding the best possible

repair option based on their financial standing. We also provided

guaranteed professional workmanship with warranty on replaced

parts and logistics management of the flood-damaged cars.

Human capital development efforts have been via assistance and

educational/training programmes designed to reach out to the

community. Over the years, PROTON's activities involving the

development of human capital has encompassed internship or

practical training, training of unemployed graduates, working to

develop useful and relevant programmes with Kolej PROTON in

Universiti Utara Malaysia, as well as providing expertise to help

schools, institutions of higher learning and other technical-based

organisations.



PROTON is also a partner and sponsor of the Malaysian Skills

Competition (automotive category). In the year under review

PROTON also partnered with the Ministry of Higher Education to

kick-start a one-year internship programme for students from the

Community College to enable selected students to continue their

studies at PROTON's service centers.

Meanwhile, significant initiatives have been undertaken to

enhance our relationship with the public and PROTON car

customers. In celebrating Malaysia's 50th year of Independence

for example, PROTON on 4th March 2007 introduced an

incredibly attractive deal for customers by offering the PROTON

Saga for just RM26,999. This was just one of the many ways

PROTON is thanking Malaysians for their strong support of the

company and the brand over the years.

PROTON i.CARE is a new initiative that underscores PROTON's

commitment to improve every quality aspect of its business - from

sales, after-sales to products. The initiative will be a key driver to

transform and project PROTON as a Group that is committed to

improvement and growth in quality.

Not just a campaign or a programme, PROTON i.CARE is an all

encompassing culture and a way of life for each and everyone in

PROTON.

All PROTON customer service offerings will now fall under the

PROTON i.CARE umbrella. From hotline to 24-hour breakdown

services to after-sales service centres, PROTON i.CARE will be the

single point of contact, serving as The Companion for customers.

The latest initiative is the formation of 25 Mobile Service Teams with

108 mechanics going to the ground to meet customers.

PROTON i.CARE marks the beginning of a new chapter in which

PROTON reciprocates the commitment to its cars with equal or

even greater commitment to quality, quality improvements and

overall customer satisfaction.

Meanwhile, in support of the initiatives underlined in the New

Economic Policy, PROTON is also committed to developing the

commercial and industrial participation of Bumiputeras in the

automotive industry by providing business opportunities to

genuine and competitive local businesses.

Health and Safety Committee, briefings by group leaders at

morning roll-calls and site auditing for health and safety including

at workshops and equipments.

The Security Department of Group Security also provides a safe

and secure environment for the diverse population that

comprises the PROTON community. Specifically, it provides an

organised force of trained personnel to protect the various

facilities from fire, accidents, environmental pollution, theft,

intrusion and other unlawful acts that disturb the peace or which

place life and property in jeopardy.

PROTON also provides an Ergonomic program where studies are

being done to reduce work-related injuries and occupational

diseases as well as to improve safety levels in the factory, work

quality and productivity.

Similar to the previous year, no fatal or serious accident cases

were recorded and incidences of cases related to minor industrial

accidents with medical leave and without medical leave saw a

reduction by 25% and 17% respectively. A lower motorcycle

accident trend amongst employees commuting to work was also

recorded.


HEALTH AND SAFETY

As a responsible corporate entity, PROTON implements good

employment practices for the benefit of employees by carrying

out safety campaigns for industrial safety at the workplace, festive

season road safety campaigns and defensive driving workshops

for car and motorcycle users. Other employee programmes

include hearing conservation training, forklift training, industrial

safety training, fire safety training as well as fire drills, and

evacuation training. Modules and training are provided by in-

house trainers on an annual basis, with an average of two

sessions conducted each month.

Health and safety related activities are often held to encourage

employees to pay attention to these issues and to put these

practices into place in their daily routine. Activities in the year

under review included a health and safety contest to increase

employee awareness on these issues, quarterly meetings of the

At PROTON, we hold steadfast to the belief that consistent

communication is the cornerstone in all our dealings with our

employees. In light of this, a new and comprehensive employee

communications framework was developed to ensure that all

employees are aligned with the organisation's direction and goals.

To take this effort one step further, strategic human capital

capability-building initiatives were executed. In addition to

facilitating assessment, these initiatives sought to develop

leadership competencies, develop talent pool and put into

motion a succession planning programme to better equip the

workforce with skills to compete globally. The challenge lies in

executing this strategic plan to ensure PROTON's human capital

capability is fully realised.


HUMAN CAPITAL DEVELOPMENT

With more than 11,000 employees worldwide under its banner,

PROTON's workforce spans the globe and through their

dedicated work, the company continues to build the brand's

name both on the domestic and international front. A majority of

the company's workforce commenced their career path with

PROTON and synergistically grew alongside the company.

The year also saw PROTON continue to provide opportunities for

students through Yayasan PROTON, where the Group explored

viable opportunities for human capital development through

programmes with secondary school students and university

graduates. Our role is to be a catalyst of success through our

educational programmes to underprivileged yet smart students

who can eventually be a part of the PROTON family.

PROTON also developed and launched Declaration of Assets

and ‘Whistleblower’ policies to clearly underline our seriousness

to establish integrity as one of our key values.

For the year under review, a new performance management

system that is directly linked to KPls was developed and

implemented. Cognisant of the fact that PROTON operates in an

increasingly competitive and challenging landscape, the

continuous development of our workforce is vital to ensure that

we measure up as a key player in the automotive industry.


PROTON in Australia

PROTON GEN.2

PROTON 2007 ANNUAL REPORT96statement on corporate governance

Statement On Corporate Governance The Board is committed to applying the recommendations of theMalaysian Code on Corporate Governance to ensure that goodcorporate governance is practiced throughout the Group to effectivelydischarge its responsibilities to protect and enhance shareholder value.

Set out below is a statement on how the Group has applied the

principles of the Malaysian Code on Corporate Governance.

BOARD OF DIRECTORS

The Board is committed to establishing and enhancing shareholder

value in the long-term and is pleased to report that the Group has

to its best efforts and knowledge complied with the principles and

Best Practices of the Code throughout the financial year under

review. The Board continues to enhance its role in improving

governance practises effectively to safeguard the interests of the

shareholders as well as stakeholders. To this end, the Board has

full control of and is responsible for the Group's overall strategy,

acquisition and divestment policies, capital expenditure, annual

budget, review of financial and operational performance, internal

control and risk management processes. The Group's overall

strategic direction, development, implementation and control

remains of primary importance to the Board.

The roles and responsibilities of the Non-Executive Chairman and

the Managing Director are clearly defined. The Chairman ensures

the integrity and effectiveness of the Board as a whole. He

conducts Board meetings and ensures that it proceeds in an

orderly manner.

The Managing Director (“MD”) on the other hand is responsible

for making and ensuring the implementation of broad policies as

approved by the Board and reports to and discusses material

matters including regulatory developments and strategic

projects with the Board. There is therefore a natural separation

of management and governance leading to a balance of power

and authority.

PROTON 2007 ANNUAL REPORT 97statement on corporate governance

The non-executive directors are independent of management and

are free from any business relationships which could materially

interfere with the exercise of their independent judgement.

The Board has delegated matters pertaining to the day to day

management, operations and strategic development of the Group

(subject to the Limits of Authorities and Group Policies and

Procedures), to the Managing Director who is supported by a

competent Management team whose expertise lies in Finance,

Human Resource, Risk Management, Marketing, Information

Technology, Operations, and Law amongst others.

In the financial year ended 31 March 2007, the Board of PROTON Holdings Berhad (PHB) met fifteen (15) times. The following are the

details of attendance of the Directors:

No Name Of Director Designation Date of Date of MeetingAppointment Resignation Attendance

1 Dato' Mohammed Azlan Non Independent 17 Dec 2004 - 15/15Bin Hashim - Chairman Non Executive Chairman

2 Dato' Haji Syed Zainal Abidin Managing Director 1 Jan 2006 - 15/15B Syed Mohamed Tahir

3 Tuan Haji Abdul Jabbar Independent 12 Apr 2004 - 14/15Bin Abdul Majid Non Executive Director

4 Encik Mohammad Zainal Non Independent 17 Dec 2004 - 15/15Bin Shaari Non Executive Director

5 Tuan Haji Abdul Kadir Independent 10 Mar 2005 - 13/15Bin Md Kassim Non Executive Director

6 Dato' Ahmad Bin Haji Hashim Non Independent 26 Oct 2005 - 13/15Non Executive Director

7 Dato' Michael Lim Heen Peok Independent 15 Sep 2006 - 8/8Non Executive Director

8 Dato' Mohd Izzaddin Bin Idris Non Independent 15 Sep 2006 - 6/8Non Executive Director

9 Encik Badrul Feisal Bin Non Independent 12 Apr 2004 7 Nov 2006 8/8Abdul Rahman Non Executive Director

10 Lt. Gen (R) Dato' Seri Independent 12 Apr 2004 8 Sep 2006 7/7Mohamed Daud Bin Abu Bakar Non Executive Director (Retired by virtue of

Section 129 of theCompanies Act, 1965)

11 Datuk Kisai Bin Rahmat Executive Director 1 Jan 2006 31 July 2006 5/5


The profiles of the directors are set out on pages 24 to 31 of theAnnual Report.

Board meetings for the Company and its subsidiaries arescheduled in advance before the start of each calendar year and

circulated to all Board Members at the beginning of each year.This would enable the Directors to plan ahead and ensureattendance at Board meetings. Additional meetings or SpecialBoard meetings are convened whenever necessary when thereare urgent and important decisions to be made.

BOARD COMPOSITION ANDBALANCE

The Board consists of eight (8) members with the Chairman being

a Non-Independent Non-Executive Director, three (3) Non-

Independent Non-Executive Directors, three (3) Independent Non-

Executive Directors and one (1) Executive Director who is the

Managing Director.

As in the previous year, Tuan Haji Abdul Jabbar Bin Abdul Majid

is the Company's Senior Independent Director to whom

concerns pertaining to the Group may be conveyed by

shareholders and the public.

INDEPENDENCE ANDCONFLICT OF INTEREST

The Directors are required to make written declarations and it is

their responsibility to declare whether they have a potential or actual

conflict of interest in any transaction. Where issues involve conflict

of interest, the interested Directors abstain from discussing or

voting on the matter.

SUPPLY OF INFORMATION

The Board has full access to all information pertaining to the

Group's business affairs to enable the Board to discharge its

responsibilities effectively.

In general, the agenda, board papers and minutes of previous

meetings of the Board and Board Committees including minutes of

Board meetings of subsidiary companies are circulated in advance

to the Board before a Board meeting. The agenda for every

meeting permits the Board members to review the contents of

meetings and assists in providing the Chairman a better and

efficient conduct of the proceedings at the Board meetings.

The Board has full access to the Company Secretary who is

available to provide the Directors with the appropriate advice and

services and also to ensure that the relevant procedures are

followed and rules and regulations are complied with. The Board is

from time to time, updated on any changes in Laws and other

regulatory requirements.

Senior Management as well as professionals and external advisors

are from time to time invited to attend Board meetings to deliberate

and clarify issues on the subject matter concerned.

POLICY ON DIRECTORAPPOINTMENTS

The Board Nomination & Remuneration Committee reviews all newappointments by taking into consideration the skill sets required bythe Company and the Group.

Board Members are appointed through a formal and transparentselection process that is consistent with the Articles of Associationof the Company and Guiding Principles for Appointment ofDirectors.

New directors are required to undergo familiarisation programmes,plant visits and briefings to get a better understanding of thePROTON Group, its operations and the automotive industry.

The Board Nomination & Remuneration Committee annuallyreviews the mix of skills and experience of the Directors to ensurethat the Board has the right balance and effectiveness.


RE-ELECTION OF DIRECTORS

All Directors including the Executive Director are subject to

retirement by rotation at least once in every three years and are

eligible for re-election. In accordance with the Articles of

Association, 1/3 of the Directors shall retire from office at each

Annual General Meeting.

Any new appointed director shall hold office only until the next

Annual General Meeting of the Company and shall be eligible for

re-election under Article 111. Directors who are over seventy (70)

years of age are required to submit themselves for retirement

annually at the Annual General Meeting, unless the Director is re-

appointed by way of special resolution in accordance with Section

129 (6) of the Companies Act, 1965.

At the forthcoming Annual General Meeting of PROTON Holdings

Berhad, the following Directors who retire have offered themselves

for re-election:

(i) Pursuant to Article 104

1. Encik Mohammad Zainal Bin Shaari

2. Tuan Haji Abdul Kadir Bin Md Kassim

(ii) Pursuant to Article 111

1. Dato' Michael Lim Heen Peok

2. Dato' Mohd Izzaddin Bin Idris

None of the Directors are subject to retirement pursuant to Section

129 of the Companies Act, 1965 at the forthcoming Annual

General Meeting.

BOARD COMMITTEES

The Board has delegated specific responsibilities to five sub-

committees, namely the Board Audit Committee, Board

Nomination & Remuneration Committee, Board Risk Management

Committee and Board Disciplinary Committee, which assist the

Board in overseeing the affairs of the Group and have been

entrusted with specific responsibilities and authority and report to

the Board with recommendations.

On 17 April 2007, the Board established an Executive Committee

primarily to assist the Management in addressing issues relating to

the implementation and monitoring of several key projects as well

as addressing issues relating to the identification of suitable

candidates to fill several key positions at PROTON.

The above Committees have the authority to examine specific

issues and report to the Board with their recommendations. The

responsibility of decisions on all matters ultimately lies with the

Board as a whole.


BOARD AUDIT COMMITTEE

The composition of the Board Audit Committee and their respective attendance record of meetings for the financial year ended 31 March

2007 are as follows:


1 Tuan Haji Abdul Jabbar Chairman - 10 Mar 2005 - 8/8

Bin Abdul Majid Independent

Non Executive Director

2 Encik Mohammad Zainal Member - 10 Mar 2005 - 6/8

Bin Shaari Non Independent


3 Tuan Haji Abdul Kadir Member - 10 Mar 2005 - 7/8

Bin Md Kassim Independent


4 Dato' Michael Lim Heen Peok Member - 29 Nov 2006 - 3/3

Independent



During the financial year, the Board Audit Committee of PROTON

Holdings Berhad undertook the following activities:

(a) Assisted the Board in discharging its statutory duties and

responsibilities relating to accounting and reporting practices

of the Company and the Group in accordance with Generally

Accepted Accounting Practices.

(b) Reviewed the external audit terms of engagement, the audit

strategy, the proposed audit fee and the achievement of the

agreed upon reporting timeframes for the audit of the financial

statements.

(c) Reviewed the external audit reports and discussed any

problems and reservations arising thereon.

(d) Reviewed the internal audit plan, methodology, functions and

resources.

(e) Reviewed major findings on internal audit reports and

management response.

The Terms of Reference of the Board Audit Committee are set out

below.

COMPOSITION

The Committee shall be appointed from amongst the Board and

shall:-

(i) comprise no fewer than three members;

(ii) a majority of the members must be independent directors; and

(iii) at least one member must be a member of the Malaysian

Institute of Accountants or if he is not, then he must be a

person who complies with Paragraph 15.10 of Bursa Malaysia

Securities Berhad's Listing Requirements.

The Chairman, who shall be elected by the members of the

Committee, shall be an independent director.

No alternate director may be appointed as a member of the Board

Audit Committee.

The Board will review the terms of office and the performance of

the Board Audit Committee and its members at least once every

three years.

FUNCTIONS AND DUTIES

The functions and duties of the Board Audit Committee shall be to:-

(a) Review and report to the Board of Directors on the following:-

• with the External Auditors, the audit plan;

• with the External Auditors, the External Auditor's

evaluation of the system of internal control;

• with the External Auditors, the External Auditor's audit

report;

• the assistance given by the Company's employees to the

External Auditors;

• the adequacy of the scope, functions and resources of

the internal audit functions and that it has the necessary

authority to carry out its work, and the performance of the

members of the internal audit function;

• the internal audit programme, processes, the results of

the internal audit programme, or investigation undertaken

and whether or not appropriate action is taken by the

management on the recommendations of the internal

audit function;

• the quarterly results and year-end financial statements,

prior to the approval by the Board of Directors, focusing

particularly on:-

(i) changes in or implementation of major accounting

policy;

(ii) significant and unusual events;

(iii) compliance with accounting standards and other

legal requirements; and

(iv) accuracy and adequacy of the disclosure of

information essential to a fair and full presentation of

the financial affairs of the Group;

• any related party and conflict of interest situation that may

arise within the listed issuer or group including any

transaction, procedure or course of conduct that raises

questions of management integrity;

• promptly report to Bursa Malaysia Securities Berhad on

any matter reported by it to the Board of the Company

which has not been satisfactorily resolved resulting in a

breach of the Listing Requirements of Bursa Malaysia

Securities Berhad;

• submit to the Board a Report on the summary of activities

of the Board Audit Committee in the discharge of its

functions and responsibilities in respect of each financial

year.

(b) Consider the appointment of the external auditor, the audit fee

and any questions of resignation and dismissal.


MEETINGS

The Committee shall hold meetings on at least four occasions each

year, although additional meetings may be called, as and when

necessary, by the Chairman of the Committee. These meetings will

usually be:-

• prior to the current year's audit;

• upon completion of the External Auditor's interim examination;

• prior to the meeting of the full Board to approve the financial

statements;

• prior to the announcement of the quarterly results;

• upon the request of any member of the Committee or the

External Auditors, the Chairman of the Committee shall

convene a meeting of the Committee to consider the matters

brought to its attention;

• at least once a year, the Committee shall meet with the

External Auditors without any Executive Directors present.

ATTENDANCE

In order to form a quorum in respect of a meeting of an audit

committee, the majority of members present must be independent

directors. The Chairman may request that directors and members

of the management, the Internal Auditors and representatives of the

External Auditors be present at meetings of the Committee.

MINUTES

The Company Secretary shall be the Secretary to the Committee

and shall be present at all meetings to record minutes.

Minutes of each meeting shall be prepared and entered into the

books provided for the purpose and sent to the Committee

members and will be made available to all Board members. The

Minutes shall be signed by the Chairman of the Committee.

INTERNAL AUDIT FUNCTION

The Group uses the services of the Group Internal Audit Division to

accomplish its internal audit requirements. The Group Internal Audit

Division reports to the Board Audit Committee on matters

concerning the Group and assists the Board of Directors in

monitoring and managing risks and internal controls.

The Group Internal Audit Division reviews internal controls related to

all key activities of the Group and recommends improvements in

controls and procedures. The Group Internal Audit Division is

independent of the activities it audits and performs with impartiality

and due professional care. The findings of the Group Internal Audit

Division are reported to the Board Audit Committee.

The Board Audit Committee approves the internal audit plan of

the Group Internal Audit Division each year. The scope of the

internal audit covers the audits of all units and operations,

including subsidiaries.

During the year, the Group Internal Audit Division serves to ensure

control measures are adequate and effective in mitigating key risks

and that they are monitored. The monitoring process will form the

basis for continually improving the risk management process in the

context of the Group's overall goals.


BOARD NOMINATION & REMUNERATION COMMITTEE

The Board Nomination & Remuneration Committee reviews new

director appointments of the Group and the balance and

effectiveness of the boards of directors, taking into account the

required mix of skills, experience and other qualities, before making

recommendations to the Board.

The Committee is empowered to conduct periodic reviews on the

overall remuneration policy and package of the Executive and Non-

Executive Directors and Senior Management of the Group for

recommendation to the Board.

The authority and scope of coverage of the Nomination and

Remuneration Committee is over the PROTON Group which


includes subsidiaries and relevant associates and other investee

companies.

The Board Nomination & Remuneration Committee is made up

entirely of Non-Executive Directors, with the majority consisting of

Independent Non-Executive Directors.

Appointments to the Committee shall be for a period of three (3)

years which may be extended provided that the majority of the

Committee members remain independent.

The Committee has met four (4) times during the financial year.

The Composition of the Board Nomination & Remuneration Committee is as follows:


1 Dato' Mohammed Azlan Chairman - 10 Mar 2005 - 4/4

Bin Hashim Non Independent


2 Encik Ahmad Tajuddin Member - 29 Aug 2005 - 4/4

Bin Abdul Carrim Independent

3 Encik Md Ali Bin Md Dewal Member - 29 Aug 2005 - 3/4

Independent

4 Dato' Michael Lim Heen Peok Member - 13 Nov 2006 - 2/2

Independent


5 Encik Badrul Feisal Member - 10 Mar 2005 7 Nov 2006 2/2

Bin Abdul Rahim Non Independent



1 Tuan Haji Abdul Kadir Chairman - 29 Sep 2005 - 4/4

Bin Md Kassim Independent


2 Datuk Tan Kim Leong Member - Independent 29 Aug 2005 - 4/4


BOARD RISK MANAGEMENT COMMITTEE

The Board Risk Management Committee assists the Board to

oversee the overall management of all risks faced by the Group's

business. Further details of the activities of the Board Risk

Management Committee are spelt out in the Statement on Internal

Control.

The Board Risk Management Committee is made up entirely of

Non-Executive Directors and third party members (not being

directors of the Company) who are appointed by the Board from

time to time as follows:

The composition of the Board Risk Management Committee is

reviewed annually by the Board on the recommendation of the

Board Nomination and Remuneration Committee.

The BDC comprises members all of whom are non executive directors as follows:


1 Dato' Mohammed Azlan Chairman - 7 May 2006 - 5/5

Bin Hashim Non Independent


2 Tuan Haji Abdul Jabbar Independent 7 May 2006 - 5/5

Bin Abdul Majid Non Executive Director

3 Tuan Haji Abdul Kadir Independent 7 May 2006 - 5/5

Bin Md Kassim Non Executive Director

4 Dato' Ahmad Bin Haji Hashim Non Independent 7 May 2006 - 4/5



PROTON BOARD EXECUTIVE COMMITTEE (“EXCO”)

On 17 April 2007, the Board establised an Executive Committee

primarily to assist the Management in addressing issues relating to

the implementation and monitoring of several key projects as well

as addressing issues relating to the identification of suitable

candidates to fill several key positions at PROTON.

BOARD DISCIPLINARY COMMITTEE (“BDC”)

The BDC is a platform for the PROTON Group to deal primarily

with disciplinary issues. The BDC is part of the structural

mechanism for the handling of cases that may arise from the

introduction of the Whistleblower and Assets Declaration Policies.

The BDC has the power to initiate investigations, consider and

take appropriate action thereof on any case referred to it by any

party either received orally or in writing.

The objectives of the re-establishment of the said EXCO is to assist

the Management in addressing issues relating to the

implementation and monitoring of several key projects, including

but not limited to PROTON’s Strategic Business Plan, Annual

Management Plan, PROTON’s Business Turnaround Plan and also

The Executive Committee which has met three (3) times since its establishment comprises three (3) representatives from amongst the

PHB Board members and one (1) Senior Management representative as follows:

No Name Of Director Designation Date of Appointment

1 Dato' Mohammed Azlan Bin Hashim Chairman 17 Apr 2007

Non Independent


2 Dato' Haji Syed Zainal Abidin Managing Director 17 Apr 2007

B Syed Mohamed Tahir

3 Dato' Michael Lim Heen Peok Independent 17 Apr 2007


4 Dato’ Mohd Izzaddin Bin Idris Non Independent 17 Apr 2007



DIRECTORS' TRAINING

All Directors have successfully completed the Mandatory

Accreditation Programme conducted by the Research Institute of

Investment Analysts Malaysia as imposed by Bursa Malaysia

Securities Berhad (“Bursa Securities”).

Despite repeal of Bursa Securities' Continuing Educational

Programme with effect from 1 January 2005, the Directors

continue to identify and attend appropriate seminars and courses

to keep abreast of changes in legislation and regulations affecting

the Group.

The Company has arranged various in-house training programmes

and luncheon talks on topics relevant to the Company which were

attended by both the members of the Board and Senior

Management.

to address issues relating to identifying suitable candidates to fill

several key positions at PROTON. It is to be noted that the

functions of the EXCO shall not overlap that of other Board

Committees, such as the Board Nomination & Remuneration

Committee.

Subject to the resolutions of the Board from time to time, the

provisions contained in the Terms Of Reference and the

Memorandum and Articles of Association of the Company, the

EXCO may exercise any of the powers, authorities and discretions

for the time being vested in the Board with regard to the affairs and

business of the Company.

Details of the total remuneration of the Directors of PROTON Holdings Berhad for the financial year ended 31 March 2007 are as follows:

Directors Basic Salaries Fees and Benefits Bonus and Other Employee Benefits Allowances in Kind Total

Executive Director RM1,276,278 - RM63,000 RM1,339,278

Non-Executive Directors - RM1,533,125 RM35,993 RM1,569,118

TOTAL RM1,276,278 RM 1,533,125 RM98,993 RM2,908,396

Remuneration Number of DirectorsRange of Total Remuneration Executive Non-Executive Total

Below RM50,000 - 2 2

RM50,001 - RM150,000 - 3 3

RM100,001 - RM500,000 - 3 3

RM500,001 - RM1,000,000 2 1 3

TOTAL 2 9 11


DIRECTORS' REMUNERATION

The Board Nomination & Remuneration Committee is responsible for

reviewing the performance of the Executive Directors and

recommending to the Board the remuneration package and reward

structure. The Board as a whole determines the remuneration of the

Executive and Non-Executive Directors. Directors do not participate

in any discussions or decisions concerning each individual’s

remuneration. In the case of the Executive Director, the

remuneration is structured to link rewards to corporate and

individual performance through key performance indicators

comprising fixed and performance-based rewards.

The level of remuneration of the Non-Executive Directors reflects

the experience and level of responsibilities undertaken by the

Director concerned. The Non-Executive Directors are paid annual

fees and attendance allowances in accordance with the number of

meetings attended. In addition, the Non-Executive Directors are

each provided with the use of a car.

Non-Executive Directors fees are paid upon shareholders approval

at each Annual General Meeting.

The Board Remuneration Committee carries out reviews when

appropriate and refers to remuneration surveys and consultants to

assist in determining the appropriate level of reward, which is

competitive and consistent with the corporate objectives. This is

necessary in order to attract and retain professionals with the

qualities needed to manage the Group successfully.

FINANCIAL REPORTING

The Board is committed to providing a balanced, clear and

meaningful assessment of the financial performance and

prospects of the Group to shareholders, the investor community

and the regulatory authorities. Shareholders and other stakeholders

are kept abreast of the Group's performance through the timely

announcement of the quarterly financial results and accompanying

press releases.

The Board Audit Committee assists the Board to oversee the

financial reporting processes and the quality of its financial

reporting. Quarterly financial results and annual financial statements

are reviewed by the Board Audit Committee to ensure adequacy

and completeness of information prior to the Board's approval. To

enhance quality of the Group's financial reporting, the external

auditors will be conducting quarterly reviews of the Group's

quarterly results in addition to the year-end audit.

DIRECTORS RESPONSIBILITYSTATEMENT

The Board is required by the Companies Act, 1965, to ensure that

financial statements prepared for each financial year have been

made out in accordance with the applicable approved accounting

standards and give a true and fair view of the state of affairs of the

Company and the Group at the end of the financial year and of the

results and cash flow of the Company and the Group for the

financial year.

The Board is responsible for ensuring that the Company keeps

accounting records which disclose with reasonable accuracy, the

financial position of the Company and the Group and that the

financial statements comply with the Companies Act, 1965.

In preparing the financial statements the Board has;

• Selected suitable accounting policies and applied them

consistently

• Made judgements and estimates that are reasonable and

prudent;

• Ensured that all applicable accounting standards have been

followed; and

• Prepared financial statements on the going concern basis as

the Directors have a reasonable expectation, having made

enquiries, that the Group has adequate resources to continue

in operations for the foreseeable future.

INTERNAL CONTROLS

The Board acknowledges its overall responsibility for maintaining a

system of internal controls that provides assurance of effective and

efficient operations and compliance with laws and regulations and

also its internal procedures and guidelines. The size and complexity

of the operations may give rise to risks of unanticipated or

unavoidable losses.

The system of internal controls is designed to provide reasonable

but not absolute assurance against the risk of material errors,

frauds or losses occurring. The Board Audit Committee reviews the

effectiveness of the system of internal controls, which covers

financial, operational and compliance controls, and also risk

management.


RELATIONSHIP WITH AUDITORS

The Board Audit Committee maintains an appropriate transparent

relationship with both the Group’s external auditors and internal

auditors. The external auditors are invited to attend Board Audit

Committee meetings and present their audit findings when the

Company's annual financial results are considered. The Board

Audit Committee meets with the external auditors at least once a

year without the presence of the Executive Director and

Management.

DIALOGUE BETWEEN THECOMPANY ANDSHAREHOLDERS / INVESTORS

The Board recognises the importance of transparency and

accountability to its shareholders and investors. Different channels

of communication are optimised to provide shareholders and

investors with a balanced and complete view of the Group’s

performance and the issues faced by its businesses in a

competitive environment amidst a changing landscape.

The issue of the Annual Report is an important medium of

information for the shareholders and investors whereas the Annual

General Meeting of the Company is the main forum for

communication and dialogue with the shareholders. Shareholders

are encouraged to actively participate and interact with the Board

and members of the Senior Management pertaining to the agenda

items during the general meeting.

In addition, the Chairman briefs the shareholders on the company's

operations for the financial year. Senior Management and the

external auditors are present to respond to questions and queries

to ensure a high level of accountability and transparency of the

business goals, strategies and operations.

For investors, regular dialogues are held with financial analysts and

fund managers representing institutional and individual

shareholders through the investor relations programme.

Besides the Annual Report, the Board ensures timely

announcements are made to Bursa Malaysia Securities Berhad

and disseminates clear, accurate, and sufficient information to

enable the shareholders and investors to make informed decisions.

The Investor Relations Unit also proactively disseminates

appropriate and relevant information to the investor community and

attends to whatever queries they may have.


PROTON 2007 ANNUAL REPORT 111additional compliance information

NON-AUDIT FEES

During the financial year, the amount of non-audit fees paid and payable to the external auditors by the Group are as follows:

External Auditors 2007 2006

RM'000 RM'000

PricewaterhouseCoopers Malaysia 2,214 1,373 Member firm of PricewaterhouseCoopers International Limited, 393 362 (a separate and independent legal entity from PricewaterhouseCoopers Malaysia)

Total 2,607 1,735

MATERIAL CONTRACTS

Perusahaan Otomobil Nasional Sdn Bhd ("PONSB"), a wholly

owned subsidiary of the Company, had on 30 January 2007

entered into a conditional sale & purchase agreement ("SPA") with

Tracoma Holdings Berhad ("Tracoma") for PONSB and / or its

nominee(s) to acquire from Tracoma, the remaining 49% equity

interest in PT Proton Tracoma Motors comprising 10,780,000

ordinary shares of USD1.00 each for a total cash consideration of

USD10,133200 or USD0.94 per share.

The above acquisition of PT Proton Tracoma Motors was

completed on 10 August 2007.

Announcements to Bursa Malaysia Securities Berhad were made

in accordance with the Listing Requirements.

RECURRENT RELATED PARTY TRANSACTIONS OF A

REVENUE OR TRADING NATURE

By Resolution of the Extraordinary General Meeting of the

Company held on 8 September 2006, a mandate was granted by

the shareholders for recurrent related party transactions of a

revenue or trading nature, to be entered into during the period 8

September 2006 to 6 September 2007 (being the date of the

forthcoming AGM) between the Company or its subsidiaries and

related parties, the latter being based on an estimate. As required,

below is a listing of the said transactions as having been actually

entered during the period for the financial year ended 31 March

2007.

PROTON 2007 ANNUAL REPORT112additional compliance information

Transacting Related Party Nature of Transaction Company Actual Valuewithin Group

1 Lub Dagangan Sdn. Bhd. Purchase of lubricants PONSB 2,314,647

2 Petronas Dagangan Sdn. Bhd. Purchase of lubricants PESB 7,917,305

3 Petronas Dagangan Sdn. Bhd. Purchase of lubricants PONSB 2,063,853

4 DZ Automobile Sdn. Bhd. Sale of goods PESB 11,205,803

5 EON Berhad Sale of goods PESB 1,005,624,614

6 EON Berhad Sale of parts PPCSB 97,996,196

7 GKN Driveline Malaysia Sdn. Bhd. Purchase of parts PONSB 41,552,686

8 Johnson Controls Auto Holding Sdn. Bhd. Purchase of goods PPCSB 942,810

9 Johnson Controls Auto Seating Sdn. Bhd. Purchase of goods PONSB 141,342,104

10 Johnson Controls Auto. Interior Sdn. Bhd. Purchase of goods PPCSB 498,549

11 Johnson Controls Auto. Interior Sdn. Bhd. Purchase of goods PONSB 30,353,303

12 PPCSB Sale of goods PONSB 13,381,836

13 PPCSB Purchase of parts PONSB 497,482

14 PPCSB Purchase of parts PESB 75,087,385

15 PPCSB Commission/Royalties received PONSB 3,988,344

16 PPCSB Purchase of parts PCUKL 5,367,144

17 PPCSB Purchase of parts PCA 3,332,176

18 PPCSB Purchase of parts P S'pore 1,021,401

PROTON 2007 ANNUAL REPORT 113additional compliance information

Transacting Related Party Nature of Transaction Company Actual Valuewithin Group

19 Hicom Teck See Manufacturing Purchase of parts PPCSB 1,672,980

(M) Sdn. Bhd.

20 Hicom Teck See Manufacturing Purchase of parts PONSB 136,346,551

(M) Sdn. Bhd.

21 Oriental Summit Industries Sdn. Bhd. Purchase of parts PPCSB 1,328,526

22 Oriental Summit Industries Sdn. Bhd. Purchase of parts PONSB 62,790,175

23 PHN Industry Sdn. Bhd. Purchase of parts PONSB 55,329,317

On 8 June 2007, the Group obtained exemption from Bursa

Malaysia Securities Berhad (“Bursa”) from disclosing Related Party

Transactions with the Khazanah Nasional Berhad Group of

companies. As a result, the Company is not required to seek a

renewal of the said general mandate at the forthcoming Annual

General Meeting of the Company.

Further, Bursa had on 14 December 2006 amended the Listing

Requirements pertaining to related party transactions whereby the

threshold for a major shareholder is now increased from 5% to 10%

of the aggregate nominal amount of voting shares in a company

provided that the said shareholder is not the largest shareholder of

the Company.

Notes:PONSB Perusahaan Otomobil Nasional Sdn. Bhd.PESB PROTON Edar Sdn. Bhd.PPCSB PROTON Parts Centre Sdn. Bhd.PCUKL PROTON Cars (UK) Ltd.PCA PROTON Cars Australia Pty. Ltd.P’SPORE PROTON Singapore Pte. Ltd.

PROTON 2007 ANNUAL REPORT114statement on internal control

Directors of listed companies are required to make disclosures in

their annual reports on the state of internal control in accordance

with the Revamped Listing Requirements of Bursa Malaysia

Securities Berhad. Bursa Malaysia's Statement on Internal Control:

Guidance for Directors of Public Listed Companies (“Guidance”)

provides guidance for compliance with these requirements. The

Board's Internal Control Statement, which has been prepared in

accordance with the Guidance is set out below.

BOARD RESPONSIBILITY

The Board recognises the importance of sound internal controls

and risk management practices for good corporate governance.

The Board has an overall responsibility for the Group's system of

internal controls and its effectiveness, as well as reviewing its

adequacy and integrity. The Group's system of internal control is

designed to manage the principal business risks that may impede

the Group from achieving its business objectives. The system, by

its nature, can only provide reasonable but not absolute assurance

against any material misstatement or loss occurrence.

Statement On Internal Control

The Malaysian Code on Corporate Governance requires listedcompanies to maintain a sound system of internal control tosafeguard shareholders' investments and the Group's assets.

PROTON 2007 ANNUAL REPORT 115statement on internal control

RISK MANAGEMENT

Risk management is regarded by the Board of Directors (Board) to

be an integral part of the Group's operations with the objective of

maintaining a sound internal control system and ensuring its

continuing adequacy and integrity. As part of PROTON Group's

continuous efforts to enhance the level of risk management culture

and practices, the company continues to embed the risk

management process in the conduct of the business operations to

provide reasonable assurance of achieving the Group's business

objectives while at the same time enhancing shareholder's value.

The Group Risk Management Unit (GRMU) is responsible for

ensuring that an appropriate risk management framework exists

within the Group and is effectively implemented to manage the key

risks exposures of the organisation on an on-going basis. To further

inculcate the risk management culture within the company, the

Board has approved the revised risk management policy (Policy) to

ensure potential critical risks that organisations are exposed to are

managed effectively under the prevailing operating environment.

The Policy provides a clear guideline in respect of the key areas

where risk assessments are required to be performed at PROTON

Group. GRMU together with the Risk Management Champions

have undertaken a number of risk assessments during the year,

specifically on risks related to strategic, financial, business

environment, operations and vehicle development projects. GRMU

has facilitated in the process of risk identification, reporting,

mitigation and continuing resolution of these issues. If deemed

appropriate, these risks are escalated to the Group Risk

Management Committee (GRMC) for review and advice.

The GRMC, which comprises of Senior Management, is

responsible for overseeing the risk management implementation,

regular updating of the Group’s risk profiles and improving the

implementation methodology. The committee also provides

direction to the GRMU in carrying out its activities.

At GRMC, the Committee deliberates and decides the Group's

major risks to be escalated for the attention of the Board Risk

Management Committee (BRMC).

The BRMC was established to deliberate major risks highlighted by

the Management and assist the Board in reviewing PROTON's risk

policies and strategies.

For the financial year ended 31 March 2007, the GRMC and

BRMC have held quarterly meetings in accordance to the Charter.

ASSURANCE MECHANISM

Apart from risk management activities, the Board and Management

have established numerous processes for identifying, evaluating

and managing the significant risks faced by the Group. They

continue to strive in enhancing and implementing the internal

control system to manage those risks that could affect the Group's

growth and financial viability. These processes include updating the

system of internal controls when there are changes to the business

environment or regulatory guidelines.

PROTON 2007 ANNUAL REPORT116statement on internal control

The key elements of the Group's control environment include:

BOARD COMMITTEES

Board Committees were established by the Board to assist the

Board in the execution of its responsibilities to provide oversight on

the effectiveness of the Group's operations. The responsibilities

and authority of the Committees are governed by specific terms of

reference and these Committees are accountable to the Board.

The Board Committees are:

• Audit Committee

• Nomination and Remuneration Committee

• Risk Management Committee

• Disciplinary Committee

The details of the above mentioned Board Committees are set out

in the Statement of Corporate Governance.

BOARD OF AUDIT COMMITTEE

The Board has delegated the duty of reviewing and monitoring the

effectiveness of the Group's system of internal control to the Board

of Audit Committee (BAC). The BAC, comprising a majority of

independent non-executive directors, brings with them wide

ranging in-depth experience, knowledge and expertise.

The BAC assumes the overall duties of reviewing with the external

auditors their audit plan, audit report, as well as their findings and

recommendations on internal controls highlighted annually in the

Internal Control Memorandum. Throughout the financial year, the

BAC was updated on the development of the Malaysian Financial

Reporting Standards, as well as legal and regulatory requirements.

It also reviews the effectiveness of the internal audit function with

particular emphasis on the scope and quality of audits, resources

as well as independence of the Group Internal Audit Department (GIAD).

The BAC continues to meet regularly and have full and unimpeded

access to the internal and external auditors and all employees of

the Group.

Further information relating to the activities of the BAC are set out

in the Statement of Corporate Governance.

ORGANISATION STRUCTURE AND MANAGEMENT

COMMITTEES

An organisation structure, which is aligned to business and

operations requirements and led by Heads of Divisions with clearly

defined lines of responsibility, accountability and levels of authority,

is in place to assist in the implementation of the Group's strategies

and day-to-day businesses.

Various functional Committees were set up at the management

level to ensure the Group's actions and operations are properly

aligned towards achieving the organisation's goals and objectives.

GROUP INTERNAL AUDIT

GIAD continues to independently monitor compliance with the

internal policies and procedures and the effectiveness of the

internal control systems and highlights significant findings for

corrective actions by the line management.

The annual audit plan, which covers the entity and its subsidiary

companies, and established primarily on a risk-based approach, is

PROTON 2007 ANNUAL REPORT 117statement on internal control

reviewed and approved by the BAC annually before the

commencement of the following financial year and a quarterly work

status update is given by GIAD. GIAD regularly reviews the

approved annual audit plan to ensure significant risk areas are

given adequate audit focus. However, GIAD does not review the

internal control system of its associated companies and joint

controlled entities which fall within the control of their major

shareholders. Nonetheless, the interests of PROTON are served

through representation on the Board of Directors of the respective

associated companies and joint controlled entities.

On a monthly basis, GIAD also updates the Management

Committee on the status of corrective actions taken by the line

management arising from the audit findings highlighted by both

GIAD and the external auditors.

Further information relating to the activities of GIAD functions are set

out in the Statement of Corporate Governance.

OTHER KEY ELEMENTS OF INTERNAL CONTROL

The other key elements of the Group's internal control systems are

described below:-

• Defined delegation of responsibilities to committees and

management of Head Office and operating units, including

authorisation levels for various aspects of the business which

are set out in the Limits of Authority;

• Documented internal policies and procedures as set out in the

Group Policies and Procedures and certification by ISO

9001:2000 of the Quality System Procedures for the

Company and major subsidiaries within the Group;

• Quarterly financial statements and the Group's performance

are deliberated by the BAC, which subsequently presents

them to the Board for their review, consideration and approval;

• Management Committee meetings are held on a regular basis

to identify, discuss and resolve operational, financial and key

management issues;

• A comprehensive budgeting process where the annual

budgets are approved by the Board and reviewed at mid year;

• The Board receives and reviews monthly reports from

Management on key strategic and operational issues and

provides direction to management;

• Regular visits to operating units and subsidiaries by Senior

Management;

• Measurement of each department's performance against a set

of common criteria via internal survey questionnaires;

• Continuous training efforts to enhance competency of the

workforce; and

• Formal employee appraisal system for effective coaching and

evaluation of employee performance. During the year, Key

Performance Indicators (KPIs) had been established to gauge

the performance of the respective business and functional

units within the Group.

CONCLUSIONS

For the Financial Year under review, after due and careful inquiry

and based on the information and assurance provided, the Board

is satisfied that the key elements of internal control are in place.

Nevertheless, identified areas of concerns are accorded closer

attention and more regular monitoring to ensure key internal

controls are adequate and effective to continually safeguard

shareholders' investment and the Group's assets.

PROTON 2007 ANNUAL REPORT118risk management

RISK MANAGEMENT FRAMEWORK

Recognizing the importance of a sound risk culture in PROTON,

a common risk language and framework were established and

implemented, which have become the guiding principles for the

business divisions, departments and subsidiaries.

Risk Management

PROTON Group acknowledges the need for a sound risk managementprocess and practices.

To ensure that a sound risk management process & practices areimplemented within the PROTON Group in accordance to the MalaysianCode on Corporate Governance, the Board delegated the responsibility tomanage the Group's risks to the Board Risk Management Committee.This responsibility is supported by the Group Risk Management Committeecomprising the Heads of key divisions in PROTON Group.

PROTON 2007 ANNUAL REPORT 119risk management

The framework, process and practices provide clear guidelines

on the following:

• RISK POLICY AND STRATEGY

Risk Management Policy

This year in review, the risk management policy was

significantly improved and enhanced. Among the critical

points in the policy relate to risk assessment requirement,

whereby four (4) obligatory business/proposal papers which

require risk assessment were identified. These included

proposal papers on new product development, new

investment and new market entry as well as major business

and strategic planning exercises.

This requirement, along with the robust risk operation

systems and management, will enable early detection,

evaluation and management of risks in the company.

• RISK ORGANIZATION AND STRUCTURE

Board Risk Management Committee (BRMC)

The BRMC, which was established in 2003, was formed with

the main function of overseeing the implementation and

operations of the Risk Management Framework in the

PROTON Group. This year in review continued to see the

committee meeting periodically in accordance with the

BRMC charter. During these meetings, risk reports were

updated, and various discussions were held to ensure that

the risk management framework, process and practices are

robust and effectively implemented organisation wide.

Group Risk Management Committee (GRMC)

The GRMC, comprising Senior Management representing

the key business value chain, was initiated as the supporting

arm of the BRMC. Its responsibility, among others, is to

identify and evaluate principal risks and evaluate the

practicality of proposed risk mitigation actions. The Group

met quarterly in the period under review.

Group Risk Management Unit (GRMU)

The GRMU continued to vigilantly inculcate the risk

management culture within the PROTON Group through

Risk awareness and profiling workshops. In addition, several

facilitations and review sessions were held to assist the

group during the AMP 06/07 session. Special risk

assessments were also performed and monitored

specifically on projects, products, suppliers and quality.

Risk Management Units (RMU) of major subsidiaries and

business divisions

The risk management team of major subsidiaries and

divisions continued to perform self risk assessments and

regular mitigation status updates. The high risk events

deemed to be affecting the Group were highlighted to the

GRMC for review and advice.

The Risk Management Governance Structure of PROTON

Group and key roles and responsibilities of the committees

are illustrated in the diagram as follows:

PROTON 2007 ANNUAL REPORT120risk management

REPORTING

FLOW MARKET

Liaison

Liaison

GROUP RISK

MANAGEMENT UNIT (GRMU)

BOARD OF DIRECTORS

BOARD RISK MANAGEMENT COMMITTEE (BRMC)

GROUP CEO/MANAGING DIRECTOR

GROUP RISK MANAGEMENT COMMITTEE (GRMC)

ALL BUSINESS UNITS & PROTON GROUP OF COMPANIES

Subsidiaries

Corporate Direction & Approval

Board of Directors

Group Advice

Liaison

Group Facilitation

Endorsement ofBRMC papers

Local Facilitation

ManagementAdvice

Liaison

Corporate Direction & Approval

Board Risk Management Committee (BRMC)

Board of Directors

Division / Business units withinPROTON Holdings Berhad / PONSB

Group Risk Management Committee (GRMC)

MCM

Subsidiaries

BRMC’s duties and responsibilities are supported by the Group Risk Management Committee (GRMC) which is to provide an oversight role on the Risk Management process and practices in PROTON Group

1. Supervise the enforcement of Risk Management Framework and review from time to time the mechanism used in the Risk Management process to ensure compliance with latest regulations and corporate governance best practices.2. Evaluate and identify the principal risks and ensure that control mechanism is in place to mitigate the risks.3. Review risks reports on a scheduled basis and to communicate risk concerns to Group CEO/MD for decisions and if necessary, escalate to BRMC.

Group Risk ManagementUnit (GRMU) Group CEO / MD

RMU

RISK MANAGEMENT GOVERNANCE STRUCTURE

PROTON 2007 ANNUAL REPORT 121risk management

RISK MEASUREMENT

A standard Risk Management measurement and dashboard were

developed to aid various risk management units in identifying,

rating and monitoring strategic, business environment, project,

financial and operational related risks.

Using this measurement tool, GRMU was able to consolidate the

risks into Corporate Risk Profile and Business Unit Risk Profiles.

Only key risks which could significantly impact the Group's

objectives were escalated to GRMC and BRMC for deliberation.

RISK OPERATION AND SYSTEMS

This year in review, the Group Risk Management Unit continued its

effort to further instill the Risk Management culture through training

and facilitation programs. Risk assessment and reporting were also

performed using the standard risk management format to ensure a

uniform framework for reporting and updating of risks.

PROTON in Singapore

PROTON GEN.2

PROTON 2007 ANNUAL REPORT124calendar of events

JULY 2006

• Satria Neo on display at the 39thASEAN Ministerial Meeting heldat Kuala Lumpur Convention Centre.

JULY 2006

• Visit by Australian journalists to thePROTON Centre of Excellence.

JULY 2006

• Handing-over of keys to a new Satria Neo owner.

JULY 2006

• Perak Chief Police Officer SAC (1) Datuk Aziz Bulat visits PROTON’s Tanjung Malim plant.

AUGUST 2006

• Dato' Haji Syed Zainal Abidin flags off the Satria Neo 2000km Challenge at the PROTON Centre of Excellence.

AUGUST 2006

• Class “O” Overall Champion’s of theMerdeka Millennium Endurance Raceat the Sepang Circuit.

PROTON 2007 ANNUAL REPORT 125calendar of events

SEPTEMBER 2006

• The Group’s 3rd Annual GeneralMeeting held at the PROTON Centre ofExcellence in September last year.

SEPTEMBER 2006

• Wira taxis for PUSKOPAU at Pekanbaru, Indonesia.

SEPTEMBER 2006

• The Satria GTi Club convoy trip toPhuket, Thailand.

SEPTEMBER 2006

• A1 driver Alex Yoong at the MalaysiaBook of Records Savvy Fuel EconomyDrive.

SEPTEMBER 2006

• PROTON was the Official Car for the 1st Malaysian AstronautProgramme.

OCTOBER 2006

• PROTON Bridging Communitiesinitiative at an old folks home.


OCTOBER 2006

• Dato' Haji Syed Zainal Abidin handing out goodies to orphans at PROTONTanjung Malim’s Buka Puasa.

OCTOBER 2006

• The happy winner of the HOT FM‘Finding Neo’ challenge, Noraidah binti Ariffin.

OCTOBER 2006

• Inspector-General of Police Tan Sri Musa Hassan receiving PROTON vehicles on behalf of Polis DiRaja Malaysia.

OCTOBER 2006

• A visit by PROTON staff to theChildren’s Oncology Ward, HospitalKuala Lumpur.

OCTOBER 2006

• PROTON hosting a Buka Puasa for children in Shah Alam.

OCTOBER 2006

• Members of the A1 Team Malaysiavisit PROTON in Shah Alam.


NOVEMBER 2006

• Invitees at Yayasan PROTON's OpenHouse.

NOVEMBER 2006

• Launch and Motor Show at SouthAfrica.

NOVEMBER 2006

• The PROTON Global DistributionConference 2007.

NOVEMBER 2006

• PROTON’s team getting ready forthe A1 Grand Prix at Sepang.

DECEMBER 2006

• Flag-off of Waja Performance ClubConvoy to Penang.

DECEMBER 2006

• PROTON’s Engineering division receives the Anugerah Tangan Emas Perdana Menteri.


JANUARY 2007

• PROTON staff assisting in the FloodRelief program in Johor.

JANUARY 2007

• Dato' Haji Syed Zainal Abidin and his wife meet with flood victims and reliefmembers.

JANUARY 2007

• Launch of the PROTON Waja MC3and Savvy FL at the PROTON Centre of Excellence.

JANUARY 2007

• Launch of the Satria Neo in SouthAfrica.

FEBRUARY 2007

• Stage 8 of Le Tour de Langkawifrom PROTON Shah Alam toGenting Highlands.

MARCH 2007

• PROTON launches the Savvy andGen.2 in Indonesia witnessed by H.E. Minister of Industry, Indonesia, Bapak Fahmi Idris.


MARCH 2007

• The 6th International Auto AftermarketEXPO 2007 in Japan.

MARCH 2007

• Launch of PROTON’s Showroomin Silipi, Jakarta.

MARCH 2007

• Secretary General, Ministry of International Trade and Industry, Datuk Abdul Rahman, visits the PROTONbooth at the Auto Mechanika exhibition at the Kuala Lumpur Convention Centre.

MARCH 2007

• Students attending the KPP SmartLearning Programme organisedby PROTON.

MARCH 2007

• Lotus EVE Hybrid was launchedat the Geneva Motor Show in 2007.

APRIL 2007

• Encik Ibrahim Marsidi, Managing Director, Petronas Dagangan Berhad, at “Proton Edar Servis Mesra” Launch at the Litar Sepang Petronas Station.


APRIL 2007

• Innovative Creative Circle (ICC) Convention at the PROTON Centreof Excellence.

APRIL 2007

• PROTON’s National Skills Competitionheld at the Centre of Excellence.

APRIL 2007

• Alex Yoong briefing attendees at the PROTON and HPC Track eventin Sepang International Circuit.

APRIL 2007

• Invitees at the launch of Miyazu tooling plant in Tanjung Malim by Chief Minister of Perak, YAB Dato' Sri Di-Raja (Dr.) Mohamad Tajol Rosli Mohd Ghazali.

APRIL 2007

• The national badminton players visitPROTON Shah Alam.

APRIL 2007

• Launch of the Double ServiceCampaign by Koo Kien Keat andTan Boon Heong, winners of theBadminton All-England Open.


MAY 2007

• YAB Dato' Seri Mohd Najib Tun Abdul Razak, Deputy Prime Minister, visiting the PROTON booth at Pekan Fest, Pahang.

MAY 2007

• A1 end of season party is celebratedat the PROTON Centre of Excellence.

MAY 2007

• PROTON receives an award at the Reader's Digest Trusted Brand Awards 2007 presentation.

JUNE 2007

• PROTON sponsors a visit to KualaLumpur for one of its adopted schoolsunder the Program Pintar communityproject.

JUNE 2007

• Prime Minister YAB Dato' Seri Abdullah Ahmad Badawi checking out a carat the PROTON booth at theSMIDEX exhibition.

MAY 2007

• Reader's Digest Trusted BrandAwards 2007.

PROTON in Iran

PROTON GEN.2

Statutory Financial Statements

136 Directors’ Report

139 Income Statements

140 Balance Sheets

142 Consolidated Statement of

Changes in Equity

143 Company Statement of

Changes in Equity

144 Cash Flow Statements

147 Notes to the Financial Statements

221 Statement by Directors

222 Statutory Declaration

223 Report of the Auditors

Contents

PROTON 2007 ANNUAL REPORT136directors’ report

DIRECTORS' REPORT

The Directors hereby submit their annual report to the members together with the audited financial statements of the Group and Company

for the financial year ended 31 March 2007.

PRINCIPAL ACTIVITIES

The Company is principally involved in investment holding activities.

The principal activities of the subsidiary companies, associated companies and jointly controlled entities are set out in Notes 16 to 18 of

the financial statements. There have been no significant changes in the activities of the Group and the Company during the financial year.

FINANCIAL RESULTSGroup Company

RM'000 RM'000

(Loss)/profit for the year (589,533) 233,779

DIVIDENDS

The amount of dividends paid or declared by the Company since 31 March 2006 were as follows:RM'000

In respect of the financial year ended 31 March 2006:

Final tax exempt dividend of 5.0 sen per ordinary share,

paid on 13 October 2006 27,461

The Directors do not recommend any dividend payment for the financial year ended 31 March 2007.

RESERVES AND PROVISIONS

There were no material transfers to or from reserves and provisions during the financial year except as disclosed in the financial

statements.

PROTON 2007 ANNUAL REPORT 137directors’ report

(continued)

DIRECTORS

The Directors who have held office during the period since the date of the last report are:

Dato’ Mohammed Azlan bin Hashim

Dato' Syed Zainal Abidin bin Syed Mohamed Tahir

Haji Abdul Jabbar bin Abdul Majid

Mohammad Zainal bin Shaari

Haji Abdul Kadir bin Md Kassim

Dato’ Ahmad bin Hj Hashim

Dato' Lim Heen Peok (appointed on 15.09.2006)

Dato' Mohd Izzaddin bin Idris (appointed on 15.09.2006)

Datuk Kisai bin Rahmat (resigned on 31.07.2006)

Lt Gen (R) Dato’ Seri Mohamed Daud bin Abu Bakar (retired on 08.09.2006)

Badrul Feisal bin Abdul Rahim (resigned on 07.11.2006)

In accordance with Article 104 of the Company’s Articles of Association, Mohammad Zainal bin Shaari and Haji Abdul Kadir bin Md

Kassim, retire at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election.

In accordance with Article 111 of the Company’s Articles of Association, Dato' Lim Heen Peok and Dato' Mohd Izzaddin bin Idris retire at

the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election.

DIRECTORS’ INTEREST IN SHARES AND DEBENTURES

According to the register of Directors` shareholdings, no Director in office at the end of the financial year held any interest in shares or

debentures in the Company or its related corporations.

STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS

Before the Income Statements and Balance Sheets of the Group and Company were made out, the Directors took reasonable steps:

(a) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful

debts and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for

doubtful debts; and

(b) to ensure that any current assets, other than debts, which were unlikely to realise in the ordinary course of business their values

as shown in the accounting records of the Group and Company had been written down to an amount which they might be expected

so to realise.

PROTON 2007 ANNUAL REPORT138directors’ report (continued)

STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS (CONTINUED)At the date of this report, the Directors are not aware of any circumstances:

(a) which would render the amounts written off for bad debts or the amount of the allowance for doubtful debts in the financialstatements of the Group and Company inadequate to any substantial extent; or

(b) which would render the values attributed to current assets in the financial statements of the Group and Company misleading; or

(c) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and Companymisleading or inappropriate.

No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the endof the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and Company to meettheir obligations when they fall due.

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

(a) any charge on the assets of the Group or the Company which has arisen since the end of the financial year which secures theliability of any other person; or

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

At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financialstatements which would render any amount stated in the financial statements misleading.

In the opinion of the Directors:

(a) the results of the Group and Company's operations during the financial year were not substantially affected by any item,transaction or event of a material and unusual nature except as disclosed in Note 16 to the financial statements; and

(b) there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or eventof a material and unusual nature likely to affect substantially the results of the operations of the Group or the Company for thefinancial year in which this report is made.

AUDITORS

The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office.

Signed on behalf of the Board of Directors in accordance with their resolution dated 24 July 2007.

DATO’ MOHAMMED AZLAN BIN HASHIM DATO' SYED ZAINAL ABIDIN BIN SYED MOHAMED TAHIRChairman Director

PROTON 2007 ANNUAL REPORT 139income statements

INCOME STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 MARCH 2007

Group Company Restated

2007 2006 2007 2006Note RM'000 RM'000 RM'000 RM'000

Revenue 6 4,911,841 7,796,932 667,983 111,097

Cost of sales (4,547,537) (6,895,091) - -

Gross profit 364,304 901,841 667,983 111,097

Other operating income 136,882 230,544 393 836

Distribution costs (410,189) (439,754) - -

Administrative expenses (618,147) (580,771) (333,065) (834)

Other operating expenses (60,462) (78,834) - -

(Loss)/profit before finance cost 7 (587,612) 33,026 335,311 111,099

Finance cost 9 (35,541) (43,878) - -

Share of results of associated

companies 17 3,219 17,033 - -

Share of results of jointly

controlled entities 18 1,805 11,804 - -

(Loss)/profit before taxation (618,129) 17,985 335,311 111,099

Taxation

- Company - - (101,532) (77)

- Subsidiary companies 28,596 28,409 - -

10 28,596 28,409 (101,532) (77)

(Loss)/profit for the year (589,533) 46,394 233,779 111,022

Attributable to: Equity holders of the Parent (589,533) 46,690 233,779 111,022

Minority interest - (296) - -


(Loss)/earnings per share (sen)

- basic 11 (107) 9

- diluted 11 N/A N/A

The notes on pages 147 to 220 form part of these financial statements.

PROTON 2007 ANNUAL REPORT140balance sheets

BALANCE SHEETS AS AT 31 MARCH 2007


2007 2006 2007 2006Note RM'000 RM'000 RM'000 RM'000

NON-CURRENT ASSETS

Property, plant and equipment 13 3,179,439 3,312,947 - -

Goodwill 14 29,008 29,008 - -

Other intangible assets 15 169,075 17,999 - -

Subsidiary companies 16 - - 1,708,651 1,465,659

Associated companies 17 169,758 160,409 13,600 13,600

Jointly controlled entities 18 223,550 245,256 - -

Other long term investments 19 10,397 10,397 6,475 6,475

Deferred tax assets 20 - 105,786 - -

Total Non-Current Assets 3,781,227 3,881,802 1,728,726 1,485,734

CURRENT ASSETS

Inventories 21 1,273,612 1,389,005 - -

Trade and other receivables 22 981,025 1,142,851 5 195

Amounts due from subsidiary

companies 23 - - 66,219 68,041

Amounts due from associated

companies 24 24,314 40,391 - -

Amounts due from jointly controlled

entities 25 10,618 9,288 - -

Tax recoverable 10 176,048 51,491 314 118

Current investments 26 73,448 211,965 - -

Deposits, bank and

cash balances 27 626,475 1,585,982 10,610 49,835

Total Current Assets 3,165,540 4,430,973 77,148 118,189

TOTAL ASSETS 6,946,767 8,312,775 1,805,874 1,603,923


PROTON 2007 ANNUAL REPORT 141balance sheets

(continued)

BALANCE SHEETS AS AT 31 MARCH 2007 (CONTINUED)


2007 2006 2007 2006Note RM'000 RM'000 RM'000 RM'000

EQUITY AND LIABILITIES

Share capital 28 549,213 549,213 549,213 549,213

Reserves 29 4,681,375 5,321,439 1,248,223 1,041,905

Equity attributable to equity holders

of the Parent 5,230,588 5,870,652 1,797,436 1,591,118

Minority interests - - - -

Total Equity 5,230,588 5,870,652 1,797,436 1,591,118

NON-CURRENT LIABILITIES

Long term liabilities 30 181,637 100,255 - -

Deferred tax liabilities 20 754 805 - -

Total Non-Current Liabilities 182,391 101,060 - -

CURRENT LIABILITIES

Trade and other payables 31 1,046,338 1,247,328 790 2,719

Provisions 32 196,067 217,062 - -

Amounts due to subsidiary companies 33 - - 7,647 10,086

Amounts due to associated companies 34 99,675 46,231 - -

Amounts due to jointly controlled entities 35 25,060 8,811 - -

Taxation 2,222 16,865 - -

Short term borrowings 36 164,426 804,766 - -

Total Current Liabilities 1,533,788 2,341,063 8,437 12,805

TOTAL LIABILITIES 1,716,179 2,442,123 8,437 12,805

TOTAL EQUITY AND LIABILITIES 6,946,767 8,312,775 1,805,873 1,603,923

Net assets per share attributable to

equity holders of the Parent (RM) 9.52 10.69 3.27 2.90


PROTON 2007 ANNUAL REPORT142consolidated statement of changes in equity for the financial year ended 31 March 2007

Attributable to equity holders of the Company Foreign

Share Capital exchange Retained Minority Total capital reserve reserve profits Total interest equity

RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

At 1 April 2005 549,213 475,617 (81,816) 4,916,935 5,859,949 333 5,860,282

Net income recognised directly

in equity - Foreign exchange

differences on translation

of foreign operations - - 18,934 - 18,934 (37) 18,897

Profit for the financial year - - - 46,690 46,690 (296) 46,394

Total recognised income and

expense for the financial year - - 18,934 46,690 65,624 (333) 65,291

Final dividend for the financial year

ended 31 March 2005 - - - (54,921) (54,921) - (54,921)

At 31 March 2006 549,213 475,617 (62,882) 4,908,704 5,870,652 - 5,870,652

At 1 April 2006 549,213 475,617 (62,882) 4,908,704 5,870,652 - 5,870,652

Net income recognised directly

in equity - Foreign exchange

differences on translation

of foreign operations - - (23,070) - (23,070) - (23,070)

Loss for the financial year - - - (589,533) (589,533) - (589,533)

Total recognised income and

expense for the financial year - - (23,070) (589,533) (612,603) - (612,603)

Final dividend for the financial year

ended 31 March 2006 - - - (27,461) (27,461) - (27,461)

At 31 March 2007 549,213 475,617 (85,952) 4,291,710 5,230,588 - 5,230,588


PROTON 2007 ANNUAL REPORT 143company statement of changes in equity for the financial year ended 31 March 2007


Issued and fully paidordinary shares Distributable

Nominal Number value of Retained

of shares RM1 each earnings Total Note '000 RM'000 RM'000 RM'000

At 1 April 2005 549,213 549,213 985,804 1,535,017

Net profit attributable to shareholders - - 111,022 111,022

Final dividend for the financial year ended

31 March 2005 12 - - (54,921) (54,921)

At 31 March 2006 549,213 549,213 1,041,905 1,591,118

At 1 April 2006 549,213 549,213 1,041,905 1,591,118

Net profit attributable to shareholders - - 233,779 233,779

Final dividend for the financial year ended

31 March 2006 12 - - (27,461) (27,461)

At 31 March 2007 549,213 549,213 1,248,223 1,797,436

PROTON 2007 ANNUAL REPORT144cash flow statements for the financial year ended 31 March 2007

Group CompanyRestated

2007 2006 2007 2006RM'000 RM'000 RM'000 RM'000

CASH FLOWS FROM OPERATING ACTIVITIES


Adjustments for:

Taxation (28,596) (28,409) 101,532 77

Property, plant and equipment:

- depreciation 352,900 341,990 - -

- written off 94,263 82,857 - -

- impairment - 5,066 - -

- loss/(gain) on disposal 250 (218) - -

(Write back of)/allowance for inventories write down (30,681) 46,865 - -

Impairment loss on an investment in a subsidiary - - 327,652 -

Amortisation of intangible assets 22,315 9,419 - -

Interest expense 35,541 43,878 - -

Interest income (35,563) (67,388) (374) (588)

Share of results of associated companies (3,219) (17,033) - -

Share of results of jointly controlled entities (1,805) (11,804) - -

Write back of diminution in value of current investments - (7,202) - -

Gain on disposal of current investments (49,975) (2,664) - -

Loss on dilution in interest of associated company - 48 - -

(Write back of)/allowance for doubtful debts (30,958) 117,923 - -

Unrealised foreign exchange gain (4,598) (20,365) - -

Provision for warranties (net of expected reimbursement) 38,737 81,314 - -

Dividends income (8,713) (9,525) (667,983) (111,097)

Operating (loss)/profit before

working capital changes (239,635) 611,146 (5,394) (586)


PROTON 2007 ANNUAL REPORT 145cash flow statements for the financial year ended 31 March 2007

(continued)


2007 2006 2007 2006RM'000 RM'000 RM'000 RM'000

CASH FLOWS FROM OPERATING ACTIVITIES (CONTINUED)

Changes in working capital:

Inventories 162,458 (468,790) - -

Receivables

- trade and other receivables 212,606 45,479 190 4,294

- subsidiary companies - - 1,822 (61,726)

- associated companies and jointly controlled entities 14,822 (8,259) - 3,713

Payables

- trade and other payables (204,712) (420,151) (1,929) 222

- provisions for liabilities and charges (88,219) (90,151) - -

- subsidiary companies - - (2,438) (3,269)

- associated companies and jointly controlled entities 69,691 9,613 - -

Cash used in operations (72,989) (321,113) (7,749) (57,352)

Taxation paid (4,819) (62,687) (101,728) (98)

Interest received 39,544 76,835 374 568

Interest paid (42,927) (40,505) - -

Retirement benefits paid (15,401) (14,536) - -

Net cash flow used in operating activities (96,592) (362,006) (109,103) (56,882)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant and equipment (318,835) (478,451) - -

Additional investment in subsidiary companies - - (570,644) -

Additional investment in associated company (7,169) - - -

Purchase of intangible assets (173,354) - - -

Purchase of current investments (284,513) (207,817) - -

Proceeds from disposal of current investments 473,005 207,253 - -

Proceeds from disposal of property, plant and equipment 6,762 15,816 - -

Dividends received 31,113 42,452 667,983 111,000

Net cash flow (used in)/from investing activities (272,991) (420,747) 97,339 111,000


PROTON 2007 ANNUAL REPORT146cash flow statements for the financial year ended 31 March 2007(continued)


2007 2006 2007 2006Note RM'000 RM'000 RM'000 RM'000

CASH FLOWS FROM FINANCING ACTIVITIES

Dividend paid (27,461) (54,921) (27,461) (54,921)

Proceeds from borowings 964,148 326,582 - -

Proceeds from lease and hire purchase 5,823 - - -

Repayment of term loans - (54,436) - -

Finance lease and hire

purchase installments paid (384) - - -

Repayment of short term borrowings (1,467,399) (312,152) - -

Fixed deposits pledged as security 43 666,640 (11,123) - -

Net cash flow from/(used in)

financing activities 141,367 (106,050) (27,461) (54,921)

NET DECREASE IN

CASH AND CASH EQUIVALENTS (228,216) (888,803) (39,225) (803)

EXCHANGE RATE EFFECTS 6,488 5,070 - -

CASH AND CASH EQUIVALENTS AT THE

BEGINNING OF THE FINANCIAL YEAR 693,192 1,576,925 49,835 50,638

CASH AND CASH EQUIVALENTS AT

THE END OF THE FINANCIAL YEAR 43 471,464 693,192 10,610 49,835


PROTON 2007 ANNUAL REPORT 147notes to the financial statements - 31 March 2007

1 GENERAL INFORMATION

The Company is principally involved in investment holding activities.

The principal activities of the subsidiary companies, associated companies and jointly controlled entities are set out in Notes 16 to

18 to the financial statements. There have been no significant changes in the activities of the Group and the Company during the

financial year.

The Company was incorporated as a limited liability company, and is domiciled in Malaysia.

The address of the registered office and the principal place of business of the Company is:

HICOM Industrial Estate,

Batu 3, 40000 Shah Alam, Selangor Darul Ehsan, Malaysia.

2 BASIS OF PREPARATION

During the financial year, the Group made losses of RM589.5 million (2006: profits of RM46.4 million).

Going concern assumption

The Directors are of the opinion that the use of the going concern assumption in the preparation of the financial statements is

appropriate based on the approved Group business plan and available financing arrangements, including efforts in place to reduce

costs, control cash flows and the introduction of new models in the next twelve months. The Group has also obtained additional

facilities as described in Notes 27 and 30 to the financial statements.

The Directors expect the Group to continue to operate as a going concern and accordingly, the assets and liabilities of the Group

and Company are recorded on the basis that the Group and Company will be able to realise its assets and discharge its liabilities

in the normal course of business.

Estimates and judgement

The preparation of financial statements requires the Directors to make estimates and judgement that affect the reported amounts

of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported

amounts of revenues and expenses during the financial year. These estimates and judgement are based on the Directors’ best

knowledge of current events and actions.

The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the

Group and the Company's financial statements are disclosed in Note 4 to the financial statements.

PROTON 2007 ANNUAL REPORT148notes to the financial statements - 31 March 2007(continued)

2 BASIS OF PREPARATION (CONTINUED)

Financial Reporting Standards

The financial statements of the Group and Company have been prepared under the historical cost convention (as modified by the

revaluation of certain freehold land), unless otherwise indicated in the summary of significant accounting policies.

The financial statements comply with the Financial Reporting Standards (‘FRSs’), the Malaysian Accounting Standard Board ('MASB')

Approved Accounting Standards in Malaysia for Entities Other than Private Entities, and the provisions of the Companies Act, 1965.

As required under FRS 108, the following describes the new Standards and Interpretations which have been issued by the MASB:

(a) Standards, amendments to published standards and Interpretations Committee (IC) interpretations that are effective

The new accounting standards, amendments to published standards and Interpretations issued by the MASB ('IC

interpretations') to the existing standards effective for the Group and Company's financial periods beginning 1 April 2006 are

as follows:

FRS 1 First-Time Adoption of Financial Reporting Standards

FRS 2 Share-based Payments

FRS 3 Business Combinations

FRS 5 Non-current Assets Held for Sale and Discontinued Operations

FRS 101 Presentation of Financial Statements

FRS 102 Inventories

FRS 108 Accounting Policies, Changes in Accounting Estimates and Errors

FRS 110 Events after the Balance Sheet Date

FRS 116 Property, Plant and Equipment

FRS 121 The Effects of Changes in Foreign Exchange Rates

FRS 127 Consolidated and Separate Financial Statements

FRS 128 Investments in Associates

FRS 131 Interests in Joint Ventures

FRS 132 Financial Instruments: Disclosure and Presentation

FRS 133 Earnings Per Share

FRS 136 Impairment of Assets

FRS 138 Intangible Assets

FRS 140 Investment Property

Amendment to FRS 119 (2004) Employee Benefits - Actuarial Gains and Losses, Group Plans and Disclosures - in relation to

the 'asset ceiling' test.


(continued)


(a) Standards, amendments to published standards and Interpretations Committee (IC) interpretations that are effective

(continued)

IC 107 Introduction of the Euro

IC 110 Government Assistance - No Specific Relation to Operating Activities

IC 112 Consolidation - Special Purpose Entities

IC 113 Jointly Controlled Entities - Non-Monetary Contributions by Venturers

IC 115 Operating Leases - Incentives

IC 121 Income Taxes - Recovery of Revalued Non-Depreciable Assets

IC 125 Income Taxes - Changes in the Tax Status of an Entity or its Shareholders

IC 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease

IC 129 Disclosure - Service Concession Arrangements

IC 131 Revenue - Better Transactions Involving Advertising Services

IC 132 Intangible Assets - Web Site Costs

A summary of the impact of the new accounting standards, amendments to the published standards and IC interpretations

to existing standards on the financial statements of the Group is set out in Note 45 to the financial statements.

(b) Standards, amendments to published standards and IC interpretations to existing standards that are not yet effective and have

not been early adopted

The new standards, amendments to published standards and interpretations that are mandatory for the Group financial

periods beginning on 1 April 2007, but which the Group has not early adopted, are as follows:

(i) FRS 117 Leases (effective for accounting periods beginning on or after 1 October 2006). This standard requires the

classification of leasehold land as prepaid lease payments. The Group will apply this Standard from financial periods

beginning on 1 April 2007. The Group has not disclosed the financial impact of the application of this Standard following

the transitional provision which provides exemption from early disclosure of the financial impact prior to its effective date.

(ii) Amendment to FRS 119 (2004) Employee Benefits – Actuarial Gains and Losses, Plans and Disclosures (effective for

accounting periods beginning on or after 1 January 2007). This amendment introduces the option of an alternative

recognition approach for actuarial gains and losses. It may impose additional recognition requirements for multi-

employer plans where insufficient information is available to apply defined benefit accounting. It also adds new

disclosure requirements.

(iii) FRS 124 Related Party Disclosures (effective for accounting periods beginning on or after 1 October 2006). Thisstandard will affect the identification of related parties and some other related party disclosures. The Group will applythis standard from financial periods beginning on 1 April 2007. The Group has not disclosed the financial impact of theapplication of this standard following the transitional provision which provides exemption from early disclosure of thefinancial impact prior to its effective date.



(b) Standards, amendments to published standards and IC interpretations to existing standards that are not yet effective and havenot been early adopted (continued)

(iv) FRS 139 Financial Instruments: Recognition and Measurement (effective date yet to be determined by MASB). This newstandard establishes principles for recognising and measuring financial assets, financial liabilities and some contractsto buy and sell non-financial items. Hedge accounting is permitted only under strict circumstances. The Group will applythis standard when it becomes effective.

The MASB also issued the following revised Standards, amendment to Standards and IC Interpretations which are onlyeffective for annual periods on or after 1 July 2007. The Group will apply these Standards and Interpretations from financialperiods beginning on 1 April 2008.

FRS 111 Construction Contracts

FRS 112 Income Taxes

FRS 118 Revenue

FRS 120 Accounting for Government Grants and Disclosure of Government Assistance

Amendment to FRS 121 The Effects of Changes in Foreign Exchange Rates - Net Investment in Foreign Operation

FRS 134 Interim Financial Reporting

FRS 137 Provisions, Contingent Liabilities and Contingent Assets

IC Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities

IC Interpretation 2 Members' Shares in Co-operative Entities and Similar Instruments

IC Interpretation 5 Rights to Interest arising from Decommissioning, Restoration and Environmental Rehabilitation Funds

IC Interpretation 6 Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment

IC Interpretation 7 Applying the Restatement Approach under FRS 129 (2004) Financial Reporting in Hyperinflationary

Economies

IC Interpretation 8 Scope of FRS 2

The above standards, amendments to published standards and IC interpretations to existing standards is not anticipated tohave significant impact to the Group.

(c) Standards that are not yet effective and not relevant or material for the Group operations

FRS 6 Exploration for and Evaluation of Mineral Resources (effective for accounting periods beginning on or after 1 January2007). This Standard is not relevant to the Group’s operations as the Group does not carry out exploration for and evaluationof mineral resources.


(continued)

3 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) Subsidiary companies

Subsidiary companies are those corporations, partnerships or other entities in which the Group has power to exercise control

over the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential

voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another

entity.

Investments in subsidiary companies are stated at cost. Where an indication of impairment exists, the carrying amount of the

investment is assessed and written down immediately to its recoverable amount. The accounting policy on Impairment of

Assets is set out in Note 3(t).

Prior to 1 January 2006, the Group applied both the purchase method and the merger method to account for Business

Combinations in accordance with FRS 122. With effect from 1 January 2006, only the purchase method of accounting is

used to account for Business Combinations in accordance with FRS 3.

The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred

or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and

liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition

date irrespective of the interest of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s

share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the

net assets of the subsidiary acquired, the difference is recognised as a gain in the Consolidated Income Statement.

Subsidiary companies are consolidated from the date on which control is transferred to the Group. They are de-consolidated

from the date that control ceases.

Uniform accounting policies for like transactions and other events in similar circumstances are used by all companies in the

group in preparing the Consolidated Financial Statements. The financial statements of all companies within the Group used

in the preparation of the Consolidated Financial Statements are prepared as of the same reporting date.

Inter-company balances, inter-company transactions and unrealised gains on transactions between companies are eliminated

in full. Unrealised losses are also eliminated in full unless the assets transferred are impaired.

Minority interest represents that portion of the profit or loss and net assets of a subsidiary attributable to equity interests that

are not owned, directly or indirectly through the subsidiaries by the parent. It is measured at the minorities’ share of the fair

values of the subsidiaries’ identifiable assets and liabilities at the acquisition date and the minorities’ share of changes in the

subsidiaries’ equity since that date. Separate disclosure is made of minority interest.


3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(a) Subsidiary companies (continued)

The gain or loss on disposal of a subsidiary is the difference between the net disposal proceeds and the Group’s share of

the subsidiary’s net assets as of the date of disposal, including the cumulative amount of any exchange differences that relate

to that subsidiary which were previously recognised in equity, and is recognised in the Consolidated Income Statement.

(b) Associated companies

Associates are those corporations, partnerships or other entities 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

associated companies but not the power to exercise control over those policies.

Investments in associated companies are stated at cost. Where an indication of impairment exists, the carrying amount of the

investment is assessed and written down immediately to its recoverable amount. The accounting policy on Impairment of


In the Consolidated Financial Statements, investments in associated companies are accounted for using the equity method.

Under the equity method, the Group’s share of its associates’ post-acquisition profits or losses is recognised in the Income

Statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition

movements are adjusted to the carrying amount of the investment. When the Group’s share of losses in an associated

company equals or exceeds its cost of investment in the associated company including any other unsecured receivables, the

Group discontinues its share of further losses, unless it has incurred legal or constructive obligations to make payments on

behalf of the associated company.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in

the associated companies. Unrealised losses are also eliminated unless the assets transferred are impaired.

In applying the equity method, the Group has ensured that uniform accounting policies for like transactions and other events

in similar circumstances of the associated companies are used. The equity method is applied based on the latest audited

financial statements or management financial statements that have the same reporting date.

(c) Jointly controlled entities

Jointly controlled entities are corporations, partnerships or other entities over which there is contractually agreed sharing of

control by the Group with one or more parties where the strategic financial and operating policy decisions relating to the entity

requires unanimous consent of the parties sharing control. The Group’s interests in jointly controlled entities are accounted for

in the Consolidated Financial Statements by the equity method of accounting, as disclosed in Note 3.


(continued)


(c) Jointly controlled entities (continued)

The Consolidated Income Statement includes the Group's share of results of the jointly controlled entities based on its latest

audited financial statements or management financial statements of the companies concerned. The cumulative post-

acquisition movements are adjusted to the carrying amount of the investment.

Unrealised gains on transactions between the Group and its jointly controlled entities are eliminated to the extent of the

Group’s interest in the jointly controlled entities. Unrealised losses are also eliminated unless the assets transferred are

impaired.

In applying the equity method, the Group has ensured that uniform accounting policies of jointly controlled entities for like

transactions and other events in similar circumstances are used. The equity method is applied based on the latest audited

financial statements or management financial statements that have the same reporting date.

Investments in jointly controlled entities are stated at cost. Where an indication of impairment exists, the carrying amount of

the investment is assessed and written down immediately to its recoverable amount. The accounting policy on Impairment of


(d) Investments

The Group uses its judgement to determine the classification of its investments into current and non-current. An investment

is classified as current if it is readily realisable and it is held for trading or intended to be realised within 12 months after the

balance sheet date. All other investments are classified as non-current.

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.

Current investments are carried at the lower of cost and market value, determined on an aggregate portfolio basis. Cost is

derived at on the weighted average basis whilst market value is calculated by reference to stock exchange quoted selling

prices at the close of business on the balance sheet date. Increases/decreases in the carrying amount of marketable

securities are credited/charged to the Income Statement.

On disposal of an investment, the difference between net disposal proceeds and its carrying amount is credited/charged to

the Income Statement.



(e) Property, plant and equipment

Property, plant and equipment are tangible items that:

I. are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes;

and

II. are expected to be used during more than one period.

(i) Cost

Property, plant and equipment are initially stated at cost. Cost includes expenditure that is directly attributable to the

acquisition of the items and bringing them to the location and condition so as to render them operational in the manner

intended by the Group. The Group allocates the initial cost of an item of property, plant and equipment to its significant

component parts.

A piece of freehold land held by the Group is stated at Directors' valuation based on a 1983 independent professional

valuation of the open market value of the land on existing use basis. The surplus arising on revaluation was credited

directly to capital reserves and subsequently utilised.

The Group has adopted the transitional provision of IAS16 (revised) which allows the freehold land to be stated at the

amount revalued on 5 September 1983. All other land held by the Group is stated at cost.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only

when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the

item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and

maintenance are charged to the Income Statement during the financial period in which they are incurred.

(ii) Depreciation

Freehold land is not depreciated as it has an infinite life. Depreciation of other property, plant and equipment is provided

for on a straight line basis to write off the cost or valuation of each asset to its residual value over the estimated useful

lives. The assets’ residual values, useful lives and depreciation method are reviewed annually and revised if appropriate.


(continued)


(e) Property, plant and equipment (continued)

(ii) Depreciation (continued)

The principal estimated useful lives of depreciation used are as follows:

Long term leasehold land over period of lease term of 98 years

Buildings 15-40 years

Plant and machinery 5-15 years

Office equipment, furniture and fittings 2-8 years

Vehicles 3-5 years

Dies and jigs, included under plant and machinery are depreciated based on the unit of production basis to write off

the cost of the assets over the term of their estimated useful lives which range from 5 to 7 years.

Work in progress is not depreciated. Upon completion, the related costs will be transferred to the respective categories

of assets. Depreciation on work in progress commences when the assets are ready for their intended use. Cost of

toolings for pre-production are written off in the year they are incurred.

(iii) Impairment

Where an indication of impairment exists, the carrying amount of the assets is assessed and written down immediately

to its recoverable amount. The accounting policy on Impairment of Assets is set out in Note 3(t).

(iv) Gains or Losses on Disposal

Gain or losses on disposals are determined by comparing proceeds with carrying amount and are included in

profit/(loss) from operations. On disposal of revalued assets, amounts in revaluation reserve relating to those assets are

transferred to retained earnings.

(v) Repairs and maintenance

Repairs and maintenance are charged to the Income Statement during the period in which they are incurred. The cost

of major renovations are 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) Intangible assets

(i) Goodwill

Goodwill is carried at cost less accumulated impairment losses. Goodwill is tested for impairment at least annually, or

when events or circumstances occur indicating that an impairment may exist. Impairment of goodwill is charged to the

Consolidated Income Statement as and when it arises. Impairment losses on goodwill are not reversed. Gains or losses

on the disposal of an entity include the carrying amount of goodwill relating to the entity disposed.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each cash-generating unit or a

group of cash-generating units represents the lowest level within the Group at which goodwill is monitored for internal

management purposes and which are expected to benefit from the synergies of the combination. The Group allocates

goodwill to each business segment in each country in which it operates.

Goodwill on acquisition of associated companies and jointly controlled entities are included in the carrying value of the

investment in associated companies and jointly controlled entities respectively. Such goodwill are tested for impairment

as part of the overall balance.

(ii) Computer software

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the

specific software. These costs are amortised over their estimated useful lives (3 to 5 years).

(iii) Research and development cost

Research expenditure is recognised as an expense when incurred. Costs incurred on development projects (relating to

the design and testing of new or improved products) are recognised as intangible assets when the criteria for

recognition in FRS 138 are fulfilled.

Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Development expenses capitalised include costs incurred in the development from the date it first meet the recognition

criteria and up to the completion of the development project and commencement of commercial production. Capitalised

development expenditures are stated at cost less accumulated amortisation and accumulated impairment losses, if any.

Amortisation is based on the expected production volume over its total useful life, which does not exceed 7 years for

vehicles and 10 years for mechanical parts.


(continued)


(g) Leases

Finance leases are leases of property, plant and equipment where the Group assumes substanstially all the benefits and risks

of ownership.

Property, plant and equipment acquired under finance leases are included in tangible property, plant and equipment and are

amortised in accordance with Note 3(e) above. Obligations under such agreements are treated as a liability and finance

charges are allocated to the Income Statement over the lease periods to give a constant periodic rate of interest on the

remaining lease liabilities.

(h) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on a first-in, first-out basis. Cost

includes the actual cost of materials and incidentals in bringing the inventories to their present location and condition, and is

determined on the first-in, first-out basis. Net realisable value represents the estimated selling price less all estimated costs

to completion and costs to be incurred in marketing, selling and distribution. In arriving at net realisable value, due allowance

is made for obsolete, slow moving or defective stocks.

In the case of work-in-progress and finished vehicles, an appropriate proportion of production overheads are included in the

costs.

(i) Trade and other receivables

Trade and other receivables are carried at anticipated net realisable value. Allowances are made for doubtful debts based on

specific review of outstanding balances at balance sheet date. General allowances are made to cover possible losses, which

are not specifically identified. Other receivables are carried at anticipated realisable values. Bad debts are written off to the

Income Statements during the financial year in which they are identified.

(j) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, when it

is probable that an outflow of resources will be required to settle the obligation, and when a reliable estimate of the amount

can be made. Where the Group expects a provision to be reimbursed (for example, under an insurance contract), the

reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are reviewed

at each balance sheet date and adjusted to reflect the current best estimate. When the effect of the time value of money is

material, the amount of provision is the present value of the expenditure expected to be required to settle the obligation.

Provisions are not recognised for future operating losses.



(j) Provisions (continued)

(i) Warranties

Provision is recognised for the estimated liability on all products under warranty in addition to claims already received

and verified. Warranties are provided for a period of between one to three years for vehicles sold. The provision is

based on experienced levels of claims arising during the period of warranty. When the Group expects warranties to

be reimbursed from suppliers, the reimbursement is recognised as a separate asset but only when the

reimbursement is virtually certain.

(ii) Onerous contracts

The Group recognises a provision for onerous contracts when the expected benefits to be derived from a contract are

less than the unavoidable costs of meeting the obligations under the contract.

(k) Employee benefits

(i) Short term employee benefits

Salaries, wages, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in

which the associated services are rendered by employees of the Group.

(ii) Post employment benefits

The Group has various post-employment benefit schemes in accordance with the local conditions and practices in the

countries in which it operates. The Group has both defined contribution and defined benefit plans.

Defined contribution plans

The 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.


(continued)


(k) Employee benefits (continued)

(ii) Post employment benefits (continued)

Defined benefit plans

The liability in respect of a defined benefit plan is the present value of the defined benefit obligation at the balance sheet

date minus the fair value of plan assets, together with adjustments for actuarial gains/losses and past service cost. The

Group determines the present value of the defined benefit obligation and the fair value of any plan assets with sufficient

regularity such that the amounts recognised in the financial statements do not differ materially from the amounts that

would be determined at the balance sheet date.

The defined benefit obligation, calculated using the projected unit credit method, is determined by independent

actuaries on the basis of triennial valuations. Assumptions were made in relation to the annual investment returns, annual

salary increases and annual increases in pension payments.

Plan assets in excess of the defined benefit obligation are subject to the asset limitation specified in FRS 119.

Actuarial gains and losses arise from experience adjustments and changes in actuarial assumptions. The amount of net

actuarial gains and losses recognised in the Income Statement is determined by the corridor method in accordance

with FRS 119 and is charged or credited to income over the average remaining service lives of the related employees

participating in the defined benefit plan.

Upon initial adoption of FRS 119 effective on 1 April 2003, the increase in defined benefit liability is recognised as an

expense on a straight-line basis over 5 years in accordance with the transitional provision of the Standard.

(iii) Termination benefits

Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date

or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises

termination benefits when it is demonstrably committed to either terminate the employment of current employees

according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an

offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are

discounted to present value.



(l) Income taxes

Current tax expense is determined according to the tax laws of each jurisdiction in which the Group operates and include all

taxes based upon the taxable profits, including withholding taxes payable by a foreign subsidiary company on distributions of

retained earnings to companies in the Group.

Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed

to assets and liabilities for tax purposes and their carrying amounts in the financial statements.

Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the

deductible temporary differences or unused tax losses can be utilised.

Deferred tax is recognised on temporary differences arising on investments in subsidiary companies, associated companies

and jointly controlled entities except where the timing of the reversal of the temporary difference can be controlled and it is

probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets and liabilities are not recognised on temporary differences arising from:

(i) goodwill; or

(ii) from the initial recognition of an asset or liability in a transaction which is not a business combination and at time of the

transaction, affects neither accounting profit nor taxable profit.

Deferred tax is determined using tax rates (and tax laws) that have been enacted or substantially enacted by the balance sheet

date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

(m) Foreign currency transactions and translation

(i) Functional and Presentation Currency

Items included in the financial statements of each of the Group’s entities are measured using its functional currency,

which is the currency of the primary economic environment in which the entity operates ('the functional currency'). The

Consolidated Financial Statements are presented in Ringgit Malaysia, which is the Group's functional and presentation

currency.


(continued)


(m) Foreign currency transactions and translation (continued)

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates

of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the

translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are

recognised in the Income Statement.

(iii) Group companies

The results and financial position of all the Group companies (none of which has the currency of a hyperinflationary

economy) that have a functional currency different from the presentation currency are translated into the presentation

currency as follows:

- assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance

sheet;

- income and expenses for each Income Statement are translated at average exchange rates (unless this average is

not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which

case income and expenses are translated at the dates of the transactions); and

- all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to

shareholders’ equity. When a foreign operation is disposed off or sold, such exchange differences that were recorded in equity

are recognised in the Income Statement as part of the gain or loss on disposal.

(n) Cash and cash equivalents

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 with original maturities of three months or less, and bank overdrafts. Bank

overdrafts are included within borrowings in current liabilities on the Balance Sheet.



(o) Income recognition

Revenue from sales of vehicles, spare parts and accessories are recognised when significant risks and rewards have been

transferred to buyers. Significant risks and benefits are deemed to have been transferred upon delivery or acceptance of the

goods.

Revenue from sale of completed apartments is recognised when the Sale and Purchase Agreements are signed.

Revenue for rendering of services on long term engineering contracts is recognised on the basis of the stage of completion

of such contracts at the financial year end, where the contractual outcome can be assessed with reasonable certainty. Full

provision is made for all foreseeable losses on contracts entered into or commenced prior to the financial year end. Amounts

are included within receivables and prepayments to recognise timing differences arising between amounts invoiced and

amounts recognised in the Income Statement on individual engineering contracts.

Other revenue comprises mainly revenue from rental and royalty, which are recognised on an accrual basis.

Dividends are recognised when the Company’s right to receive payment is established.

(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 instruments with another enterprise under conditions that are

potentially favourable, or an equity instrument of another enterprise.

A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another

enterprise, or to exchange financial instruments with another enterprise under conditions that are potentially

unfavourable.


(continued)


(p) Financial instruments (continued)

(ii) Financial instruments recognised on the Balance Sheet

The particular recognition method adopted for financial instruments recognised on the Balance Sheet is disclosed in

the individual policy statements associated with each item.

(iii) Financial instruments not recognised on the Balance Sheet

The Group enters into foreign currency forward contracts to protect the Group from movements in exchange rates by

establishing the rate at which a foreign currency asset or liability will be settled.

Exchange gains and losses arising on contracts entered into as hedges of anticipated future transactions are deferred

until the settlement of the contracts.

(iv) Fair value estimation for disclosure purposes

The fair value of publicly traded derivatives and securities is based on quoted market prices at the balance sheet date.

The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance

sheet date.

In assessing the fair value of non-traded derivatives and financial instruments, the Group uses a variety of methods and

makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or

dealer quotations for the specific or similar instruments are used for long term debt. Unquoted long term investments

are valued based on quoted investments with similar features.

The face values, less any estimated credit adjustments, for financial assets and liabilities classified as current are

assumed to approximate their fair values.



(q) Borrowings

Borrowings are initially recognised based on the proceeds received, net of transaction costs incurred. Subsequently,

borrowings are stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction

costs) and the redemption value is recognised in the Income Statement over the period of the borrowings.

Borrowing costs are charged to the Income Statement as an expense in the period in which they have accrued. In subsequent

periods, borrowings are stated at cost less repayment made during the year.

Interest, dividends, losses and gains relating to a financial instrument, or a component part, classified as a liability is reported

within finance cost in the Income Statement.

Borrowings are classified as current liabilities unless the Group has unconditional right to defer settlement of the liability for

least 12 months after the balance sheet date.

(r) Share capital

Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares are expensed off in the

Income Statement.

Dividends on ordinary shares are recognised as liabilities when proposed or declared before the balance sheet date.

A dividend proposed or 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

liability.

(s) Contingent liabilities and contingent assets

The Group and Company does not recognise a contingent liability but discloses its existence in the financial statements. A

contingent liability is a possible obligation that arises from past events whose existence will be confirmed by uncertain future

events beyond the control of the Group or a present obligation that is not recognised because it is not probable that an outflow

of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare circumstance where

there is a liability that cannot be recognised because it cannot be measured reliably.


(continued)


(s) Contingent liabilities and contingent assets (continued)

A contingent asset is a possible asset that arises from past events whose existence will be confirmed by uncertain future

events beyond the control of the Group. The Group does not recognise contingent assets but discloses its existence where

inflows of economic benefits are probable, but not virtually certain.

(t) Impairment of assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or whenever

events or circumstances occur indicating that an impairment may exist. Property, plant and equipment and other non-current

assets, including intangible assets, are reviewed for impairment losses whenever events or changes in circumstances indicate

that the carrying amount may not be recoverable. Impairment loss is recognised for the amount by which the carrying amount

of the asset exceeds its recoverable amount. The recoverable amount is measured at the higher of the fair value less cost to

sell of an asset and its value-in-use. The value-in-use is the net present value of the projected future cash flow derived from

that asset discounted at the appropriate discount rate. Assets other than goodwill that suffered impairment are reviewed for

possible reversal at each reporting date.

The projected cash flows are based on the Group’s estimates calculated based on historical, industry trend, general market,

economic conditions and other available information. For the purposes of assessing impairment, assets are grouped at the

lowest level for which there is separately identifiable cash flows.

The impairment loss is charged to the Income Statement unless it reverses a previous revaluation in which case it is charged

to the revaluation surplus. Any subsequent increase in recoverable amount is recognised in the Income Statement unless it

reverses an impairment loss on a revalued asset in which case it is taken to revaluation surplus.

Irrespective of whether there is any indication of impairment, the Group shall test an intangible asset with an indefinite useful

life or an intangible asset not yet available for use for impairment annually by comparing its carrying amount with its recoverable

amount. This impairment test may be performed at any time during an annual period; it is performed at the same time every

year. Different intangible assets may be tested for impairment at different times. However, if such an intangible asset was

initially recognised during the current annual period, that intangible asset shall be tested for impairment before the end of the

current annual period.


4 KEY ESTIMATES AND JUDGEMENTS

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations

of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely

equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to

have a material impact on the Group’s results and financial position are tested for sensitivity to changes in the underlying parameters.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and

liabilities within the next financial year are outlined below.

(i) Carrying value of property, plant and equipment

The Group assesses impairment of the assets mentioned above whenever the events or changes in circumstances indicate

that the carrying amount of an asset may not be recoverable i.e. the carrying amount of the asset is more than the recoverable

amount. Recoverable amount is measured at the higher of the fair value less cost to sell for that asset and its value-in-use.

The value-in-use is the net present value of the projected future cash flow derived from that asset discounted at an appropriate

discount rate.

Projected future cash flows are based on Group’s estimates calculated based on historical, sector and industry trends,

general market and economic conditions, changes in technology and other available information regarding the automotive

sector, primarily in Malaysia, which is the Group's key market. The assumptions used, results and conclusion of the

impairment assessment are stated in Note 13 to the financial statements.

(ii) Estimated useful lives of property, plant and equipment and capitalised development costs

The Group reviews annually the estimated useful lives of property, plant and equipment and capitalised development costs

based on factors such as business plan and strategies, expected level of usage and future technological developments.

Future results of operations could be materially affected by changes in these estimates brought about by changes in the

factors mentioned. A reduction in the estimated useful lives of property, plant and equipment and development costs would

increase the recorded depreciation or amortisation and decrease the property, plant and equipment and development cost

balance.


(continued)

4 KEY ESTIMATES AND JUDGEMENTS (CONTINUED)

(iii) Deferred tax assets

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which

the temporary differences can be utilised. This involves significant judgments regarding the future financial performance of the

Group, the likely timing and level of future taxable profits together with future tax planning strategies to support the basis of

recognition of deferred tax assets. An analysis of the deferred tax balance is set out in Note 20 to the financial statements.

The Directors have considered the ability of the Group to generate sufficient taxable income to utilise the deferred tax asset

and have concluded no deferred tax assets should be recognised at 31 March 2007.

(iv) Estimation of income taxes

Income taxes are estimated based on the rules governed under the Income Tax Act, 1967. Significant judgment is required

in determining the capital allowances and deductibility of certain expenses during the estimation of the provision for income

taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary

course of business.

Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will

impact the income tax provisions in the period in which such determination is made. The status of the income tax position of

the Group is in Note 10 to the financial statements.

(v) Provision for warranty obligations and amounts recoverable

Provision is made for the estimated liability on all products under warranty in addition to claims already received. The accrual

recorded is based on the actual levels and trends of claims experienced by the Group arising during the period of warranty

over a number of years which provides a basis for calculating expected warranty claims. In addition, the Group records an

asset for the amount expected to be recoverable from its vendors based on similar actual claims and trends of claims

experienced.

An analysis of the estimated obligation and utilisation of the provision is stated in Note 32 to the financial statements.

(vi) Allowance for inventory write down

Allowance for inventory write down is made based on an analysis of the ageing profile and expected sales patterns of

individual items held in inventory. This requires an analysis of inventory usage based on expected future sales transactions

taking into account current market prices, useful lives of models and expected cost to sell. Changes in the inventory ageing

and expected usage profiles can have an impact on the allowance recorded. The movement in allowance and the net

realisable amount of inventory is stated in Notes 7 and 21 to the financial statements respectively.


4 KEY ESTIMATES AND JUDGEMENTS (CONTINUED)

(vii) Allowance for receivables

The allowance is established when there is objective evidence that the Group will not be able to collect all amounts due

according to the original terms of receivables. This is determined based on the ageing profile, expected collection patterns of

individual receivable balances, credit quality and credit losses incurred. The Group carefully monitors the credit quality of

receivable balances and makes estimates about the amount of credit losses that have been incurred at each financial

statement reporting date. Any changes to the ageing profile, collection patterns, credit quality and credit losses can have an

impact on the allowance recorded.

(viii) Impairment of goodwill

The Group tests goodwill for impairment at least annually in accordance with its accounting policy or whenever events or

change in circumstances indicate that this in necessary. The assumptions used, results and conclusion of the impairment

assessment are stated in Note 14 to the financial statements.

5 SIGNIFICANT EVENT

During the financial year, Perusahaan Otomobil Nasional Sdn Bhd (‘PONSB’), a wholly-owned subsidiary company of the Company

entered into a conditional sale and purchase agreement with Tracoma Holdings Berhad ('Tracoma') to acquire the remaining 49%

equity interest in PT Proton Tracoma Motors comprising 10,780,000 oridinary shares of USD1.00 each for total cash consideration

of USD10,133,200 or USD0.94 per share ('Proposed Acquisition').

At the date of the financial statements, both PONSB and Tracoma have mutually agreed to extend the date to 31 August 2007 for

fulfillment of all the conditions precedent in respect of the Proposed Acquisition as stated in the Sale and Purchase Agreement.


(continued)

6 REVENUE Revenue represents the invoiced value of goods sold and services provided and is net of commission paid to dealers and related

taxes. Revenue comprises:

Group Company 2007 2006 2007 2006

RM'000 RM'000 RM'000 RM'000

Sale of vehicles, spare parts and accessories 4,685,418 7,645,963 - -

Gross dividend income 168 - 667,983 111,097

Rendering of services 219,942 142,957 - -

Others 6,313 8,012 - -

4,911,841 7,796,932 667,983 111,097

7 (LOSS)/PROFIT BEFORE FINANCE COST


2007 2006 2007 2006RM'000 RM'000 RM'000 RM'000

The following items have been charged/

(credited) in arriving at (loss)/profit from operations:

Gross dividends receivable from:

- subsidiary company, unquoted being dividend-in-specie - - (376,482) -

- subsidiary company, unquoted - - (289,600) (109,843)

- associated companies, unquoted - - (1,733) (1,254)

- others, quoted (8,545) (9,525) - -

- others, unquoted (168) - (168) -

Property, plant and equipment:

- depreciation 352,900 341,990 - -

- written off 94,263 82,857 - -

- impairment - 5,066 - -

- loss/(gain) on disposal 250 (218) - -

Impairment loss on an investment in a

subsidiary - - 327,652 -

Amortisation of intangible assets 22,315 9,419 - -

Research and development expenditure 48,653 192,429 - -

Provision for warranties

(net of expected reimbursement) 38,737 81,314 - -


7 (LOSS)/PROFIT BEFORE FINANCE COST (CONTINUED)


2007 2006 2007 2006RM'000 RM'000 RM'000 RM'000

(Write back of)/allowance for doubtful debts (30,958) 117,923 - -

Write back of diminution in value of current investments - (7,202) - -

(Gain)/loss on disposal of investment:

- current investments (49,975) (2,664) - -

- joint ventures - 5,113 - -

Statutory audit fees to PricewaterhouseCoopers

Malaysia:

- current year 945 514 195 87

- underprovision of prior year - 200 - -

Other member firms of PricewaterhouseCoopers 1,113 966 - -

International Limited*

Audit related fees to PricewaterhouseCoopers

- Malaysia 525 561 - -

Non-audit fees to PricewaterhouseCoopers

- Malaysia 2,214 1,373 - -

- Other member firms of PricewaterhouseCoopers 393 362 - -

International Limited*

Operating lease rental 3,975 7,644 - -

Hire of plant, machinery and equipment 696 - - -

Rental of land and building 16,794 12,722 - -

Foreign exchange gain:

- transactions (21,833) (3,695) - (223)

- translation (4,598) (20,365) - -

Rental income on land and buildings (1,667) (1,307) - -

Interest income (35,563) (67,388) (374) (588)

(Write back of)/allowance for inventories

write down (30,681) 46,865 - -

Insurance claims on Medium Volume

Factory Fire - (46,737) - -

* PricewaterhouseCoopers Malaysia and other member firms of PricewaterhouseCoopers International Limited are separate and

independent legal entities


(continued)

8 STAFF COST

Group Company 2007 2006 2007 2006

RM'000 RM'000 RM'000 RM'000

Wages, salaries and bonuses 493,768 501,823 - 180

Termination benefits 1,980 1,839 - -

Pension cost

- defined contribution plan 31,365 31,818 - -

- defined benefit plan 21,852 45,065 - -

Other employee benefits 38,495 58,874 - 16

Reorganisation and redundancy costs of a

principal subsidiary of the Group 27,086 - - -

614,546 639,419 - 196

Number of employees

(including executive directors) 9,525 11,159 - -

Directors’ remuneration

The aggregate amount of emoluments receivable by the Directors of the Group and Company during the financial year was as

follows:

Group Company 2007 2006 2007 2006

RM'000 RM'000 RM'000 RM'000

Non-executive Directors:

- fees 1,243 514 621 514

- estimated money value of benefits-in-kind 36 24 - 24

- other benefits 291 178 145 178

Executive Directors:

- salaries and bonuses 1,102 955 - 180

- estimated money value of benefits-in-kind 63 57 - 16

- other employee benefits 174 128 - -

2,909 1,856 766 912

Details of the defined contribution and defined benefit plans of the Group and Company are set out in Note 37.


9 FINANCE COST

Group2007 2006

RM'000 RM'000

Interest expense on:

Long term loans 24,321 29,105

Short term borrowings 9,280 13,791

Others 1,940 982

35,541 43,878

Included in other operating income of the Group is interest income amounting to RM35,563,000 (2006: RM67,388,000).

10 TAXATION


2007 2006 2007 2006RM'000 RM'000 RM'000 RM'000

Taxation in Malaysia

Current taxation:

- charge for the financial year 50 35,557 101,532 169

- (over)/under accrual in respect of prior years (137,452) 2,005 - (92)

Taxation outside Malaysia

Current taxation:

- charge for the financial year 3,071 2,173 - -

- over accrual in respect of prior years - (568) - -

Deferred taxation (Note 20)

Origination and reversal of temporary differences (51) (67,576) - -

Write off of deferred tax asset 105,786 - - -

(28,596) (28,409) 101,532 77


(continued)

10 TAXATION (CONTINUED)


2007 2006 2007 2006RM'000 RM'000 RM'000 RM'000

Taxation for Group and Company (28,596) (28,409) 101,532 77

A numerical reconciliation between the average effective tax rate and the statutory tax rate is as follows:


2007 2006 2007 2006% % % % %

Malaysia tax rate 27 28 27 28

Tax effects of:

- double deduction and allowance incentive

on qualifying expenditure 5 (388) - -

- expenses not deductible for tax purposes (5) 203 - -

- income not subject to tax 3 (125) (12) (28)

- current year tax losses not recognised (39) 157 - -

- over under accrual in respect of prior years 22 8 - -

- reversal of previously recognised deferred

tax assets (17) 7 - -

- recognition of previously unrecognissed

tax losses 10 (10) - -

- effect on temporary differences not recognised (1) (7) - -

- tax on share of associated companies and

jointly controlled entities - (45) - -

- lower tax rate - 14 - -

Average effective tax rate 5 (158) 15 -


10 TAXATION (CONTINUED)


2007 2006 2007 2006RM'000 RM'000 RM'000 RM'000

Disclosure items:

Current year tax losses utilised

during the financial year 31,267 1,057 - -

Tax savings arising from such tax losses 8,442 298 - -

Previously unrecognised tax losses

utilised during the financial year 223,263 6,675 - -

Tax savings arising from such tax losses 60,281 1,869 - -

Unutilised tax losses carried forward 843,939 614,461 - -

Unutilised reinvestment allowance 1,561,714 1,421,028 - -

The tax recoverable which resulted from a writeback arose following the Inland Revenue Board (IRB) agreeing to settle tax disputes

in respect of one of the subsidiary’s treatment of certain items in the tax submissions for Years of Assessment 1989 to 1993.


(continued)

11 (LOSS)/EARNINGS PER SHARE

Basic (loss)/earnings per share is calculated by dividing the net (loss)/profit attributable to shareholders by the weighted average

number of ordinary shares in issue during the financial year.

Group2007 2006

Net (loss)/profit attributable to shareholders (RM’000) (589,533) 46,690

Weighted average number of ordinary shares in issue (‘000) 549,213 549,213

Basic (loss)/earnings per share (sen) (107.34) 8.50

Diluted (loss)/earnings per share is not presented in the financial statements since there are no dilutive potential ordinary shares.

12 DIVIDENDS

There is no dividend proposed in respect of the financial year ended 31 March 2007.

Group2007 2006

RM'000 RM'000

Final dividend for the financial year ended 31 March 2006:

Tax exempt dividend of 5.0 sen per ordinary share 27,461 -

Final dividend for financial year ended 31 March 2005:

Tax exempt dividend of 10.0 sen per ordinary share - 54,921


13 PROPERTY, PLANT AND EQUIPMENT

Officeequipment,

Land Plant furnitureLong term and fittings and Work-in

Freehold leasehold Buildings machinery vehicles progress Total Group Note RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

2007

Cost/valuation

At 1 April 2006 45 256,009 10,989 1,279,834 4,082,411 1,084,357 168,856 6,882,456

Currency translation 861 - 9,195 9,819 10,453 (243) 30,085

differences

Additions 5,202 - 196 15,717 48,143 249,577 318,835

Disposals - - (22) (27,592) (13,217) (2,851) (43,682)

Written off - - (2,583) (15,559) (52,300) (91,287) (161,729)

Reclassification - - 46,071 76,218 13,239 (135,528) -

Transfer to inventory - - (1,170) - - - (1,170)

At 31 March 2007 262,072 10,989 1,331,521 4,141,014 1,090,675 188,524 7,024,795

Officeequipment,


Freehold leasehold Buildings machinery vehicles progress Total Group Note RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

2007

Accumulated

depreciation

At 1 April 2006 45 - 933 345,130 2,270,842 663,786 - 3,280,691

Currency translation

differences - - 1,766 5,007 5,160 - 11,933

Charge for the

financial year - 112 39,366 210,626 102,796 - 352,900

Disposals - - - (27,585) (9,085) - (36,670)

Written off - - (671) (15,421) (51,374) - (67,466)

Reclassification - - - - - - -

Transfer to inventory - - (264) - - - (264)

At 31 March 2007 - 1,045 385,327 2,433,469 711,283 - 3,541,124


(continued)

13 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Officeequipment,


Freehold leasehold Buildings machinery vehicles progress Total Group RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

2007 Accumulated

impairment losses

At 1 April 2006 13,671 - 138,713 80,436 55,998 - 288,818Currency translation

differences 920 - 7,304 4,150 3,040 - 15,414 Charge for the

financial year - - - - - - -Disposals - - - - - - -

At 31 March 2007 14,591 - 146,017 84,586 59,038 - 304,232

Net book value

At 31 March 2007 247,481 9,944 800,177 1,612,959 320,354 188,524 3,179,439

Officeequipment,


Freehold leasehold Buildings machinery vehicles progress Total Group (restated) Note RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

2006

Cost/valuation

At 1 April 2005 243,464 12,045 1,181,676 3,718,608 1,014,993 468,451 6,639,237

Currency translation

differences (1,525) (106) (20,977) (23,401) (19,405) (137) (65,551)Additions 14,070 - 5,626 14,041 69,766 374,948 478,451Disposals - (950) (8,840) (6,887) (29,565) (114) (46,356)Written off - - - (12,656) (6,217) (77,034) (95,907)Reclassification - - 122,349 392,706 82,203 (597,258) -

As previously stated 256,009 10,989 1,279,834 4,082,411 1,111,775 168,856 6,909,874

Effect of adopting

FRS 138 15 - - - - (27,418) - (27,418)

At 31March 2006

as restated 256,009 10,989 1,279,834 4,082,411 1,084,357 168,856 6,882,456



Officeequipment,


Freehold leasehold Buildings machinery vehicles progress Total Group (restated) Note RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

2006 Accumulated

depreciationAt 1 April 2005 - 821 331,834 2,090,916 576,354 - 2,999,925Currency translation

differences - - (4,250) (13,383) (9,530) - (27,163)Charge for the

financial year - 112 19,702 205,133 126,462 - 351,409Disposals - - (2,156) (4,989) (13,866) - (21,011)Written off - - - (6,835) (6,215) - (13,050)As previously stated - 933 345,130 2,270,842 673,205 - 3,290,110Effect of adopting

FRS 138 15 - - - - (9,419) - (9,419)At 31 March 2006

as restated - 933 345,130 2,270,842 663,786 - 3,280,691

Officeequipment,


Freehold leasehold Buildings machinery vehicles progress Total Group (restated) RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000

2006Accumulated

impairment lossesAt 1 April 2005 14,879 1,056 158,616 89,079 62,330 - 325,960

Currency translation differences (1,497) (106) (15,916) (8,827) (6,115) - (32,461)

Charge for thefinancial year 289 - 2,699 2,062 16 - 5,066

Disposals - (950) (6,686) (1,878) (233) - (9,747)At 31 March 2006

as restated 13,671 - 138,713 80,436 55,998 - 288,818

Net book value

At 31 March 2006

as restated 242,338 10,056 795,991 1,731,133 364,573 168,856 3,312,947


(continued)


A piece of a subsidiary company’s freehold land was revalued on 5 September 1983 based on an independent professional

valuation. The surplus of RM36,881,980 arising on the revaluation was credited to the capital reserves and subsequently utilised.

Had this freehold land been carried at historical cost, the net book value of freehold land that would have been included in the

financial statements at the end of the financial year would be RM22,448,000 (2006: RM22,448,000).

The long term leasehold land comprise 2 parcels of land held by certain subsidiary companies which have unexpired leases of 90

and 69 years respectively as at 31 March 2007 (2006: 91 and 70 years respectively).

The title deed to the land of the Group amounting to net book value of RM72,258,000 (2006: RM72,258,000) has not been

transferred pending subdivision of the master title.

During the financial year, the Group acquired office equipment with an aggregate cost of RM6,778,500 (2006: Nil) by means of a

finance lease. The net book value of the office equipment under finance lease at the balance sheet date was RM6,493,803 (2006:

Nil).

Impairment test for property, plant and equipment

The carrying value of property, plant and equipment of a subsidiary company at balance sheet date is RM2,812,826,000 (2006:

RM2,914,708,000). During the financial year, the subsidiary company undertook a test for impairment of property, plant and

equipment.

The property, plant and equipment were allocated to the subsidiary company’s cash-generating units, i.e. production plants.

(a) Key assumptions used in the value-in-use calculations

The recoverable amounts of the production plants are determined based on value-in-use calculations. This value-in-use

calculations apply a discounted cash flow model using cash flow projections covering a ten-year period for the two older

production plants and a fifteen-year period for the new production plant. The projections over these periods reflect the

subsidiary company’s expectation of usage, revenue growth, operating costs and margins for each production plant based

on past experience and current assessment of market share, expectations of market growth and industry growth. The value-

in-use calculation for the newer plant reflects the initial low utilisation and the expectation of increased utilisation to the end of

the useful life of the plant.

Cash flows projections beyond the tenth year for the two older production plants and fifteenth year for the new production

plant are not extrapolated using estimated terminal growth rates. However the cash flow projections are assumed to be

derived from the dismantling of the production plants and disposal of the land on which the 3 specific plants are located.



(a) Key assumptions used in the value-in-use calculations (continued)

For purposes of the value-in-use calculation, a discount rate of 13% has been applied. The discount rate reflects the

prevailing independent market rate applicable to the Group in Malaysia.

The sales volumes used in the projections indicate a significant increase from current levels as the subsidiary

company is planning to introduce new models where capital expenditure has been incurred to date, over the

projection periods. However, the projected sales volume does not include future new models for which capital

expenditure has not been incurred.

The terminal value assumed for the disposal of land resulted in a discounted cash flow which is significantly higher

than the historical cost to the subsidiary company.

b) Impact of possible changes in key assumptions

Sensitivity analysis show that no impairment loss is required for the carrying amount of property, plant and

equipment assessed, including where realistic variations are applied to key assumptions.

PROTON 2007 ANNUAL REPORT 181notes to financial statements - 31 March 2007

(continued)

14 GOODWILL

Group2007 2006

RM'000 RM'000

At 31 March 29,008 29,008

Impairment tests for goodwillThe Group undertook the annual test for impairment of goodwill. The carrying amount of goodwill is allocated to the Group's cash

generating unit.

(a) Key assumptions used in the value-in-use calculationThe recoverable amount of the cash-generating unit including goodwill in this test is determined based on the value-in-use

calculation. This value-in-use calculation applies a discounted cash flow model using cash flow projections covering a five-

year period for the distribution business in Malaysia. The projections reflect the subsidiary company's expectation of revenue

growth, operating costs and margins based on past experience and current assessment of market share, expectation of

market growth and industry growth.

For purposes of the value-in-use calculation, a discount rate of 13% has been applied. The discount rate reflects an

independent market rate applicable to the Group in Malaysia.

The sales volumes used in the projections indicate a significant increase from current levels as the Group is planning to

introduce new models where capital expenditure has been incurred to date, over the projected periods. However, the

projected sales volume does not include future new models for which capital expenditure has not been incurred. A nil terminal

value has been assumed.

(b) Impact of possible changes in key assumptionsSensitivity analysis show that no impairment loss is required for the carrying amount of goodwill, including where realistic

variations are applied to key assumptions.

PROTON 2007 ANNUAL REPORT182notes to financial statements - 31 March 2007 (continued)

15 OTHER INTANGIBLE ASSETS

Capitalisedcosts for

product under Computer development software Total

Group Note RM'000 RM'000 RM'000

2007CostAt 1 April 2006 13 - 27,418 27,418Additions 142,975 30,379 173,354

At 31 March 2007 142,975 57,797 200,772

Amortisation

At 1 April 2006 13 - 9,419 9,419

Exchange rate adjustments (37) - (37)

Charge for the financial year 11,648 10,667 22,315

At 31 March 2007 11,611 20,086 31,697

Net book value

At 31 March 2007 131,364 37,711 169,075

Group (restated)

2006

Cost

At 1 April 2005 - - -

Effects of adopting FRS 138 13 - 27,418 27,418

At 31 March 2006 - 27,418 27,418

Amortisation

At 1 April 2005 - - -

Effects of adopting FRS 138 13 - 9,419 9,419

At 31 March 2006 - 9,419 9,419

Net book value

At 31 March 2006 - 17,999 17,999


(continued)

16 SUBSIDIARY COMPANIES

Company2007 2006

RM'000 RM'000

Unquoted shares at cost:

At 1 April 1,465,659 1,465,659

Additional investments in subsidiaries 570,644 -

2,036,303 1,465,659

Allowance for impairment losses (327,652) -

At 31 March 1,708,651 1,465,659

During the financial year, the Group undertook a restructuring exercise of its overseas subsidiaries, Proton Cars Australia Pty. Ltd.

('PCA'), Proton Cars (UK) Ltd. (‘PCUK’) and Lotus Group International Ltd. ('LGIL') which involved partial waiver and capitalisation of

inter-company debts. This exercise had resulted in PCA, PCUK and LGIL now having positive shareholders equity.

The additional investments represent subscription for 255,000,000 new Redeemable Convertible Preference Shares ('RCPS') of

RM0.10 each for a consideration of RM255,000,000 in Proton Marketing Sdn. Bhd., capitalisation of inter-company loan of

RM308,475,000 with the LGIL Group and subscription of 7,169,000 in new ordinary shares of RM0.10 for a consideration of

RM7,169,000 in Lotus Advance Technologies Sdn. Bhd..

The details of the subsidiary companies are as follows:

Group's effectiveCountry of interest

Name Principal activities incorporation 2007 2006

Perusahaan Otomobil Manufacture, assemble Malaysia 100% 100%

Nasional Sdn. Bhd.^ and sale of motor vehicles

and related products

Proton Tanjung Malim Sdn. Bhd.^ Assembly of motor vehicles Malaysia 100% 100%

and related products

Proton Marketing Sdn. Bhd. Investment holding Malaysia 100% 100%

Lotus Advance Technologies Sdn. Bhd Investment holding Malaysia 100% 100%

Proton Hartanah Sdn. Bhd. Investment holding Malaysia 100% 100%

Proton Capital Sdn. Bhd. Investment holding Malaysia 100% 100%

16 SUBSIDIARY COMPANIES (CONTINUED)



Subsidiary of PerusahaanOtomobil Nasional Sdn. Bhd.

Proton Automobiles (China) Ltd. ^ Dormant British Virgin 100% 100%

Islands

Subsidiaries of ProtonMarketing Sdn. Bhd.

Proton Corporation Sdn. Bhd. ^ Dormant Malaysia 100% 100%

Proton Cars (UK) Ltd.*^ Distributor of Proton England 100% 100%vehicles in United Kingdom

Proton Cars Australia Pty. Ltd.*^ Importation and Australia 100% 100%distribution of motor vehicles and related products

Proton Cars Benelux NV. SA*^ Dormant Belgium 100% 100%

Lotus Cars Asia Pacific Sdn. Bhd.^ Dormant Malaysia 100% 100%

Auto Compound and Dormant Malaysia 100% 100%Distribution Centre Sdn. Bhd.^

Proton Edar Sdn. Bhd.^ Sale of motor vehicles, Malaysia 100% 100%related spare parts and accessories

Subsidiaries of Lotus Advance Technologies Sdn. Bhd.

Proton Engineering Provision of engineering Malaysia 100% 100%Research Technology Sdn. Bhd.^ services

Lotus Group International Ltd.*^ Investment holding England 100% 100%

Subsidiary of ProtonHartanah Sdn. Bhd.

Proton Properties Sdn. Bhd.^ Property development Malaysia 100% 100%and management



(continued)




Subsidiaries of Proton Cars (UK) Ltd.

Smith & Sons Motors Ltd.*^ Dormant England 100% 100%

Proton Direct Ltd.+^ Motor dealership England 100% 100%

Proton Cars (Imports) Ltd.*^ Dormant England 100% 100%

Proton Cars Direct Limited*^ Dormant England 100% 100%

Subsidiaries of Proton Edar Sdn. Bhd.

Proton Singapore Pte. Ltd.*^ Sale of motor vehicles, Singapore 100% 100%related spare parts and accessories

Proton Edar Resources Sdn. Bhd.^ Repair and maintenance Malaysia 100% 100%of motor vehicles(previously dormant)

Proton Edar Ventures Sdn. Bhd.^ Dormant Malaysia 100% 100%

PT Proton Edar Indonesia* Sale of motor vehicles, Indonesia 95% 95%related spare parts andaccessories

Subsidiary of Proton Engineering Research Technology Sdn. Bhd.

Marco Acquisition Corporation*^ Leasing of equipment United States 100% 100%and asset of America

Subsidiary of Lotus Group

International Ltd.

Group Lotus Plc*^ Holds intellectual property England 100% 100%




Subsidiaries of Group Lotus PlcLotus Cars Ltd.*^ Car manufacture and England 100% 100%

engineering consultancy

Lotus Body Engineering Ltd.*^ Dormant England 100% 100%

Lotus Motorsports Ltd.*^ Dormant England 100% 100%

Lotus Holdings Inc.*^ Holding company for United States 100% 100%

operations in North America of America

Subsidiary of Lotus Cars Ltd.Lotus Engineering Ltd.*^ Carries out specific England 100% 100%

engineering contracts

Subsidiary of Lotus Engineering Ltd.Lotus Engineering (Malaysia) Sdn. Bhd.^ Engineering consultancy Malaysia 100% 100%

Subsidiaries of Lotus Holdings Inc.Lotus Engineering Inc.*^ Engineering consultancy United States 100% 100%

in North America of America

Lotus Cars USA Inc.*^ Car sales and servicing United States 100% 100%

of America

Subsidiary of Proton Cars Australia Pty. Ltd.

Lotus Cars Australia Pty. Ltd.* Sale of cars Australia 100% 100%

* Audited by a member firm of PricewaterhouseCoopers International Limited which is a separate and independent legal entity

from PricewaterhouseCoopers, Malaysia.+ Not audited by PricewaterhouseCoopers.^ Consolidated by merger method of accounting prior to 1 April 2006.

At 31 March 2007, the Directors are of the opinion that the carrying amount of the investment in a subsidiary company exceeds the

recoverable amount. Accordingly, an impairment loss of RM327,652,000 was recognised. The Directors estimated the recoverable

amount based on a 5 year discounted cash flow model.



(continued)

17 ASSOCIATED COMPANIES


2007 2006 2007 2006RM'000 RM'000 RM'000 RM'000

Unquoted shares at cost 52,083 52,083 13,600 13,600

Additional investment 7,169 - - -

Accumulated impairment losses (22,000) (22,000) - -

37,252 30,083 13,600 13,600

Share of post acquisition reserves 132,506 130,326 - -

169,758 160,409 13,600 13,600

The Group's share of the assets, liabilities, revenue and expenses of the associated companies are as follows:

GroupRestated

2007 2006RM'000 RM'000

Non-current assets 103,615 80,134

Current assets 178,840 168,449

Current liabilities (112,697) (88,174)

Net assets 169,758 160,409

Revenue 210,643 245,062

Expenses (excluding tax) (205,793) (222,126)

Profit from ordinary activity before taxation 4,850 22,936

Taxation (1,631) (5,903)

Profit from ordinary activity after taxation 3,219 17,033

17 ASSOCIATED COMPANIES (CONTINUED)

The details of the associated companies are as follows:



PHN Industry Sdn. Bhd. Manufacture and sales Malaysia 35% 35%of stamped parts andsub-assembly of automotive metal components

Marutech Elastomer Manufacture and Malaysia 25% 25%Industries Sdn. Bhd. production of moulded

products, extruded andrubber hoses for motorvehicles, motorcycleand other relatedproducts

Exedy (Malaysia) Sdn. Bhd. Manufacture and Malaysia 45% 45%assembly of manualclutch and automatictransmission parts

Associated company of PerusahaanOtomobil Nasional Sdn. Bhd.

Vina Star Motors Corporation Import, assembly and Socialist 25% 25%distribution of vehicles Republic of

Vietnam

Associated company of Proton Hartanah Sdn. Bhd.

Proton City Development Property developer and Malaysia 40% 40%Corporation Sdn. Bhd. project management

Associated company of Proton Cars (UK) Ltd.

Proton Finance Ltd. Provide dealer and England 49.99% 49.99%customer finance

Associated company of Proton Edar Sdn. Bhd.

Netstar Advance Systems Sdn. Bhd. Engaged in the Malaysia 40% 40%manufacture, assemblyand sale of vehicle racking devices



(continued)

17 ASSOCIATED COMPANIES (CONTINUED)



Associated company of Proton

Automobile (China) Ltd.

Goldstar Proton Automobiles Co. Ltd.* Production of automobile People's 49% 49%tools and components Republic of

China

Associated company of Lotus Advance Malaysia 51% 51%Technology Sdn. Bhd.

Mizayu (Malaysia) Sdn. Bhd.# Development, marketingand sale of products and service relating to dies, moulds and jigs

* The Board has resolved to dissolve the Company.# In the previous year, the Group had classified Miyazu (Malaysia) Sdn. Bhd. as a jointly controlled entity. The Group has reassessed

the classification of its investment in Miyazu following the adoption of FRS 131 “Interests in Joint Ventures” where all significantmatters relating to financial and operating matters require the unanimous approval of all ventures. The Directors have nowreclassified the investment in Miyazu as an associated company. The change in classification does not have significant impact tothe Group.

18 JOINTLY CONTROLLED ENTITIES

GroupRestated

2007 2006RM'000 RM'000

Unquoted shares at cost 179,303 179,303

Accumulated impairment losses (1,114) (1,114)

178,189 178,189

Share of post-acquisition reserves 45,361 67,067

223,550 245,256

18 JOINTLY CONTROLLED ENTITIES (CONTINUED)

The Group's share of the assets, liabilities, revenue and expenses of the jointly controlled entities are as follows:

GroupRestated

2007 2006RM'000 RM'000

Non-current assets 217,327 227,369

Current assets 89,871 117,910

Current liabilities (83,648) (100,023)

Net assets 223,550 245,256

Revenue 172,267 162,561

Expenses (excluding tax) (167,019) (147,763)

Profit from ordinary activity before taxation 5,248 14,798

Taxation (3,443) (2,994)

Profit from ordinary activity after taxation 1,805 11,804

The details of the jointly controlled entities are as follows:



Jointly controlled entities of ProtonMarketing Sdn. Bhd.

Proton Parts Centre Sdn. Bhd.# Trading of motor vehicle Malaysia 55% 55%components, spare partsand accessories

Proton Cars (Europe) Ltd.# Dormant England 56% 56%

Jointly controlled entity of PerusahaanOtomobil Nasional Sdn. Bhd.

PT Proton Tracoma Motors (Indonesia)# Manufacturing and sales of Indonesia 51% 51%motor vehicles

Jointly controlled entity ofGroup Lotus Plc

Lotus Finance Ltd. Motor vehicles financing England 49.9% 49.9%



(continued)

18 JOINTLY CONTROLLED ENTITIES (CONTINUED)



Jointly controlled entity of

Proton Edar Sdn. Bhd.

Proton Commerce Sdn. Bhd. Motor vehicles financing Malaysia 50% 50%

# Companies in which the Group owns more than one half of the voting power. However, as the Group has joint control over the

financial and operating policies, these investments are treated as jointly controlled entities.

There are no commitments and contingencies relating to the jointly controlled entities.

Impairment test for investment in PT Proton Tracoma

The carrying amount of the Group's investment in PT Proton Tracoma at balance sheet date is RM29.1 million (2006: RM37.6 million).

The Group undertook the test for impairment of its investment in PT Proton Tracoma.

(a) Key assumptions used in the value-in-use calculations

The recoverable amount of the investment is determined based on value-in-use calculations. This value-in-use calculation apply

a discounted cash flow model using cash flow projections covering a five-year period. The projections reflect the Group's

expectation of revenue growth, operating costs and margins for the investment based on the current assessment of market

share, expectations of market growth and industry growth.

For purposes of the value-in-use calculation, a discount rate of 22% has been applied. The discount rate reflect the prevailing

independent market rate applicable to the industry in the country in which the joint controlled entity operates, as adjusted for

risk premium.

The sales volumes used in the projections indicate a significant increase from current levels as the Group is planning to

introduce new models over the projection periods and expansion is expected for this relatively new investment.

(b) Impact of possible changes in key assumptions

Sensitivity analysis show that no impairment loss is required for the carrying amount of investment in the joint controlled entity

assessed, including where realistic variations are applied to key assumptions.

19 OTHER LONG TERM INVESTMENTS

Group Company2007 2006 2007 2006

RM'000 RM'000 RM'000 RM'000

Unquoted investments in Malaysia:

At cost 13,347 13,347 8,575 8,575

Allowance for diminution in value (2,950) (2,950) (2,100) (2,100)

10,397 10,397 6,475 6,475

20 DEFERRED TAXATION

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax

liabilities and when the deferred taxes relate to the same tax authority. The following amounts, determined after appropriate offsetting,

are shown in the balance sheet:

Group Company2007 2006 2007 2006

RM'000 RM'000 RM'000 RM'000

Subject to income tax:

Deferred tax assets - 105,786 - -

Deferred tax liabilities (754) (805) - -

(754) 104,981 - -

Group Company2007 2006 2007 2006

RM'000 RM'000 RM'000 RM'000

Movement of deferred tax

At beginning of financial year 104,981 37,405 - -

(Charged)/credited to Income Statement (Note 10)

- property, plant and equipment (46,290) 54,237 - -

- inventories (18,987) 589 - -

- allowances and provisions (61,361) 9,296 - -

- receivables 20,903 3,454 - -

(105,735) 67,576 - -

At end of financial year (754) 104,981 - -



(continued)

20 DEFERRED TAXATION (CONTINUED)

Group Company2007 2006 2007 2006

RM'000 RM'000 RM'000 RM'000

Deferred tax assets (before offsetting)

- property, plant and equipment - 46,290 - -

- inventories - 18,987 - -

- allowances and provisions - 61,361 - -

- 126,638 - -

Offset of deferred tax liabilities - (20,852) - -

Deferred tax assets (after offsetting) - 105,786 - -

Deferred tax liabilities (before offsetting)

- property, plant and equipment (754) (7,178) - -

- receivables - (14,479) - -

(754) (21,657) - -

Offset against deferred tax assets - 20,852 - -

Deferred tax liabilities (after offsetting) (754) (805) - -

The amount of liability not offset relates to deferred tax liabilities arising in an overseas subsidiary for which there is no available asset

for offset.

The tax effect of deductible temporary differences and unused tax losses (both of which have no expiry date) for which no deferred

tax asset is recognised in the Balance Sheet are as analysed below. The availability of the unused tax losses and unabsorbed capital

allowances for offsetting against future taxable profits of the Company and the respectively subsidiary companies are subject to no

substantial changes in shareholdings of those companies under Section 44 (5A) and (5B) of Income Tax Act, 1967.

20 DEFERRED TAXATION (CONTINUED)

Group2007 2006

RM'000 RM'000

Deductible temporary differences of which no deferred tax assets is recognised

Unrecognised tax losses 243,496 184,214

Unabsorbed capital allowances 347,473 47,395

Unrecognised reinvestment allowances 421,589 397,888

Other temporary differences 8,982 4,661

Taxable temporary differences of which no deferred tax liabilities is recognised

Surplus from land revaluation 12,201 11,572

As at 31 March 2007, there is no temporary differences associated with unremitted earnings of subsidiary companies, associated

companies and jointly controlled entities for the recognition of deferred tax liabilities (2006: Nil).

21 INVENTORIES

Group2007 2006

RM'000 RM'000

Raw materials:

- completely knocked-down packs of vehicles 230,077 264,920

- others 77,220 148,174

Parts, accessories and general stores 84,992 91,257

Work-in-progress 149,973 102,933

Finished vehicles 693,339 698,931

Goods-in-transit 23,072 65,988

Apartments for sale 14,939 16,802

1,273,612 1,389,005



(continued)

22 TRADE AND OTHER RECEIVABLES

Group Company2007 2006 2007 2006

RM'000 RM'000 RM'000 RM'000

Trade receivables 786,349 969,300 - -

Allowance for doubtful debts (37,550) (52,662) - -

748,799 916,638 - -

Other receivables 140,594 143,778 5 195

Allowance for doubtful debts (70,487) (86,333) - -

70,107 57,445 5 195

Warranty claims recoverable (Note 32) 121,397 125,835 - -

Prepayments 25,096 28,709 - -

Deposits 15,626 14,224 - -

981,025 1,142,851 5 195

The currency exposure profile of trade and other receivables are as follows:

Currency exposure at 31.3.2007Ringgit Pound US

Malaysia Sterling Dollar Euro Others TotalRM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Group

Functional currency

Ringgit Malaysia 724,825 28,338 77,944 51,098 20,246 902,451

Pound Sterling - 32,767 18,343 19,479 6,399 76,988

Others - - - - 1,586 1,586

724,825 61,105 96,287 70,577 28,231 981,025

Company

Functional currency

Ringgit Malaysia 5 - - - - 5

22 TRADE AND OTHER RECEIVABLES (CONTINUED)



Group

Functional currency

Ringgit Malaysia 958,916 113 60,673 3,697 249 1,023,648

Pound Sterling - 61,349 14,459 14,015 8,964 98,787

Others - - 270 4 20,142 20,416

958,916 61,462 75,402 17,716 29,355 1,142,851

Company

Functional currency


Credit terms of trade receivable for the Group ranges from 14 days to 360 days (2006: 14 days to 360 days). However, the majority

of the Group trade receivables have a credit term between 14 days to 60 days (2006: 14 days to 60 days).

Group sales are concentrated in Malaysia with one major third party customer in Malaysia making up 20% (2006: 31%) of total Group

revenue.

23 AMOUNTS DUE FROM SUBSIDIARY COMPANIES

The amounts due from subsidiary companies are denominated in Ringgit Malaysia, interest free and has no fixed terms of payment.



(continued)

24 AMOUNTS DUE FROM ASSOCIATED COMPANIES

The amounts due from associated companies arose from normal trade transactions. These amounts have credit terms ranging from

30 days to 60 days (2006: 30 days to 60 days).

Currency exposure at 31.3.2007Ringgit Pound

Malaysia Sterling TotalRM'000 RM'000 RM'000

Group

Functional currency

Ringgit Malaysia 22,599 - 22,599

Pound Sterling - 1,715 1,715

22,599 1,715 24,314

Currency exposure at 31.3.2006Ringgit Pound

Malaysia Sterling TotalRM'000 RM'000 RM'000

Group (restated)

Functional currency

Ringgit Malaysia 39,040 - 39,040

Pound Sterling - 1,351 1,351

39,040 1,351 40,391


25 AMOUNTS DUE FROM JOINTLY CONTROLLED ENTITIES

The amounts due from jointly controlled entities arose from normal trade transactions. These amounts have credit terms ranging

from 30 days to 45 days (2006: 30 days to 45 days).

Advances to a jointly controlled entity in 2006 were due within 180 days and interest of 7.23% was charged.



Group

Functional currency

Ringgit Malaysia 4,668 - 5,950 - - 10,618



Group (restated)

Functional currency

Ringgit Malaysia 9,201 - - 74 - 9,275

Pound Sterling - - - 13 - 13

9,201 - - 87 - 9,288

26 CURRENT INVESTMENTS

Group2007 2006

RM'000 RM'000

Quoted investments in Malaysia:

Cost:

Shares 15,496 116,736

Commercial paper and corporate debt 584 584

16,080 117,320

Unquoted investments in Malaysia:

Cost:

Commercial paper and corporate debt 57,368 94,645

73,448 211,965


(continued)

26 CURRENT INVESTMENTS (CONTINUED)

GroupRestated

2007 2006RM'000 RM'000

Market value of quoted investments:

Shares 16,355 121,868

Commercial paper and corporate debt 2,313 4,351

18,668 129,219

27 DEPOSITS, BANK AND CASH BALANCES

Group Company2007 2006 2007 2006

RM'000 RM'000 RM'000 RM'000

Short term funds deposited with:

Licensed banks 493,206 1,168,787 9,500 49,000

Discount houses 43,000 227,470 - -

Other financial institutions - 57,465 - -

536,206 1,453,722 9,500 49,000

Bank and cash balances 90,269 132,260 1,110 835

626,475 1,585,982 10,610 49,835

Group Company2007 2006 2007 2006

RM'000 RM'000 RM'000 RM'000

0 - 1 month 363,428 626,287 9,500 49,000

2 - 3 months 73,666 83,386 - -

4 - 6 months 94,900 90,500 - -

6 - 12 months 4,212 353,549 - -

More than 12 months - 300,000 - -

536,206 1,453,722 9,500 49,000

Bank balances are deposits held at call with banks.

27 DEPOSITS, BANK AND CASH BALANCES (CONTINUED)

The currency exposure profile of deposits, bank and cash balances are as follows:



Group

Functional currency


Pound Sterling - 14,459 3,633 - - 18,092

Australian Dollar - - - 1,215 - 1,215

Others - - - - 26,751 26,751

532,993 36,319 19,128 10,024 28,011 626,475



Group

Functional currency

Ringgit Malaysia 1,483,290 1,312 15,549 789 4,057 1,504,997

Pound Sterling - 14,807 10,154 - 2,992 27,953

Australian Dollar - - - 34,570 - 34,570

Others - - - - 18,462 18,462

1,483,290 16,119 25,703 35,359 25,511 1,585,982

Deposits, bank and cash balances in the Company as at 31 March 2007 and 2006 are denominated in Ringgit Malaysia.

The weighted average effective interest rates of deposits at the balance sheet date were 3.22% (2006: 3.10%) per annum for the

Group and 2.95% (2006: 2.73%) for the Company.

The Group has facilities comprising Letter of Credit, Banker's Acceptance and Bank Guarantee amounting to RM525.1 million

available as at 31 March 2007.



(continued)

28 SHARE CAPITAL

Group and Company2007 2006

RM'000 RM'000

Authorised: 1,000,000 1,000,000

Issued and fully paid:

At beginning/end of financial year 549,213 549,213

29 RESERVES

The Company has sufficient tax credits under Section 108(6) of the Income Tax Act, 1967 to frank all (2006: RM936.3 million) of its

retained profits as at 31 March 2007 if paid out as dividends. The extent of the retained earnings not covered at that date amounted

to Nil (2006: RM105.6 million).

In addition, the Company has tax exempt income as at 31 March 2007 amounting to approximately RM320.6 million (2006: RM56.6

million) available for distribution as tax exempt dividends to shareholders. This tax exempt income is subject to the agreement by the

Inland Revenue Board.

The capital reserves arose as a result of a Group reorganisation exercise whereby all existing shareholders of Perusahaan Otomobil

Nasional Sdn. Bhd. ('PONSB') (previously Perusahaan Otomobil Nasional Berhad) exchanged all their ordinary shares of RM1.00

each comprising of 549,213,000 ordinary shares in PONSB for 549,213,000 new ordinary shares of RM1.00 each in the Company

in a one-for-one share exchange on 5 April 2004. Following the share for share exchange, the Company has no share premium.

Accordingly, the amount of share premium previously recognised on consolidation has been designated as capital reserve.

30 LONG TERM LIABILITIES

Group2007 2006

RM'000 RM'000

Unsecured:

Long term loans (Note a) 135,027 115,490

Portion repayable within twelve months (Note 36) (58,877) (56,613)

76,150 58.877

30 LONG TERM LIABILITIES (CONTINUED)

Group2007 2006

RM'000 RM'000

Secured:

Long term loans - 570,900

Portion repayable within twelve months (Note 36) - (570,900)

- -

Lease and hire purchase creditors

- secured (Note b) 6,400 -

Portion repayable within twelve months (Note 31) (956) -

5,444 -

Employee retirement benefits (Notes (d) & 37) 49,842 41,378

Automotive Development Fund (Notes (c) & 43) 50,201 -

181,637 100,255

(a) Long term loans - unsecured

Group2007 2006

RM'000 RM'000

The long term loans are repayable as follows:

Within one year (Note (i)) 58,877 56,613

Between one and two years - 58,877

More than two years (Note (ii)) 76,150 -

135,027 115,490

(i) Repayable within one year

The loan balance comprises of 2 separate tranches of RM10.9 million (2006: RM21.6 million) and RM48.0 million (2006:

RM93.9 million) respectively. The repayment of the first tranche of the loan is due on 22 June 2007 and the second

tranche is due on 30 September 2007. Both tranches of the loan bear a fixed interest rate of 4% per annum and is

repayable in Ringgit Malaysia.

Subsequent to the financial year end, the Group obtained a deferment for the repayment of the second tranche loan of

RM47.8 million due on 30 September 2007 to 30 September 2009.



(continued)

30 LONG TERM LIABILITIES (CONTINUED)

(a) Long term loans - unsecured (continued)

(ii) Repayable more than two years

Subsequent to the financial year end, the Government of Malaysia has approved a loan of up to RM400 million to the

Group at concessionary terms. The loan is due to be repaid in 4 installments over a 4 year period commencing 1 April

2009. At 31 March 2007, RM76.2 million has been advanced by the Government of Malaysia in respect of this facility.

(b) Lease and hire purchase creditors - secured

The lease and hire purchase arrangements obtained by subsidiary companies are secured against the assets of the respective

subsidiary companies.

Group2007 2006

RM'000 RM'000

The lease and hire purchase creditors are repayable as follows:

Within one year 1,403 -

Between one and two years 1,403 -

Between two and five years 4,216 -

Later than five years 820 -

Total Gross Payments 7,842 -

Less: Finance charges (1,442) -

Total Net Payments 6,400 -

(c) Automotive Development Fund

The Government of Malaysia has approved the setting up of an Automotive Development Fund ('ADF') under the Ninth Malaysia

Plan with the objective of modernising and automating the manufacturing processes, improving efficiency, productivity, quality

and the application of automation for the Malaysian automotive industry.

The Government of Malaysia had, at 31 March 2007, disbursed a total of RM50 million to the Group to be utilised for payments

to external parties for the purpose of developing and promoting a competitive and viable domestic automotive sector as a

means to achieve the objective of the ADF.

(d) Employee retirement benefits

The employee retirement benefits represents the scheme operated by Lotus Group International Ltd., as disclosed in Note 37.


31 TRADE AND OTHER PAYABLES

Group Company2007 2006 2007 2006

RM'000 RM'000 RM'000 RM'000

Trade payables 242,801 250,129 - 617

Other payables 203,553 350,118 790 2,102

Accruals 558,124 625,743 - -

Amounts due to related parties 131 21,338 - -

Deferred revenue 40,773 - - -

Lease and hire purchase creditors

- current portion (Note 30) 956 - - -

1,046,338 1,247,328 790 2,719

The currency exposure profile of the trade and other payables are as follows:



GroupFunctional currency


Pound Sterling 15,893 130,000 25,642 17,414 422 189,371

Others - - - - 1,972 1,972

689,534 152,245 147,152 34,240 23,167 1,046,338

Company

Functional currency





Ringgit Malaysia 960,123 4,514 16,678 28,133 95,767 1,105,215

Pound Sterling - 103,949 15,371 1,273 8,641 129,234

Others - - 357 - 12,522 12,879

960,123 108,463 32,406 29,406 116,930 1,247,328


(continued)

31 TRADE AND OTHER PAYABLES (CONTINUED)



CompanyFunctional currency

Ringgit Malaysia 2,658 - - - 61 2,719

Terms of trade payables granted to the Group and Company varies up to 60 days (2006: 60 days) credit days and no credit (2006:

no credit) respectively.

32 PROVISIONS

Group2007 2006

RM'000 RM'000

At 1 April 217,062 239,888

Exchange differences 1,996 (5,043)

Charged to income statement 38,737 81,314

Warranties receivable 26,491 (8,946)

Additional provision for the financial year 65,228 72,368

Utilised during the financial year (88,219) (90,151)

At 31 March 196,067 217,062

The Group expects to be reimbursed by suppliers in respect of warranties amounting to RM121,397,000 (2006: RM125,835,000)

as disclosed in Note 22.

33 AMOUNTS DUE TO SUBSIDIARY COMPANIES

Amounts due to subsidiary companies are unsecured, denominated in Ringgit Malaysia, interest free and have no fixed repayment

terms.

34 AMOUNTS DUE TO ASSOCIATED COMPANIES

Amounts due to associated companies arose from normal trade transactions, denominated in Ringgit Malaysia and are payable

within 60 days.


35 AMOUNTS DUE TO JOINTLY CONTROLLED ENTITIES

Amounts due to jointly controlled entities arose from normal trade transactions and are due between 30 days to 45 days (2006: 30

days to 45 days).

The currency exposure profile of the amounts due to jointly controlled entities is as follows:


Malaysia Sterling Dollar TotalRM'000 RM'000 RM'000 RM'000


Ringgit Malaysia 25,060 - - 25,060


Malaysia Sterling Dollar TotalRM'000 RM'000 RM'000 RM'000


Ringgit Malaysia 8,736 75 - 8,811

36 SHORT TERM BORROWINGS

Group2007 2006

RM'000 RM'000

Unsecured:

Long term loan

- current portion (Note 30) 58,877 56,613

Bankers acceptance 739 1,304

Bank overdrafts 27,128 58,260

86,744 116,177

Secured:

Bank overdrafts 77,682 117,689

Long term loan - current portion (Note 30) - 570,900

77,682 688,589

164,426 804,766


(continued)

36 SHORT TERM BORROWINGS (CONTINUED)

The interest rate charged for bank overdrafts during the financial year ranged from 5.79% to 6.79% (2006: 5.50% to 6.83%) per

annum.

The bank overdraft facilities are secured by way of a corporate guarantee from a subsidiary company.

The bankers acceptance was drawn in Ringgit Malaysia and payable within 60 days. No interest was charged to the amount drawn

(2006: Nil).

The currency exposure profile of the short-term borrowings is as follows:




Ringgit Malaysia 59,616 - - - - 59,616

Pound Sterling - 104,810 - - - 104,810

59,616 104,810 - - - 164,426




Ringgit Malaysia 57,917 - - 313,740 - 371,657

Pound Sterling - 332,193 67,504 5,169 28,243 433,109

57,917 332,193 67,504 318,909 28,243 804,766

37 EMPLOYEE RETIREMENT BENEFITS

(a) Defined contribution plan

Group companies incorporated in Malaysia contribute to the Employees Provident Fund, the national defined contribution plan.

Once the contributions are paid, the Group has no further payment obligations.

(b) Defined benefit plan

Lotus Group Scheme - defined benefit scheme

Lotus Group International Ltd. and its subsidiaries ('Lotus Group'), operate a defined benefit pension scheme, the Lotus

Pension Plan. The assets are held in separate trustee administered funds. In addition, it provides life assurance cover for all

employees.

Contributions to the scheme are charged to the Income Statement so as to spread the cost of pensions over employees'

working lives with the Lotus Group. The contributions are determined by a qualified actuary on the basis of triennial valuations.

The latest actuarial valuation of the plan was carried out on 31 December 2005, using the Projected Unit method, updated to

31 December 2006.

The movements during the financial year in the amount recognised in the Consolidated Balance Sheet is as follows :

Group2007 2006

RM'000 RM'000

At 1 April 41,378 14,213

Currency translation differences 2,013 (3,364)

Charged to Income Statement 21,852 45,065

Contributions and benefits paid (15,401) (14,536)

At 31 March 49,842 41,378

The amounts recognised in the Consolidated Balance Sheet is analysed as follows:

Group2007 2006

RM'000 RM'000

Present value of obligation 392,068 370,548

Fair value of plan assets (369,469) (309,543)

Shortfall of funded plan 22,599 61,005

Unrecognised actuarial gain 42,040 8,455

Unrecognised transitional liability (14,797) (28,082)

Liability on Balance Sheet 49,842 41,378



(continued)

37 EMPLOYEE RETIREMENT BENEFITS (CONTINUED)

The expense recognised in the Consolidated Income Statement is analysed as follows:

Group2007 2006

RM'000 RM'000

Current service cost 14,383 11,996

Interest cost 19,988 15,159

Expected return on plan assets (22,790) (16,750)

Actuarial gain recognised - (2,670)

Gain on curtailments and settlement (4,701) -

Amortisation of transitional liability 14,972 37,330

Total, included in staff cost within administrative expenses (Note 8) 21,852 45,065

Actual return on plan assets 28,059 65,290

The principal actuarial assumptions used in respect of the Group's defined benefit plan were as follows:

Group2007 2006

% %

Discount rates 5.40 5.00

Expected return on plan assets

- equities 7.50 7.25

- bonds 4.75 4.50

- others 4.00 4.00

Expected rate of salary increase 4.10 3.85

Expected rate of pension payment increase 3.00 2.85

Inflation 3.10 2.85

38 SEGMENTAL INFORMATION

The Group is principally engaged in the automobile industry namely manufacturing, assembling, trading and provision of engineering

and other services in respect of motor vehicles and related products. Accordingly, no segmental information is considered necessary

for analysis by industry segments.

Inter-segment sales comprise of sales of cars, parts and engineering services to companies in different geographical locations.

Analysis of the Group's revenue, results and other information by geographical locations of the assets are as follows:

Malaysia Other countries Elimination Total2007 2006 2007 2006 2007 2006 2007 2006

RM'million RM'million RM'million RM'million RM'million RM'million RM'million RM'million

Revenue

External sales 3,729.3 6,654.6 1,182.5 1,142.3 - - 4,911.8 7,796.9

Inter-segment sales 243.0 129.9 124.8 149.6 (367.8) (279.5) - -

Total revenue 3,972.3 6,784.5 1,307.3 1,291.9 (367.8) (279.5) 4,911.8 7,796.9

Result

Segment operating

(loss)/profit (448.4) 58.6 (183.9) (118.1) (49.5) 5.4 (681.7) (54.1)

Unallocated expenses - 9.9

Unallocated income 58.50 9.9

Interest expense (35.5) (43.9)

Interest income 35.6 67.4

Share of net results of

associated companies

and jointly controlled

entities 14.5 21.3 (4.2) 7.5 (5.3) - 5.0 28.8

Taxation 28.6 28.4

(Loss)/profit after taxation (589.5) 46.4



(continued)

38 SEGMENTAL INFORMATION (CONTINUED)



Other information

Segment assets 5,379.3 6,907.1 745.4 620.4 - - 6,124.7 7,527.5

Unallocated assets 822.1 785.3 822.1 785.3

Total assets 6,946.8 8,312.8

Segment liabilities 871.1 1,282.1 545.3 278.7 - - 1,416.4 1,560.8

Unallocated liabilities 299.8 881.3 299.8 881.3

Total liabilities 1,716.2 2,442.1

Capital expenditure 294.7 455.4 24.1 23.1 - - 318.8 478.5

Depreciation and

amortisation 351.9 336.3 23.3 15.1 - - 375.2 351.4

Assets written off 92.2 82.9 2.1 - - - 94.3 82.9

Impairment - - - 5.1 - - - 5.1

Other non-cash items (26.5) 269.2 3.9 59.5 - - (22.6) 328.7

Unallocated income includes dividend from other investments, gain on disposal of current investments and writeback of provision for

diminution in value of current investments. Unallocated expenses represent losses on current investments, both realised and

unrealised. Segment assets consist primarily of property, plant and equipment, inventories, receivables and operating cash, and

exclude investments in associated companies, jointly controlled entities, long term investments, current investments and deferred tax

assets. Segment liabilities comprise operating liabilities and exclude items such as taxation and borrowings.

Capital expenditure mainly comprises additions to property, plant and equipment (Note 13).

38 SEGMENTAL INFORMATION (CONTINUED)

Secondary reporting format

The primary reporting format is based on geographical locations of the assets. The industry segmentation is considered unnecessary

as the Group is principally engaged in the automobile industry. Therefore, only sales to external customers based on customer

location is presented.



Revenue

External sales 3,386.8 6,441.0 1,525.0 1,355.9 - - 4,911.8 7,796.9

Inter-segment sales 243.0 129.9 124.8 149.6 (367.8) (279.5) - -

Total revenue 3,629.8 6,570.9 1,649.8 1,505.5 (367.8) (279.5) 4,911.8 7,796.9

39 CAPITAL AND OTHER COMMITMENTS

Capital commitments

Capital expenditure for property, plant and equipment approved by the Board not provided for in the financial statements:

Group2007 2006

RM'000 RM'000

Contracted for 283,328 267,727

Not contracted for 2,266,587 3,900,523

2,549,915 4,168,250

40 OPERATING LEASES

As at 31 March 2007, the Group was committed to making the following payments in respect of operating leases expiring:

Group2007 2006

Land and Plant and Land and Plant andbuildings machinery Total buildings machinery TotalRM'000 RM'000 RM'000 RM'000 RM'000 RM'000

Within one year - 1,162 1,162 1,246 2,212 3,458

Between one and five years 1,144 747 1,891 5,753 1,884 7,637

After five years - 123 123 - - -

1,144 2,032 3,176 6,999 4,096 11,095



(continued)

41 SIGNIFICANT RELATED PARTY TRANSACTIONS DISCLOSURES

In the normal course of business, the Group and Company undertake a variety of transactions at mutually agreed terms with

subsidiary companies, associated companies, jointly controlled entities and other related parties. The related parties with whom the

Group and Company transact with, include the following companies:

Related parties Relationship

PEPS-JV (M) Sdn. Bhd. Equity investment

Technomeiji Rubber Industries Sdn. Bhd. Equity investment

Aluminium Alloy Industries Sdn. Bhd. Equity investment

In addition to related parties disclosures mentioned elsewhere in the financial statements, set out below are other significant related

party transactions. The related party transactions described below were carried out on terms and conditions obtainable in

transactions with unrelated parties unless otherwise stated.

(a) Sales of goods and services

Group2007 2006

RM'000 RM'000

- Jointly controlled entities 13,615 18,650

(b) Purchases of goods and services from:

Group2007 2006

RM'000 RM'000

- Associated companies 227,435 157,536

- Jointly controlled entities 84,280 165,940

- PEPS-JV (M) Sdn Bhd 128,948 186,259

- Technomeiji Rubber Industries Sdn. Bhd. 7,970 13,597

- Aluminium Alloy Industries Sdn. Bhd. 2,715 16,601

42 CONTINGENT LIABILITIES

(a) A supplier had obtained a judgement in default against a subsidiary company for RM12.2 million after failing to reach a formal

agreement. The subsidiary had obtained legal opinion that the claims are without basis and an action to strike out a portion of

the claim (i.e. RM7.2million) would be successful.

(b) A Distributor instituted arbitration proceedings against a subsidiary company as a result of the termination of its distributorship,

for which the Distributor had claimed USD9,941,973 (RM37,779,497) plus general damages and interest. The Arbitration

Award was handed down on 30 October 2006 wherein the Distributor's claim against the subsidiary company was dismissed.

The Distributor has filed an action in court to set aside the Arbitration Award. The subsidiary has obtained legal advice that it is

highly unlikely that such action will be successful.

43 CASH AND CASH EQUIVALENTS

Group Company2007 2006 2007 2006

RM'000 RM'000 RM'000 RM'000

Licensed banks 493,206 1,168,787 9,500 49,000

Discount houses 43,000 227,470 - -

Other licensed financial institutions - 57,465 - -

536,206 1,453,722 9,500 49,000

Bank and cash balances 90,269 132,260 1,110 835

Deposits, bank and cash balances 626,475 1,585,982 10,610 49,835

Bank overdrafts (104,810) (175,949) - -

Fixed deposit pledged as security - (716,841) - -

Bank balance in respect of ADF Fund (Note 30) (50,201) - - -

471,464 693,192 10,610 49,835



(continued)

44 FINANCIAL INSTRUMENTS

(a) Financial risk management objectives and policies

The Group's activities are exposed to a variety of financial risks, including foreign currency exchange risk, interest rate risk, market

risk, credit risk, liquidity and cash flow risk. The Group focuses on the unpredictability of financial markets and seeks to minimise

potential adverse effects on the financial performance of the Group. Financial risk management is carried out through risks

reviews, internal control systems, a global insurance programme and adherence to Group financial risk management policies.

The Board regularly reviews these risks and approves the treasury policies, which covers the management of these risks.

The Group uses derivative financial instruments such as foreign exchange contracts and interest rate instruments to hedge

certain exposures. It does not trade in financial instruments.

(i) Foreign currency exchange risk

The Group is exposed to currency risk as a result of the foreign currency transactions entered into by the Company and

subsidiary companies in currencies other than their functional currency. The Group enters into forward foreign currency

exchange contracts to limit the exposure on foreign currency receivables and payables, and on cash flows generated

from anticipated transactions denominated in foreign currencies.

(ii) Interest rate risk

The Group's income and operating cash flows are not substantially affected by changes in market interest rates except for

interest from bank deposits. Derivative financial instruments are used, where appropriate, to generate the desired interest

rate profile.

(iii) Market risk

The Group does not face significant exposure from the risk from changes in debt and equity prices.

(iv) Credit risk

The Group seeks to invest cash assets safely and profitably. The Group considers the risk of material loss in the event

of non-performance by a financial counter party to be unlikely in view of the financial strength of those counter-parties.

The Group seeks to control customers credit risk by ensuring that significant sales of product and services are made to

customers with an appropriate credit history.

(v) Liquidity and cash flow risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding

through an adequate amount of committed credit facilities and the ability to close out market positions.

44 FINANCIAL INSTRUMENTS (CONTINUED)

(b) Forward foreign exchange contracts

Forward foreign exchange contracts are entered into by the Group in currencies other than the functional currency to manage

exposure to fluctuations in foreign currency exchange rates on specific transactions.

As at 31 March 2007, the outstanding notional principal amount of the Group foreign exchange contracts are as follows:

Group2007 2006

RM'000 RM'000

Maturity

Less than 6 months 149,864 45,873

Between 6 months and 1 year 42,311 41,986

192,175 87,859

The foreign currency amounts to be received and the contractual exchange rates of the Group's outstanding contracts are as

follows:

Currency Currencyto be to be RM'000 Average

Hedged item received paid equivalent contracted rate

2007

Group

Future purchase of raw materials over the

following 6 months JPY USD 114,947 1 USD = RM3.0170

Forecasted receivables

- the following 6 months GBP USD 34,917 1 USD = GBP 1.9209

- 6 to 12 months GBP JPY 42,311 1 USD = JPY 219.7491

192,175

2006

Group

Future purchase of raw materials over the

following 6 months

Forecasted receivables

- the following 6 months GBP USD 45,873 1 USD = GBP 1.7701

- 6 to 12 months GBP USD 41,986 1 USD = GBP 1.7571

87,859



(continued)

44 FINANCIAL INSTRUMENTS (CONTINUED)

(c) Fair values

The carrying amounts of financial assets and liabilities of the Group and Company at the balance sheet date approximated their

fair values except as set out below:

Group CompanyCarrying Fair Carrying Fair

Note amount value amount valueRM'000 RM'000 RM'000 RM'000

2007

Recognised on the Balance Sheet


Other long term investments 19 10,397 * 6,475 *

Advance - Government loan facility 30 (76,150) #

Lease and hire purchase creditor - long term portion 30 (5,444) (5,036) - -

2006

Recognised on the Balance Sheet


Other long term investments 19 10,397 * 6,475 *

Long term loans - unsecured 30 (115,490) (115,078) - -

Not recognised on the Balance Sheet

Foreign exchange hedge instruments - (5,041) - -

* It was not practicable within the constraints of timeliness and cost to estimate the fair values of the unquoted shares

reliably. The Group’s share of the net tangible worth of the investments at the balance sheet date is RM15,660,813 (2006

: RM14,956,000).

# It was not practicable within the constraints of timeliness and cost to estimate the fair value of the advance from the

Government reliably as the terms of the facility has yet to be finalised.

45 CHANGES IN ACCOUNTING POLICIES

The following describes the impact of the new accounting standards, amendments to the published standards and IC interpretations

adopted by the Group and Company for financial year beginning 1 April 2006 as listed in Note 2 of Basis of Preparation of the

Financial Statements.

(a) Irrelevant or immaterial effect on financial statements

The adoption of FRS 1, 2, 3, 5, 102, 108, 110, 121, 127, 128, 132, 133, 140 and the 'assets ceiling' amendments to FRS

119 (2004) did not result in significant changes to the Group and Company's accounting policies. In summary:

• FRS 1, 2, 3, 133, 140 and the amendment to FRS 119 (2004) are not relevant to the Company's operations,

• FRS 5 requires the Group and Company to continue to depreciate its property, plant and equipment where assets

identified for disposal do not meet the criteria set out by that standard; previously, depreciation ceased when the Board

has plans to sell the assets,

• FRS 5, 102, 108, 110, 127, 128, 132 and ICs had no material effect on the Group and Company's policies,

• FRS 121 had no material effect on the Group and Company's policies as the Group and Company has the same

functional currency as its measurement policy.

(b) Reclassification of prior year comparatives

Set out below are changes in accounting policies that resulted in reclassification of prior year comparatives but did not effect

the recognition and measurement of the Group's net assets:

(i) FRS 101 has affected the presentation of minority interest. In the Consolidated Balance Sheets, minority interest is now

presented within total equity. In the Consolidated Income Statement, minority interest is presented as an allocation of the

net profit or loss for the period. The movement in minority interest is now presented in the Consolidated Statement of

Changes in Equity. Consequently, total recognised income and expenses for the period, showing separately the amounts

attributable to equity holders of the parent and to minority interest are shown in the Consolidated Statement of Changes

in Equity. Share of results in associated companies and jointly controlled entities is now disclosed net of taxation in the

Consolidated Income Statement.

(ii) FRS 131 has affected the classification of investment in jointly controlled entity. The Group has reassessed the

classification of its investment in Miyazu Sdn Bhd following the adoption of FRS 131 where all significant matters relating

to financial and operating matters require the unanimous approval of all venturers. The Directors have now reclassified

the investment in Miyazu Sdn Bhd as an associated company.



(continued)

45 CHANGES IN ACCOUNTING POLICIES (CONTINUED)

(c) Relevant effect from adoption of new accounting policies or change in accounting policies

(i) FRS 116: Property, Plant and Equipment

The adoption of FRS 116 has resulted in extension of the accounting policy on property, plant and equipment as follows:

• The cost of property, plant and equipment includes costs of dismantling, removal and restoration, the obligation

incurred as a consequence of installing the assets;

• The assets' residual values and useful life are reviewed and adjusted as appropriate at least at each financial year-

end; and

• Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate,

only when it is probable that future economic benefits associated with the item will flow to the Group and the cost

of the item can be measured reliably. All other repairs and maintenance expenses are charged to the Income

Statement during the financial period in which they are incurred.

The Group has applied retrospectively the aforesaid and no material adjustment resulted from this assessment.

(ii) FRS 136 : Impairment of Assets

The adoption of FRS 136 had resulted in the extension of the accounting policy on impairment of goodwill. The

accounting policy on Impairment of Assets is set out in Note 3(t).

(iii) FRS 138 : Intangible Assets

The adoption of FRS 138 prospectively resulted in the extension of the accounting policy on intangible assets with the

resulting impact:

• Computer software was previously capitalized as an integral component of property, plant and equipment. Under

FRS 138, such computer software is now recognized separately as an intangible asset and amortised over the

useful lives. The change in policy has no significant impact to the Income Statement.

• Intangible assets also now includes development cost of products where such costs meet the asset recognition

criteria in FRS 138 and the cost is amortised over the expected useful life upon commercial launch of the products.

45 CHANGES IN ACCOUNTING POLICIES (CONTINUED)

(c) Relevant effect from adoption of new accounting policies or change in accounting policies (continued)

The effects of the change in accounting policies as mentioned in (b) and (c)(iii) are as follows:

As previously Asreported Adjustments restatedRM'000 RM'000 RM'000

Group

Income Statements (FRS 101)

Share of results of associated and jointly controlled entities 38,924 (10,087) 28,837

Profit before taxation 28,072 (10,087) 17,985

Taxation 18,322 10,087 28,409

Group

Balance Sheets (FRS 138) and (FRS 131)

Property, plant and equipment - Cost 6,909,874 (27,418) 6,882,456

Property, plant and equipment - Accumulated depreciation (3,290,110) 9,419 (3,280,691)

Property, plant and equipment - Net book value 3,330,946 (17,999) 3,312,947

Other intangible assets - 17,999 17,999

Investment in associated companies 155,702 4,707 160,409

Investment in jointly controlled entities 249,963 (4,707) 245,256

Amounts due from associated company 4,394 35,997 40,391

Amounts due from jointly controlled entities 45,285 (35,997) 9,288

Amounts due to associated company 34,904 11,327 46,231

Amounts due to jointly controlled entities 20,138 (11,327) 8,811

46 APPROVAL OF FINANCIAL STATEMENTS

The financial statements have been approved for issue in accordance with a resolution of the Board of Directors on 24 July 2007.


PROTON 2007 ANNUAL REPORT 221statement by directors pursuant to section 169(15) of the companies act, 1965

We, Dato' Mohammed Azlan Bin Hashim and Dato' Syed Zainal Abidin Bin Syed Mohamed Tahir, being two of the Directors of Proton

Holdings Berhad, state that, in the opinion of the Directors, the financial statements set out on pages 139 to 220 are drawn up so as to

give a true and fair view of the state of affairs of the Group and the Company as at 31 March 2007 and of the results and cash flows of

the Group and the Company for the financial year ended on that date in accordance with the provisions of the Companies Act, 1965 and

Financial Reporting Standards, the MASB Approved Accounting Standards in Malaysia for the Entities Other than Private Entities.

Signed on behalf of the Board of Directors in accordance with their resolution dated 24 July 2007.

DATO' MOHAMMED AZLAN BIN HASHIM DATO' SYED ZAINAL ABIDIN BIN SYED MOHAMED TAHIR Chairman Director

PROTON 2007 ANNUAL REPORT222statutory declaration pursuant to section 169(16) of the companies act, 1965

I, Tan Chun Weng, being the Officer primarily responsible for the financial management of Proton Holdings Berhad, do solemnly and

sincerely declare that the financial statements set out on pages 139 to 220. are, in my opinion, correct and I make this solemn declaration

conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960.

TAN CHUN WENG

Subscribed and solemnly declared by the abovenamed Tan Chun Weng at Shah Alam in Malaysia on 27 July 2007, before me.

COMMISSIONER FOR OATHS

PROTON 2007 ANNUAL REPORT 223report of the auditors to the members of PROTON holdings berhad

We have audited the financial statements set out on pages 139 to 220. These financial statements are the resposibility of the Company’s

Director. It is our reponsibility to form an independent opinion, based on our audit, on these financial statements to report our opinion to

you, as a body, in accordance with Section 174 of the Companies Act 1965 and for no other purpose. We do not assume responsibility

to any other person for the content of this report.

We conducted our audit in accordance with approved auditing standards in Malaysia. Those standards require that we plan and perform

the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes

examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing

the accounting principles used and significant estimates made by the Directors, as well as evaluting the overall financial statements

presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion:

(a) the financial statements have been prepared in accordance with the provisions of the Companies Act, 1965 and Financial Reporting

Standards, the MASB Approved Accounting Standards in Malaysia for Entities Other Than Private Entities so as to give a true and

fair view of:

(i) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements; and

(ii) the state of affairs of the Group and of the Company as at 31 March 2007 and of the results and cash flows of the Group and

Company for the financial year ended on that date;

and

(b) the accounting and other records and the registers required by the Act to be kept by the Company and by subsidiaries of which we

have acted auditors have been propely kept in accordance with the provisions of the Act.

The names of the subsidiary companies of which we have not acted as auditors are indicated in Note 16 to the financial statements. We

have considered the financial statements of these subsidiaries and the auditors’ reports thereon.

We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Company's financial statements are

in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have

received satisfactory information and explanations required by us for those purposes.

The auditors’ reports on the financial statements of the subsidiaries were not subject to any qualification and did not include any comment

made under subsection (3) of section 174 of the Act.

PRICEWATERHOUSECOOPERS DATO’ AHMAD JOHAN BIN MOHAMMAD RASLAN(No. AF: 1146) (No. 1867/09/08 (J))Chartered Accountants Partner of the Firm

PROTON 2007 ANNUAL REPORT224shareholdings statistics as at 16 July 2007

ANALYSIS OF SHAREHOLDINGSShare CapitalAuthorised Share Capital Issued and Fully Paid Up Capital RM1,000,000,000/-

Issued and Fully Paid Up Capital RM549,213,002/-

Class of Shares Ordinary Shares of RM1/- each

Voting Rights One (1) Voting Right for one (1) Ordinary Share

ANALYSIS OF SHAREHOLDINGS BY RANGE GROUPS

No. of % of No. of % ofShareholders/ Shareholders/ Shares Issued

Held Capital Held Capital

1 - 99 76 1.1180 761 0.0001100 - 1,000 3,776 55.5457 3,506,447 0.63841,001 - 10,000 2,347 34.5249 8,681,890 1.580810,001 - 100,000 448 6.5902 13,788,575 2.5106100,001 - 27,460,649 148 2.1771 202,056,056 36.790127,460,650 and above 3 0.0441 321,179,273 58.4799

Total 6,798 100.0000 549,213,002 100.0000

DISTRIBUTIONS OF SHAREHOLDINGS

Malaysian Malaysian Malaysian Malaysian Foreign Foreign Foreign ForeignNo. of % of No. of % of No. of % of No. of % of

Shareholders/ Shareholders/ Shares Share Shareholders/ Shareholders/ Shares ShareDepositors Depositors Held Capital Depositors Depositors Held Capital

1 - 99 73 1.0738 678 0.0001 3 0.0441 83 0.0000

100 - 1,000 3,678 54.1041 3,426,217 0.6238 98 1.4416 80,230 0.0146

1,001 - 10,000 2,215 32.5831 8,122,639 1.4790 132 1.9417 559,251 0.1018

10,001 - 100,000 364 5.3545 10,718,900 1.9517 84 1.2357 3,069,675 0.5589

100,001 - 27,460,649 84 1.2357 101,159,027 18.4189 64 0.9415 100,897,029 18.3712

27,460,650 and above 3 0.0441 321,179,273 58.4799 0 0.0000 0 0.0000

Total 6,417 94.3954 444,606,734 80.9534 381 5.6046 104,606,268 19.0466

SUBSTANTIAL SHAREHOLDERS

Name Shareholding %

1 KHAZANAH NASIONAL BERHAD 210,484,693 38.32482 EMPLOYEES PROVIDENT FUND BOARD 67,573,900 12.30383 PETROLIAM NASIONAL BERHAD 43,120,680 7.8514

321,179,273 58.48

PROTON 2007 ANNUAL REPORT 225shareholdings statistics as at 16 July 2007

(continued)

THIRTY LARGEST SHAREHOLDERS

Name of Shareholders No. of Shares %

1 KHAZANAH NASIONAL BERHAD 210,484,693 38.3248

2 EMPLOYEES PROVIDENT FUND BOARD 67,573,900 12.3038

3 CARTABAN NOMINEES (TEMPATAN) SDN BHD 43,120,680 7.8514

PETROLIAM NASIONAL BERHAD (STRATEGIC INV)

4 CIMSEC NOMINEES (TEMPATAN) SDN BHD 24,250,000 4.4154

SECURITY TRUSTEE (KCW ISSUE 2)

5 LEMBAGA TABUNG HAJI 16,820,427 3.0626

6 HSBC NOMINEES (ASING) SDN BHD 11,832,198 2.1544

TNTC FOR SAUDI ARABIAN MONETARY AGENCY

7 CITIGROUP NOMINEES (ASING) SDN BHD 9,632,117 1.7538

EXEMPT AN FOR MELLON BANK (MELLON)

8 CARTABAN NOMINEES (ASING) SDN BHD 7,882,800 1.4353

GOVERNMENT OF SINGAPORE INVESTMENT CORPORATION

PTE LTD FOR GOVERNMENT OF SINGAPORE (C)


TNTC FOR BRANDES INSTITUTIONAL EQUITY TRUST


AMANAH SSCM NOMINEES (TEMPATAN) SDN BHD FOR

EMPLOYEES PROVIDENT FUND BOARD (JF404)


GSI FOR INDUS EVENT DRIVEN MASTER FUND LTD


SSBT FUND NDS6 FOR NORTHROP GRUMMAN PENSION

MASTER TRUST

13 MALAYSIA NOMINEES (TEMPATAN) SENDIRIAN BERHAD 4,782,500 0.8708

MIDF AMANAH ASSET MANAGEMENT BERHAD FOR AMANAH

MILLENIA FUND BERHAD (JM730)

14 PERMODALAN NASIONAL BERHAD 4,599,900 0.8375

15 CITIGROUP NOMINEES (TEMPATAN) SDN BHD 4,344,500 0.7910

EXEMPT AN FOR PRUDENTIAL ASSURANCE MALAYSIA BERHAD


BNY BRUSSELS FOR ING EMERGING COUNTRIES FUND

17 VALUECAP SDN BHD 3,829,600 0.6973


INVESTORS BANK AND TRUST COMPANY FOR ISHARES, INC.

PROTON 2007 ANNUAL REPORT226shareholdings statistics as at 16 July 2007(continued)

THIRTY LARGEST SHAREHOLDERS (CONTINUED)

Name of Shareholders No. of Shares %


CBNY FOR DFA EMERGING MARKETS FUND


EXEMPT AN FOR JPMORGAN CHASE BANK,

NATIONAL ASSOCIATION (AUSTRALIA)


GOVERNMENT OF SINGAPORE INVESTMENT CORPORATION

PTE LTD FOR MONETARY AUTHORITY OF SINGAPORE (H)


TNTC FOR UTAH STATE RETIREMENT SYSTEMS


EXEMPT AN FOR AMERICAN INTERNATIONAL ASSURANCE LIMITED


SSBT FUND NXW3 FOR BRANDES GLOBAL SMALL CAP EQUITY FUND


EXEMPT AN FOR AMANAH SSCM NOMINEES (TEMPATAN)

SDN BHD (ACCOUNT 1)


EXEMPT AN FOR FORTIS BANQUE LUXEMBOURG (OPCVM A/C)

27 BANK SIMPANAN NASIONAL 1,883,000 0.3429

28 MAYBAN NOMINEES (TEMPATAN) SDN BHD 1,865,400 0.3396

AVENUE INVEST BERHAD FOR KUMPULAN WANG AMANAH

PENCEN (E00170-220136)



TOTAL 467,907,546 85.1960

DIRECTOR’S SHAREHOLDINGS

None of the Directors hold any shares in the Company.

PROTON 2007 ANNUAL REPORT 227properties owned by PROTON Group as at 31 March 2007

Location Description and existing use

Date of acquisition /

Tenure revaluationAge of Net book valuebuilding RM’million

PROPERTIES OWNED BY PERUSAHAAN OTOMOBIL NASIONAL SDN. BHD.

No. H.S. (D)71311, No. P.T.82Mukim of Damansara, Districtof Petaling, Selangor DarulEhsan. (Formerly, HICOMIndustrial Estate encompassingpart of Lots 563, 564, 568,570 and Lot 15, Mukim ofDamansara, District ofPetaling, Selangor DarulEhsan).

Land with an area of6,231,080 sq. ft. with mainoffice, main factory, enginefactory, medium volumefactory, canteen buildings,sports facilities, car park forproduction cars and additionalR&D laboratories building.Total built-up area is2,594,603 sq. ft.

Freehold 05.09.1983 22 years Land: 68.4

Buildings: 141.7

HICOM Industrial Estateencompassing Lot 572, Mukimof Damansara, District ofPetaling, Selangor Darul Ehsan.

3 units of flats currently rented out.

Freehold 09.04.1986 22 years Flats: 0.04

Lot 25, HICOM GlenmarieIndustrial Park, Mukim ofDamansara, District ofPetaling, Selangor DarulEhsan.

Land with an area of1,036,728 sq. ft. with office,factory and canteen buildingsand sports facilities used forthe Casting Plant. Total built-up area is 194,579 sq. ft.

Freehold 30.12.1992 13 years Flats: 20.6

Buildings: 42.9

No. H.S.(D) 71309, No. P.T. 80,Mukim of Damansara, District ofPetaling, Selangor Darul Ehsan.(Formerly, HICOM IndustrialEstate encompassing Lot 568Grant No. 5941,H.S.(D) 22208No. P.T. 5115,H.S.(D) 22207,No. P.T.5116, Mukim ofDamansara, District of Petaling,Selangor Darul Ehsan).

Land with an area of 158,107sq. ft. used as the car park forstaff.

Freehold 19.11.1993 - Land: 2.6

PROTON 2007 ANNUAL REPORT228properties owned by PROTON Group as at 31 March 2007(continued)




PROPERTIES OWNED BY PERUSAHAAN OTOMOBIL NASIONAL SDN. BHD.

PROPERTIES OWNED BY PROTON EDAR SDN. BHD.

PROPERTY OWNED BY PROTON CARS (UK) LTD.

No. H.S.(D) 86554, No. P.T.257 encompassing Lot 54,60and 62, Sime UEP IndustrialPark, Mukim of Damansara,District of Petaling, SelangorDarul Ehsan.

Land with an area of2,396,727sq. ft. adjoining theCompany's northern boundaryhousing the semi-high speedtest track and control building.Total built-up area is2,102,731 sq. ft.


Track and

buildings: 20.0

No. H.S. (D) B.P.5653 and5654 Bil P.T. 16162 and10163, District of BatangPadang, Mukim of Ulu BernamTimur, Perak Darul Ridwan.

Land with an area of55,444,116 sq. ft, for theconstruction of a secondautomobile plant,administrative building andsports complex facilities.Total built-up area is3,374,577 sq.ft.


Buildings: 427.0

Ref. AV 915, Units 1-3, CrawleyWay, Avonmouth, Bristol AvonBS11 9YR, England.

Land with an area of 162,479sq. ft. with a parts warehousebuilding.


Buildings: 1.9

Vehicel Preparation Centre(VPC)No H.S. (D) 86555, PT No. 258and H.S. (D) 86557, PTNo.260, TP 5 Road, Sime UEPIndustrial Park, 47600 SubangJaya, Selangor Darul Ehsan.

Vehicle Preparation Centreand stock control building withtotal built up area of 101,956sq.ft.

Freehold 01.12.2000 6 years Buildings: 5.1


(continued)

Location

Description and existing use



PROPERTIES OWNED BY PROTON EDAR SDN. BHD. (CONTINUED)

Centre of Excellence (COE) &

Pre-Delivery and Inspection

Centre (PDI)

No H.S. (D) 86596, PT No.

299 and H.S. (D) 86597, PT

No. 300, TP 5 Road, Sime

UEP Industrial Park, 47600

Subang Jaya, Selangor Darul

Ehsan.

Administration & Operations

Office and Pre-Delivery &

Inspection Centre with total

built up area of 30,212 sq. ft.


Buildings: 139

No. 2, Lrg. Samarinda 6A, Off

Jalan Kebun H.S (D) 60042,

P.T.No. 64566 Mukim Klang

Selangor Darul Ehsan,

3 storey shop units with

approximately 2,475.7 sq. ft.

in built-up area.


Lot 859, Block 16 Kuching

Central Land District, Stampin

41/2 Mile, Penrissen Road

Kuching, Sarawak

Land with an area of

48,383.73 sq. ft. to be used

for sales outlet and service

centre.


No. 218089. Mukim Plentong,

Daerah Johor Bahru, Johor

Land with an area of 87,120

sq. ft. to be used for sales

outlet and service centre.


Buildings: 6.6

H.S(D) 63313, P.T.No. 9671

Mukim of Ampangan District of

Seremban, Negeri Sembilan


sq.ft. used for sales outlet and

service centre is 7,175 sq.ft.

Freehold 19.07.2002 41/2 years Land: 3.1

3 years Buildings: 2.9

PROTON 2007 ANNUAL REPORT230properties owned by PROTON Group as at 31 March 2007(continued)





H.S.(D) 318392, PTD 81816,

Mukim of Pulai, District of

Johor Bahru.


sq.ft. to be used for sales



Part of Lot 45, Held under

Master Title geran 29164 Lot

5458, Mukim & District of

Petaling, Selangor Darul Ehsan.





Lot PT 22489, Mukim Batu

District of Gombak, Selangor

Darul Ehsan.





Lot PT 4352, Mukim Kuah

District of Langkawi, Kedah

Darul Aman.





H.S. (D) 144330, PT 40019

Mukim of Sungai Buloh,

District of Petaling, Selangor

Darul Ehsan.




Freehold 02.09.2002

01.03.2004

41/2 years Land: 9.3


H.S. (D) 159654, PT.1 Jalan

Kemajuan, District of Petaling

Jaya, Selangor Darul Ehsan.






(continued)

Location

Description and existing use




No H.S. (D) 86596, PT No.

302, TP 5 Road, Sime UEP

Industrial Park, 47600 Subang

Jaya, Selangor Darul Ehsan.


sq. ft. to be used for

stockyard area.


PROPERTIES OWNED BY PROTON EDAR VENTURES SDN. BHD.

No. H.S. (D) 588, No. PT.

2361, Mukim Gelung, District

of Kubang Pasu, Kedah Darul

Aman.


1,373,925 sq. ft. to be used

as site for industrial building.


PROPERTY OWNED BY PROTON CORPORATION SDN. BHD.

Lot No. 23 & 24, Section 7

Phase 1A, Pulau Indah

Industrial Park, Westport,

Pelabuhan Klang, Selangor

Darul Ehsan.

Industrial land with an area of

approximately 671,204 sq. ft.

used as warehouse for

production export car.

Long 25.02.1998

leasehold of

99 years

(Year of expiry:

2097)

9 years Land: 10.1

Lot 1229, Mergong Industrial

Estate Phase 11, Mukim of

Mergong, District of Kota

Setar, Kedah Darul Aman.


sq.ft. with a 1 1/2 storey

building leased to Proton Edar

Sdn. Bhd. Used as

Pre-Delivery inspection and

service centre.

Long 15.05.1977

leasehold

(Year of expiry:

2076)

30 years Land: 0.3

Building: 0.2

PROTON 2007 ANNUAL REPORT232properties owned by PROTON Group as at 31 march 2007(continued)




PROPERTIES OWNED BY LOTUS CARS LTD. (UK)

Lotus Cars Limited

Land adjacent to Potash Lane,

Hethel, Norwich, Norfolk NR

14 8EZ, England

and

Land north of Browick Road,

Hethel, Norwich, Norfolk NR14

8EZ, England.

Two parcels of land with a

total area of 6,286,550 sq. ft.

with the factory, engineering

facilities, offices and test track

of Lotus Group International

Ltd. Total built up area is

515,500 sq. ft.


Buildings: 80.9

PROPERTY OWNED BY GROUP LOTUS PLC.

Potash Lane Hethel, Norwich,

Norfolk NR14 8EZ, England.

R&D building rented to

Group’s companies. Total built

up area is 86,600 sq.ft.


PROPERTY OWNED BY MARCO ACQUISITION CORPORATION

1254 North Main St, Ann

Arbor, Michigan, USA.


approximately 165,528 sq. ft.

with office and workshop.

Total built up area is 73,000

sq. ft.

Freehold 24.02.2000 Office: Land: 0.9


Workshop:

41 years

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

Share Price (RM)

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Volume (’000)

Apr06

May Jun July Aug Sep Oct Nov Dec Jan 07

Feb Mar Apr May Jun Jul

Share Price Volume

PROTON 2007 ANNUAL REPORT 233share price and volume traded

PROTON 2007 ANNUAL REPORT234notice of annual general meeting

NOTICE IS HEREBY GIVEN that the Fourth (4th) Annual General Meeting of theCompany will be held at the Auditorium, PROTON Centre of Excellence, KM 33.8,Westbound Shah Alam Expressway, 47600 Subang Jaya, Selangor Darul Ehsan,Malaysia on Thursday, 6 September 2007 at 10.00 a.m for the followingpurposes:

1. To lay the Reports of the Directors and Auditors and the Audited Statement of Accounts for the year ended 31 March 2007;

2. To elect the following Directors who retire in accordance with the Company's Articles of Association:-

Article 104 (i) Encik Mohammad Zainal Bin Shaari RESOLUTION 1(ii) Tuan Haji Abdul Kadir Bin Md Kassim RESOLUTION 2

Article 111(i) Dato' Michael Lim Heen Peok RESOLUTION 3(ii) Dato' Mohd Izzaddin Bin Idris RESOLUTION 4

3. To approve the Directors' fees for the year ended 31 March 2007. RESOLUTION 5

4. To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company and to authorise the Directorsto fix their remuneration. RESOLUTION 6

5. To transact any other ordinary business for which due notice has been given. RESOLUTION 7

6. AS SPECIAL BUSINESSTo consider and, if thought fit, to pass the following Ordinary Resolution:-

Authority to allot and issue shares pursuant to Section 132D of the Companies Act, 1965 RESOLUTION 8

“THAT subject always to the provisions of the Companies Act, 1965, the Articles of Association of theCompany and the approval of the relevant authorities and pursuant to Section 132D of the Companies Act,1965, the Directors be and are hereby authorised to issue and allot shares in the Company from time to timeat such price, upon such terms and conditions, for such purposes and to such person or personswhomsoever as the Directors may deem fit, provided that the aggregate number of shares to be issuedpursuant to this resolution does not exceed 10 percent (%) of the issued share capital of the Company forthe time being and that such authority shall continue to be in force until the conclusion of the next AnnualGeneral Meeting of the Company”.

PROTON 2007 ANNUAL REPORT 235notice of annual general meeting

By Order of the Board

MOHD NIZAMUDDIN BIN MOKHTAR(LS NO. 006128)

Company Secretary

Shah Alam15 August 2007

NOTES:1. A member of the Company entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend and vote in his stead.A proxy may but need

not be a member of the Company and the provision of Section 149(1)(b) of the Companies Act, 1965 shall not apply.

2. The instrument appointing a proxy must be in writing under the hands of the appointor or his attorney duly authorised in writing or, if such appointor is a corporation,

under its common seal or the hand of an officer or attorney duly authorised. If the Form of Proxy is signed under the hand of an officer duly authorised, it should be

accompanied by a statement reading “signed as authorised officer under Authorisation Document which is still in force, no notice of revocation having been received.”

If the Form of Proxy is signed under the attorney duly authorised, it should be accompanied by a statement reading “signed under Power of Attorney which is still in

force, no notice of revocation having been received”. A copy of the Authorisation Document or the Power of Attorney, which should be valid in accordance with the

laws of the jurisdiction, in which it was created and is exercised, should be enclosed.

3. The maximum number of proxies that may be appointed is two. Where a member appoints more than one proxy, the appointment shall be invalid unless he specifies

the proportion of his shareholdings to be represented by each proxy.

4. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, it may appoint at least one proxy

in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. Every appointment submitted

by an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, must specify the CDS Account Number.

5. The instrument appointing the proxy must be deposited at the office of the Registrar, Tenaga Koperat Sdn Bhd, 20th Floor, Plaza Permata, Jalan Kampar, Off Jalan

Tun Razak, 50400 Kuala Lumpur not less than forty eight (48) hours before the time appointed for the meeting.

6. For the purpose of determining a member who shall be entitled to attend the Meeting, the Company shall be requesting Bursa Malaysia Depository Sdn Bhd, in

accordance with Article 67(b) of the Company's Articles of Association and Section 34(1) of the Securities Industry (Central Depositories) Act, 1991 to issue a General

Meeting Record of Depositors as at 28 August 2007. Only a depositor whose name appears on the General Meeting Record of Depositors as at 28 August 2007

shall be entitled to attend the said meeting or appoint proxies to attend and/or vote on his stead.

EXPLANATORY NOTES TO THE SPECIAL BUSINESS:-The Ordinary Resolution No. 8, if passed, will give the Directors of the Company the authority to issue shares in the Company up to an amount not exceeding in total 10%

of the issued and paid up capital of the Company for such purposes as the Directors consider would be in the interest of the Company. This would avoid any delay and

cost involved in convening a general meeting to specifically approve such an issue of shares. This authority, unless revoked or varied at a general meeting, will expire at the

next Annual General Meeting of the Company.

PROTON 2007 ANNUAL REPORT236statement accompanying the notice of annual general meeting

"STATEMENT ACCOMPANYING THE NOTICE OF FOURTH (4TH) ANNUAL GENERAL MEETING"

Pursuant to Paragraph 8.28(2) of the Listing Requirements of Bursa Malaysia Securities Berhad, appended hereunder are:

DIRECTORS STANDING FOR RE-ELECTION

Directors who are standing for re-election at the Fourth (4th) Annual GeneralMeeting of the Company which will be held at the Auditorium, PROTON Centreof Excellence, KM 33.8, Westbound Shah Alam Expressway, 47600 SubangJaya, Selangor Darul Ehsan, Malaysia on Thursday, 6 September 2007at 10.00 a.m. pursuant to the Company's Articles of Association.

Article 104(i) Encik Mohammad Zainal Bin Shaari Refer to Page 27 of the Annual Report(ii) Tuan Haji Abdul Kadir Bin Md Kassim Refer to Page 28 of the Annual Report

Article 111(i) Dato' Michael Lim Heen Peok Refer to Page 30 of the Annual Report(ii) Dato’ Mohd Izzaddin Bin Idris Refer to Page 31 of the Annual Report

FORM OF PROXY

No. of Shares held

CDS Account No. of Authorised Nominee

(full address)

I/We (name of shareholder, in capital letters)

NRIC No. (new)

(new)

(new)

(old) ID No./Company No.

of being a member of Proton Holdings

Berhad, hereby appoint (name of proxy as per NRIC, in

capital letters) NRIC No. (old) or failing him/her(name of proxy as per NRIC, in capital letters) NRIC No. (old)

or failing him/her, the CHAIRMAN OF THE MEETING as my/our proxy to vote for me/us on my/our behalf at the Fourth (4th) Annual GeneralMeeting of the Company to be held at the Auditorium, PROTON Centre of Excellence, KM 33.8, Westbound Shah Alam Expressway, 47600Subang Jaya, Selangor Darul Ehsan, Malaysia on Thursday, 6 September 2007 at 10.00 a.m and at any adjournment thereof.

My/Our proxy is to vote as indicated below:-

(Please indicate with an “X” in the spaces provided how you wish your vote to be cast. If you do not do so, the proxy will vote or abstain

from voting at his/her discretion.)For appointment of more than one proxy, number of shares andpercentage of shareholdings to be represented by the proxies:-

No. of shares Percentage

Proxy 1 %

Proxy 2 %

Dated this day of 2007.

Signature/Common Seal of Appointer

ORDINARY RESOLUTIONS FOR AGAINST

To elect the following Directors who retire in accordance with the Company'sArticles of Association:-

Resolution 1Resolution 2

Article 104i. Encik Mohammad Zainal Bin Shaariii. Tuan Haji Abdul Kadir Bin Md KassimArticle 111i. Dato' Michael Lim Heen Peokii. Dato' Mohd Izzaddin Bin Idris

Resolution 3

To approve the Directors' fees for the year ended 31 March 2007.

To transact any other ordinary business for which due notice has been given.

AS SPECIAL BUSINESS

To consider and, if thought fit, to pass the following resolution:- Ordinary Resolution - Authority to allot and issue shares pursuant to Section 132D of the Companies Act, 1965.

Resolution 4

Resolution 5

Resolution 6

Resolution 7

Resolution 8

1.

2.

4.

To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company and toauthorise the Directors to fix their remuneration.

3.

5.

NOTES:1. A member of the Company entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend and vote in his stead.A proxy may but need

not be a member of the Company and the provision of Section 149(1)(b) of the Companies Act, 1965 shall not apply.

2. The instrument appointing a proxy must be in writing under the hands of the appointor or his attorney duly authorised in writing or, if such appointor is a corporation,

under its common seal or the hand of an officer or attorney duly authorised. If the Form of Proxy is signed under the hand of an officer duly authorised, it should be

accompanied by a statement reading “signed as authorised officer under Authorisation Document which is still in force, no notice of revocation having been received.”

If the Form of Proxy is signed under the attorney duly authorised, it should be accompanied by a statement reading “signed under Power of Attorney which is still in

force, no notice of revocation having been received”. A copy of the Authorisation Document or the Power of Attorney, which should be valid in accordance with the

laws of the jurisdiction, in which it was created and is exercised, should be enclosed.

3. The maximum number of proxies that may be appointed is two. Where a member appoints more than one proxy, the appointment shall be invalid unless he specifies

the proportion of his shareholdings to be represented by each proxy.

4. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, it may appoint at least one proxy

in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. Every appointment submitted

by an authorised nominee as defined under the Securities Industry (Central Depositories) Act, 1991, must specify the CDS Account Number.

5. The instrument appointing the proxy must be deposited at the office of the Registrar, Tenaga Koperat Sdn Bhd, 20th Floor, Plaza Permata, Jalan Kampar, Off Jalan

Tun Razak, 50400 Kuala Lumpur not less than forty eight (48) hours before the time appointed for the meeting.

6. For the purpose of determining a member who shall be entitled to attend the Meeting, the Company shall be requesting Bursa Malaysia Depository Sdn Bhd, in

accordance with Article 67(b) of the Company's Articles of Association and Section 34(1) of the Securities Industry (Central Depositories) Act, 1991 to issue a General

Meeting Record of Depositors as at 28 August 2007. Only a depositor whose name appears on the General Meeting Record of Depositors as at 28 August 2007

shall be entitled to attend the said meeting or appoint proxies to attend and/or vote on his stead.

Fold Here

Fold Here

TENAGA KOPERAT SDN. BHD.20th Floor, Plaza Permata

Jalan Kampar, Off Jalan Tun Razak

50400 Kuala Lumpur

STAMP

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