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KFC HOLDINGS (MALAYSIA) BHD (65787-T) Annual Report 2007

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Annual Report 2007 KFC HOLDINGS (MALAYSIA) BHD (65787-T)

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ContentsHighlights

Notice of Annual General Meeting

Notice of Dividend Entitlement

Statement Accompanying Notice of Annual General Meeting

Corporate Statement

Review of Operations

Corporate Information

Board of Directors

Senior Management

Head of Division

Group Structure

Corporate Governance Statement Nomination and Remuneration Committee

Audit Committee Report

Statement on Internal Control

Additional Compliance Information

Financial Statements

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�00� �004 �005 �006 �007 RM000 RM000 RM000 RM000 RM000

TOTAL REVENUE 1,380,564 1,410,933 1,456,547 1,523,839 1,730, 371

OPERATING PROFIT 50,102 43,354 123,784 142,304 150, 624

PROFIT BEFORE TAX 66,056 65,736 5,563 142,304 150,624

PROFIT/(LOSS) ATTRIBUTABLE TO EQUITY HOLDERS 40,264 48,094 (32,459) 98,280 104, 269

TOTAL ASSETS 1,128,464 1,061,722 925,672 974,078 1,006,128

SHAREHOLDERS’ EQUITY 442,700 468,125 437,043 528,476 602, 021

BASIC EARNINGS/(LOSS) PER SHARE (SEN) 20.5 24.3 (16.4) 49.6 52.6

GROSS DIVIDEND PER SHARE (SEN) 12 14 16 18 20

SHARE PRICE AS AT 31 DECEMBER (RM) 4.42 3.58 4.10 5.40 6.40

NO OF RESTAURANTS KFC MALAYSIA 336 350 350 375 410 KFC SINGAPORE 68 70 68 68 69

404 420 418 443 479

KEDAI AYAMAS 55 58 35 19 20 AYAMAS DEPOTS 11 11 10 4 3 RASAMAS 27 31 14 15 22

Financial Highlights

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1,381

1,411

1,4571,524

�,7�0

2007

2006

2005

2004

2003

66 66

6

142�5�

200720

06

200520

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2003

1,128 1,062

926

974�,006

2007

2006

2005

2004

2003

443

468

437

528

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2007

2006

2005

2004

2003

SHAREHOLDERS’ EQUITY(RM Million)

TOTAL KFC RESTAURANTS(No. of Restaurants)

TOTAL AYAMAS OUTLETS(No. of Outlets)

REvENUE(RM Million)

PROFIT BEFORE TAX(RM Million)

TOTAL ASSETS(RM Million)

Group Financial Highlights

KFC MALAYSIA

KFC SINGAPORE

KEDAI AYAMAS (including depots)

RASAMAS

336

350 350375

4�0

2007

2006

200520

04

2003

6970

68 68 69

27

31

14 15

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2007

2006

200520

04

2003

6669

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NOTICE IS HEREBY GIvEN that the �8th Annual General Meeting of KFC Holdings (Malaysia) Bhd will be held at Level �, Wisma KFC, No �7 Jalan Sultan Ismail, 50�50 Kuala Lumpur on Wednesday, �0 April �008 at ��:�0 a.m. for the following purposes: -

AGENDA

1. To receive and adopt the Audited Financial Statements of the Company for the year ended 31 December 2007 and the Reports of the Directors and Auditors thereon.

2. To approve the payment of a final dividend of 12 sen less 26% Malaysian income tax per share.

3. To approve the payment of Directors’ fees in respect of the financial year ended 31 December 2007.

4. To re-elect the following Directors retiring pursuant to Article 89 of the Company’s Articles of Association: (i) Hassim bin Baba (ii) Kua Hwee Sim 5. To re-appoint Messrs Ernst & Young as Auditors of the Company and authorize the Directors to fix their

remuneration.

6. As special business:

To consider and, if thought fit, to pass the following resolutions: -

(a) Ordinary Resolution - Authority to allot and issue shares pursuant to Section 132D of the Companies Act 1965 (the “Act”)

“THAT subject always to the Act, Articles of Association of the Company and approvals from the Bursa Malaysia Securities Berhad (“Bursa Securities”) and other governmental or regulatory authorities, where such approvals shall be necessary, full authority be and is hereby given to the Directors pursuant to Section 132D of the Act from time to time to issue and allot ordinary shares from the unissued share capital of the Company upon such terms and conditions and at such times as may be determined by the Directors of the Company to be in the interest of the Company Provided Always that the aggregate number of shares to be issued pursuant to this Resolution shall not exceed 10 percent of the issued share capital for the time being of the Company.”

(b) Ordinary Resolution - Proposed Share Buy-Back Authority

“THAT subject to the Act, rules, regulations and orders made pursuant to the Act, provisions of the Company’s Memorandum and Articles of Association and the Listing Requirements of Bursa Securities and any other relevant authorities, the Company be and is hereby authorized to purchase and/or hold such amount of ordinary shares of RM1.00 each in the Company’s issued and paid-up share capital (“Proposed Share Buy-Back Authority”) through Bursa Securities upon such terms and conditions as

Resolution �

Resolution �

Resolution �

Resolution 4Resolution 5

Resolution 6

Resolution 7

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Resolution 8


the Directors may deem fit in the interest of the Company provided that the aggregate number of shares so purchased and/or held pursuant to this ordinary resolution (“Purchased Shares”) does not exceed ten percent (10%) of the total issued and paid-up share capital of the Company at any time AND THAT an amount not exceeding the total retained profits of RM257,611,000 and share premium account of RM18,721,000 as disclosed in the audited accounts of the Company as at 31 December 2007 otherwise available for dividend for the time being be allocated for the Proposed Share Buy-Back Authority.”

“AND THAT the Directors be and are hereby authorized to decide at their discretion either to retain the Purchased Shares as treasury shares (as defined in Section 67A of the Act) and/or cancel the Purchased Shares and/or to retain part of the Purchased Shares and cancel the remainder and/or to resell the treasury shares or to distribute them as share dividend and/or subsequently cancel them and to deal with Purchased Shares in such other manner as may be permitted by the Act, rules, regulations, guidelines, requirements and/or orders of Bursa Securities and any other relevant authorities for the time being in force.”

“AND THAT the Directors be and are hereby empowered to do all acts and things (including the opening and maintaining of a central depositories account(s) under the Securities Industry (Central Depositories) Act, 1991) and to take such steps and to enter into and execute all commitments, transactions, deeds, agreements, arrangements, undertakings, indemnities, transfers, assignments, and/or guarantees as they may deem fit, necessary, expedient and/or appropriate in the best interest of the Company in order to implement, finalise and give full effect to the Proposed Share Buy-Back Authority with full powers to assent to any conditions, modifications, variations (if any) as may be imposed by the relevant authorities.”

“AND FURTHER THAT the authority conferred by this ordinary resolution shall be effective immediately upon passing of this ordinary resolution and shall continue in force until the conclusion of the next Annual General Meeting (“AGM”) of the Company or the expiry of the period within which the next AGM of the Company is required by law to be held (whichever is earlier), unless earlier revoked or varied by ordinary resolution of the shareholders of the Company in general meeting, but shall not prejudice the completion of purchase(s) by the Company before the expiry date and in any event in accordance with provisions of the Listing Requirements and other relevant authorities.”

(c) Ordinary Resolution - Proposed Renewal of Shareholders’ Mandate and additional mandate for KFC Holdings (Malaysia) Bhd and its subsidiaries (“KFCH Group”) to enter into Recurrent Related Party Transactions of a Revenue or Trading Nature with Related Parties (“Proposed Shareholders’ Mandate”)

“THAT authority be and is hereby given in line with Chapter 10.09 of the Listing Requirements of the

Bursa Securities, for the Company, its subsidiaries or any of them to enter into any of the transactions falling within the types of the Recurrent Related Party Transaction, particulars of which are set out in the Circular to Shareholders dated 8 April 2008 with the Related Parties as described therein, provided that such transactions are of revenue or trading nature, which are necessary for the day-to-day operations of the Company and/or its subsidiaries, within the ordinary course of business of the Company and/or its subsidiaries, made on an arm’s length basis and on normal commercial terms with those generally available to the public and are not detrimental to the minority shareholders of the Company;

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AND THAT such authority shall commence immediately upon the passing of this Ordinary Resolution until: -

(i) the conclusion of the next AGM of the Company at which time the authority shall lapse unless by a resolution passed at a general meeting, the authority is renewed;

(ii) the expiration of the period within which the next AGM after the date that is required by law to be held pursuant to Section 143(1) of the Act (but shall not extend to such extension as may be allowed pursuant to Section 143(2) of the Act); or

(iii) revoked or varied by a resolution passed by the shareholders of the Company at a general meeting,

whichever is earlier.

AND FURTHER THAT the Directors of the Company be authorized to complete and do all such acts and things (including executing all such documents as may be required) as they may consider expedient or necessary to give effect to the Proposed Shareholders’ Mandate.”

7. To transact any other ordinary business of which due notice shall have been given.


Resolution 9

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A Depositor shall qualify for entitlement only in respect of: -

(a) Shares transferred into the Depositor’s Securities Account before 4.00pm on 7 May 2008 in respect of the ordinary transfers; and

(b) Shares bought on the Bursa Malaysia Securities Berhad (“Bursa Securities”) on a cum entitlement basis according to the Rules of the Bursa Securities.

BY ORDER OF THE BOARDMOHD ZAM BIN MUSTAMAN (LS 0009020)IDHAM JIHADI BIN ABU BAKAR, ACIS (MAICSA 7007381)

Company Secretaries

Kuala Lumpur8 April 2008

Notes:

1. A member of the Company entitled to attend and vote at the above AGM may appoint a Proxy to attend and vote in his stead. A Proxy may but

need not be a member of the Company. If the proxy is not a member of the Company, the proxy shall be an advocate or an approved company

auditor or person approved by the Companies Commission of Malaysia.

2. If the member is a corporation, this Proxy Form must be executed under its common seal or the hand of its duly authorized officer or attorney. If

this Proxy Form is signed under the hand of an officer duly authorized, it should be accompanied by a statement reading “signed as authorized

officer under an Authorisation Document which is still in force, no notice of revocation having been received”. If this Proxy Form is signed under the

attorney duly appointed under a power of attorney, it should be accompanied by a statement reading “signed under a 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 with this Proxy Form.

3. A member of the Company may appoint more than two (2) proxies to attend the AGM. Where a member of the Company appoints two (2) or more

proxies, the appointment shall be invalid unless the member specifies the proportion of his shareholdings to be represented by each proxy.

4. Any alteration made in this form should be initialed by the person who signs it.

5. This Proxy Form or a notarially certified copy thereof must be deposited at Tenaga Koperat Sdn Bhd, G-01, Ground Floor, Plaza Permata, Jalan

Kampar, Off Jalan Tun Razak, 50400 Kuala Lumpur, not less than forty-eight (48) hours before the time for holding the meeting or any adjournment

thereof.


NOTICE IS ALSO HEREBY GIvEN that the final dividend of �� sen less �6% Malaysian income tax per share will be paid on �8 May �008 to depositors who are registered in the Record of Depositors at the close of business on 7 May �008 if approved by members at the �8th Annual General Meeting on �0 April �008.

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Explanatory Notes on Special Business

�. Resolution pursuant to Section ��D of the Companies Act �965

The Ordinary Resolution proposed under item 6(a), if passed, will give the Directors of the Company, from the date of the above General Meeting,

authority to issue and allot ordinary shares from the unissued share capital of the Company being for such purposes as the Directors consider would

be in the interest of the Company. This authority will, unless revoked or varied at a General Meeting, expire at the conclusion of the next AGM of the

Company.

�. Resolution pursuant to the Proposed Share Buy-Back Authority

This resolution proposed under item 6(b) will empower the Directors of the Company to purchase the Company’s shares up to ten percent (10%)

of the issued and paid-up share capital of the Company by utilizing the funds allocated which shall not exceed the total retained earnings and

share premium of the Company. This authority will, unless revoked or varied at a General Meeting, expire at the conclusion of the next AGM of the

Company.

Further information on the Proposed Share Buy-Back Authority are set out in the Circular to Shareholders of the Company which is dispatched

together with the Company’s Annual Report for the year ended 2007.

�. Resolution pursuant to the Proposed Shareholders’ Mandate

This resolution proposed under item 6(c) will enable KFCH Group to enter into any recurrent transactions of a revenue or trading nature which are

necessary for the KFCH Group’s day-to-day operations, subject to the transactions being in the ordinary course of business, made at arm’s length

and on normal commercial terms and are not to the detriment of the minority shareholders of the Company.

Further information on the Proposed Shareholders’ Mandate are set out in the Circular to Shareholders of the Company which is dispatched

together with the Company’s Annual Report for the year ended 2007.


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Statement AccompanyingNotice of Annual General Meeting1. DIRECTORSWHOARESTANDINGFORRE-ELECTIONATTHEANNUALGENERALMEETING

The Directors retiring by rotation pursuant to Article 89 of the Company’s Articles of Association are: -

(i) Hassim bin Baba

(ii) Kua Hwee Sim

The details of the directors seeking re-election are set out in the Directors’ Profiles which appear on pages 40 and 41 of the Annual

Report.

2. DETAILSOFATTENDANCEATBOARDMEETINGSHELDINTHEFINANCIALYEARENDED31DECEMBER2007

There were five (5) Board Meetings held during the financial year ended 31 December 2007 and the following are the details of the

Board attendance: -

Name of Director No of Meetings Attended

1. YBhg Tan Sri Dato’ Muhammad Ali bin Hashim 5/5

2. Ahamad bin Mohamad 5/5

3. Jamaludin bin Md Ali 5/5

4. Hassim bin Baba 5/5

5. Kua Hwee Sim 5/5

3. THE28THANNUALGENERALMEETINGWILLBEHELDATLEVEL3,WISMAKFC,NO17JALANSULTANISMAIL,

50250KUALALUMPURONWEDNESDAY,30APRIL2008AT11.30A.M.

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KFC is by far the most popular restaurant chain in Malaysia, commanding a market share of over 44%. With over 400 KFC restaurants in Malaysia, 69 in Singapore and 7 in Brunei – plus new restaurants opening in Cambodia – KFC sees millions of people flocking to its various outlets year in, year out.


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KFC HOLDINGS (MALAYSIA) BHD (65787-T) Annual Report 2007KFC HOLDINGS (MALAYSIA) BHD (65787-T) Annual Report 2007

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JamaludinbinMdAliManaging Director

Corporate Statement

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TanSriDato’MuhammadAlibinHashimChairmanAhamadbinMohamad

Deputy Chairman


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Corporate Statement

Dear Shareholders,�007 proved to be another milestone in our corporate growth, being marked by our best

ever financial performance. We believe that the fundamental reason for our success is that

‘Customer Mania’ remained our guiding principle, enabling us consistently to deliver on the

promise we make to our customers of top quality products and service.

To further strengthen and leverage on our market leadership, during the year we expanded

our restaurant network and created an enticing range of new products. In addition, we

enhanced our operational processes, cut costs and further improved our governance.

Mindful of the vital importance of corporate citizenship, we also extended our Corporate

Social Responsibility programmes to effectively reach out to more people.

On behalf of the Board of Directors (the Board), we are happy to present the Corporate

Statement of KFC Holdings (Malaysia) Bhd (‘KFCH’) for the financial year ended

�� December �007.

LOOKINGBACK

In Malaysia, domestic consumption-led growth and the diversification of the economy continued to facilitate development and strengthen resilience. This protected the country from the uncertainties arising from global imbalances and the recent market volatility caused by the U.S. subprime mortgage crisis, and enabled the nation to achieve a GDP growth of 6.3%.

Meanwhile, the private sector was encouraged to assume a leading role in economic development. In a series of initiatives, the Government liberalized the Foreign Investment Committee guidelines, reduced corporate tax to 26% from 2008, and launched five economic corridors across the country.

Singapore’s economy also made good progress during the year, growing by 7.7%. Financial services and tourism performed strongly, driven in part by buoyant economies throughout the sub-region. Construction activity surged too, supported by a boom in high-end apartments building as well as new office cum retail projects and two large entertainment resorts.

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Corporate Statement

ENHANCINGRESULTS

Against this background in 2007, Group revenue surged to RM1,730.4 million, up 13.6% over prior year’s RM1,523.8 million, while profit before tax gained by 5.8%, from RM142.3 million in 2006 to RM150.6 million. As a result, earnings per share climbed 6.1% from 49.57 sen as at 31 December 2006 to 52.59 sen as at 31 December 2007.

Revenue from the KFC Restaurants Business segment accounted for approximately 77% of the Group’s total turnover with the balance of 18% and 5% contributed by our Integrated Poultry Businesses and Ancillary Businesses respectively.

The year’s financial highlights included:

• A 14.7% growth in revenue by KFC Restaurants to RM1,335.3 milllion from RM1,164.1 million in 2006

• A 9.4% growth in revenue by the Integrated Poultry Businesses segment to RM317.0 million from RM289.6 million in 2006

• An 11.4% growth in revenue by the Ancillary Businesses segment to RM78.1 million from RM70.1 million in 2006

Strategic Initiatives

The Group’s positive growth in revenue and profitability was driven by a series of initiatives:• Effective brand building and marketing promotions • New product launches such as Colonel Rice combo, Alaskan Fish Burger, Black

Pepper Chicken Chop, Chicken Poppers, Half-Half Meltz, Variety Bucket with Fish Fingers, and new X-meal combos

• The launch of KFC’s new “Colonel” logo, plus new staff uniform and product packaging

• Strong expansion of the KFC network, with 39 new stores being opened during the year in Malaysia and nine in Singapore

• Remodelling of 26 existing stores to enhance their ambience and attract more customers

• The extension of operating hours at 73 of our restaurants, which now open 24 hours a day

• The introduction of credit card facilities at our restaurants in the Klang Valley, Johor and Penang

• The launch by KFC Singapore of a dedicated KFC Delivery phone number• The expansion and upgrading of our processing plants• The launch by Ayamas of a variety of new offerings including Hot & Spicy Chicken

Fingers and Premium Popcorn Bites as well as a range of shelf-stable products • The opening of ten new Rasamas Restaurants


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Corporate Statement

Dividends

KFCH is committed to providing worthwhile returns for its investors. Given the Group’s sterling performance and strong fundamentals, the Board of Directors has recommended a total dividend of 20 sen per share (comprising an interim dividend of 8 sen and a final dividend of 12 sen) in comparison to 18 sen for 2006.

Asset Management

The Board and Management of KFCH are dedicated to the effective and efficient management of the Group’s assets and liabilities. During the year, surplus cash generated from our operations was invested in income-accretive assets and also to prepay loan commitments to lower Group borrowings.

Total borrowings dropped from RM200.4 million as at 31 December 2006 to RM123.0 million as at 31 December 2007 following the prepayment of the last instalment of the KFCH bonds and the scheduled repayment of various loans. As a result, the Group was in a net cash position as at 31 December 2007.

The positive impact of these measures was clearly demonstrated by the 25% drop in the Group’s financing cost which declined to RM11.3 million from RM15.0 million previously.

STRENGTHENINGTHEBUSINESS

In October 2007, KFCH entered into a Share Sale Agreement to purchase from Sindora Berhad a 55% equity stake in Tepak Marketing Sdn Bhd (“Tepak”) for RM2.97 million. Tepak’s main activities are the contract packing of tea, tea trading, and the sales and marketing of carbonated drinks under its own brand name “Zippie”.

As the Group regularly procures tea products for its restaurant chains, the acquisition will enable KFCH to participate in a profitable business that complements its existing operations. It will also guarantee our restaurants a level of price stability and ensure a consistent supply of quality tea. In addition, Tepak has considerable growth potential both from its contract manufacturing activities (which include Unilever’s Lipton Tea) and from the distribution of Zippie soft drinks. It will thus provide KFCH with an alternative platform for expansion, diversify its earnings base, and reinforce its foundation as a food conglomerate.

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Corporate Statement

DRIVINGPERFORMANCE

KFCH employs a rigorous set of Key Performance Indicators (KPIs) to build a performance culture and to help us define and gauge the progress we are making towards our organizational goals. Our KPIs are used to measure achievement and also form the basis for recognizing, rewarding and promoting employees. In this way, they enhance motivation and build momentum.

One of our most powerful tools in building a performance-driven business is the annual exercise known as Pedoman. Pedoman is a Group-wide interactive session that institutionalizes open dialogue and provides a fully transparent interface for those in leadership positions, including all our restaurant managers and the Chairman himself.

As well as enhancing open communication and giving everyone the chance to voice their ideas and concerns, Pedoman reinforces our strong corporate culture and strengthens Group bonding between all levels. In so doing, it gives a powerful new meaning to our principle of “People First”.

As our businesses grow and expand, Pedoman also helps us combat the dangers posed by size, as well as external change, shifts and uncertainties. All too often, in large organizations, creativity and entrepreneurship are stifled by bureaucracy and hierarchy. By its very openness and informality, Pedoman cuts through such breaks in progress, and enables us to maintain dynamism and focus. In addition, changes and shifts in the

external environment can affect the internal climate as well, especially if an organization lacks strong, lasting bonds and

common values that can override external pressures arising from uncertainty.

Pedoman facilitates open dialogue, and acts as a transparent interface for our

entire management team. By providing a forum in which everyone can voice their ideas and concerns and similarly giving the leadership an opportunity to quickly respond, provide solutions and articulate strategic issues, it significantly enhances open communication and facilitates fast and effective dissemination of strong, positive values.

Most important of all, Pedoman enhances mutual trust, faith and confidence – all of which are vital to delivering success in a challenging and rapid changing market place.

Another initiative aimed at driving performance is Hari Mekar, an acronym for Mengejar Kecemerlangan Dalam Kualiti or Pursuit of Excellence in Quality. This quality movement initiated by Johor Corporation (our ultimate holding corporation) in 1995 brings together representatives from all the companies under Johor Corporation in a forum where they share and compare best practices and compete with the most effective ideas to enhance productivity, improve efficiency and cut costs.

In October 2007, KFCH participated in Hari Mekar for the first time, and we are delighted to record that we won the Overall Champion’s Trophy. KFCH has set up a quality council with the objective to make the Group a quality focused organization. In addition, several teams have been formed to propel this quality movement, including suggestion scheme teams, innovative and creative circle teams and cross functional teams.

KFCH will co-host a Group-wide Hari Mekar with QSR in 2008.

Corporate Statement

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IMPROVINGGOVERNANCE

KFCH believes in the fundamental principles of disclosure and transparency. This means not only following best practices but also being open about the way we run our business. In everything we do, we seek to balance our economic and social goals, aligning as nearly as possible the varying interests of all our stakeholders. As part of our commitment to good governance, our management and staff are expected to demonstrate diligence, responsibility and absolute integrity in all their business dealings.

Measures taken in 2007 to enhance governance included requiring all our senior management to declare their assets, and all staff to sign a Work Ethics Declaration Form.

INVESTINGINCOMMUNITIES

KFCH believes in giving back to the community. In the past, we have focused mainly on reaching out to the less fortunate members of society, especially orphans, single mothers, the elderly, the homeless, the needy, and the disabled. Recently, however, we have implemented a new CSR structure that considerably broadens the scope of our CSR activities and the causes that they promote.

Since halal compliance is central to our business interests, we have recognized it as our core corporate social responsibility.

Other than embedding halal practices into our processes, the company is also committed to sponsoring the World Halal Forum and the Malaysia International Halal Showcase, at which we also promote our products. We participate on a similar basis in Halal Food Standards Realization MS 15500:2004 seminars, a programme to promote Malaysian Halal Standards; and also place advertisements and articles in the Halal Journal, which has a worldwide readership.

We are active in promoting healthy, active lifestyles and supporting local sports. KFCH is the official sponsor of the Johor FC football team and sponsors billboards in most football stadiums throughout the country. In addition, we sponsor both sailing and futsal, with the aim of encouraging young Malaysians to pursue them both as popular sports and as activities that offer opportunities for the most talented to be recognized up to the international level.

The future prosperity of our nation lies in the hands of tomorrow’s entrepreneurs and, as a responsible corporate entity, we have decided to play our part to help develop entrepreneurial skills, especially among young Malaysians who are excluded from the business sector. In this regard, we collaborate with Johor Corporation to build the success of the Corporation’s Tunas Bistari, Didik Bistari and Siswa Bistari programmes. These programmes are aimed at familiarizing uninitiated young Malaysians with commercial value orientation and the basics of business practices that are needed to turn them into future business practitioners and entrepreneurs.

To promote national unity and highlight how our brands have become an integral part of the lives of many Malaysians, we participate in both the annual Floral Float Parade organized by the Ministry of Tourism and the International Kite Festival; and also produce patriotic public service announcements and corporate advertisements.

Meanwhile, we continue to extend our help for the less fortunate. In addition to the many CSR programmes we have long been running, KFCH now sponsors three episodes per year of Tijarah Ramadhan – a television programme that highlights the plight of the less fortunate and poverty-stricken families and features companies donating to the underprivileged. In addition, in October 2007, we rolled out a hunger relief campaign nationwide to raise awareness and funds for the United Nations’ World Food Programme.

Corporate Statement

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WINNINGRECOGNITION

We were deeply honoured to receive a number of awards in 2007, chief among which were the following.

In October, Ayamas garnered the Malaysian Livestock Industry Award for Outstanding Meat Processor at the Livestock Asia Expo & Forum 2007 held at the KL Convention Centre. The forum was hosted by the Ministry of Agriculture & Agro Based Industries, and attracted over 514 companies from 35 countries.

In March 2008, the Yum! Franchise Business Partner luncheon was held at the Grand Hyatt, Bangkok. During the luncheon, awards were given to the region’s

franchisees for their achievements in year 2007. The most prestigious of all awards is the Franchisee of the Year Award and we are proud to report that KFC Malaysia was voted the Best Operator in the region and was awarded the Franchisee of the Year Award 2007.

LOOKINGFORWARD

Recent years have witnessed a shift in the Malaysian economy towards domestic demand, which in the immediate to mid term will be driven by the ongoing implementation of development projects under the Ninth Malaysia Plan. These include the Iskandar Development Region (a large logistics and tourism project in southern Peninsular Malaysia), the Northern Corridor Economic Region (involving Perlis, Kedah, Penang and the north of Perak), the East Coast Economic Corridor, and the the Sabah and Sarawak Development Corridors.

In addition, the extension of Visit Malaysia tourism-related activities to 2008 should continue to boost the local consumption of goods and services.

Despite the ongoing credit crunch in the US, a rise in Malaysian exports is forecast for 2008, particularly of electrical products, and the national economy is predicted to grow

by 6%. In Singapore, the economic slowdown in the US could lead to somewhat lower growth in 2008. However, robust domestic demand and a projected improvement

in the export of electrical goods are expected to sustain the island state’s economic momentum.

Inflationary pressures on the global economy from the rising prices of oil, food and commodities are expected to continue.

Malaysia’s inflation rate in 2008 is forecast to exceed the 2% registered in 2007, and Singapore is expected to also revise its

inflation forecast in response to rising costs.

While the higher cost of imported raw materials may have a negative impact on the Group’s cost of production, we believe that this will be mitigated by the strength of the

Corporate Statement

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Ringgit; and we are therefore confident that the possible slowdown in the world economy will not prevent the Group from making further progress in the year ahead.

BUILDINGTHEFUTURE

Despite the uncertain economic outlook, KFCH believes that in 2008 it can further boost both revenue and profitability by enhancing customer experience, developing attractive new products, expanding its marketing activities, deriving further cost efficiencies across all functions, and improving productivity at its restaurants and manufacturing facilities.

We also plan to open a significant number of new restaurants as well as refurbishing existing ones. The larger expansion of the restaurant network is likely to be in Sabah, Sarawak and the east coast of Peninsular Malaysia.

In 2008, the key factors driving fast food business in Malaysia will be the introduction of healthier products, non-carbonated drinks, longer operating hours and the expansion of Drive-Thru restaurants.

The biggest challenge faced by the fast food industry is to expand its food offerings into healthier alternatives, to maintain affordability and to educate consumers on the importance of a balanced diet and regular exercise. KFC has already introduced Garden Salad into its menu as a healthier alternative as well as provided nutritional information for its products. In addition, we plan to develop programmes and activities involving children and teenagers since, by catching consumers at a young age, we are able to help inculcate healthy lifestyles.

We also intend to take advantage of the increasing appeal of fast food as a snack among consumers who want a quick, light, simple and affordable meal. To encourage higher consumer visits, towards the end of 2007, KFC introduced an Afternoon Menu from 3.00pm to 6.00pm. In addition, in response to price competition from other fast food operators, KFC has also come up with affordable meal packages such as Jom Jimat starting from RM3.50 per set.

Corporate Statement

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Corporate Statement

With convenience becoming a necessity when choosing a place to eat, and with the internet part of today’s lifestyle, KFC is offering free internet access from 2.00pm to 6.00pm on weekdays. KFC has also introduced e-craving with an online discount voucher during certain promotion periods.

In term of competition, a major challenge is posed by hawker restaurants and food stalls (popularly known as Mamak restaurants). Some of these restaurants already run 24-hour operations, attracting consumers of various ages – particularly teenagers – with their choice of dishes, simple ambience, table service, and very affordable products. Meanwhile, the mushrooming of new shopping malls has increased the competition from food courts, which are also very popular with consumers. KFC is taking on these challenges by introducing local taste products such as sweet spicy prawn rice for Juadah Ramadhan and Colonel Rice with satay sauce.

The Group also has ambitious plans for its poultry operations, and is currently constructing its third poultry processing plant at Bandar Tenggara, Johor at a cost of approximately RM30 million. This will enhance the supply-sufficiency of the southern region and deliver major supply chain savings and synergies. It will also ensure consistency of supply and freshness of products in southern Malaysia and Singapore.

Ayamas is Malaysia’s number one brand for premium, halal, chicken-based products. In response to the growing global market for halal food, we now plan to capitalize on Malaysia’s aspiration to become an international halal food hub by establishing a new company, KFC Marketing Sdn Bhd, to focus specifically on sales and marketing of food products to increase our share of the frozen food segment.

Under the Ayamas and Life brands, further processed poultry products and sauces will be the mainstay of the new trading arm, while other foodstuffs such as seafood, side orders, bakery and ice cream will be included under different brand names.

We believe that the new entity will not only boost our frozen food market share and sales, but also enable us to penetrate new market segments in which we do not currently have a presence. At the same time, this move will provide an avenue for Ayamas to leverage its market expansion, especially in the Middle East.

Ayamas will now focus its marketing activities on building top-of-mind brand recall, promoting healthy products, further enhancing its position in the burger take-home category, and capitalizing on its logistical strengths to expand its exports, especially to

Singapore.

In 2005 to 2006, Kedai Ayamas underwent a rationalization exercise which saw the

closure of outlets that were poorly located and the maintenance of 19 units in niche trading areas. This positive development made further progress in 2007, which witnessed the turnaround of the business from a loss in 2006 to a

record level of profit.

Like Kedai Ayamas, Rasamas operations (the brand operated by Rasa Ayamas Sdn

Bhd) was rationalized in 2005 and 2006. In the process, Rasamas closed outlets that were poorly located and re-engineered its menu, pricing and operations to meet the challenges of the market. As a result, in 2007 the business broke even and is expected to return to profitability in 2008.

A key factor in the ongoing turnaround of Rasamas is our “Intrapreneur Scheme”. Initiated in 1999 by Johor Corporation, the aim of the scheme is to institutionalize a performance culture by creating opportunities for highly talented and committed employees to start new business ventures or revive existing ones.

A key factor in the success of the scheme is the introduction of a direct ownership element. Giving intrapreneurs the opportunity to own an equity stake of up to 25% in the business concerned has proved to be a powerful motivator.

Under the Rasamas Intrapreneur Scheme, three Rasamas outlets are now run by intrapreneurs, who have all initially been given a 10% stake in their outlet. The selected outlets are Rasamas Tebrau Sdn Bhd, Rasamas Larkin Sdn Bhd (both in Johor) and Rasamas Bangi Sdn Bhd (in Selangor).

In future, Rasamas proposes to take full advantage of the growing trend for fast casual concept eateries.

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Corporate Statement

With critical mass, Rasamas plans to embark on above the line advertising and starts a brand-building process which will further improve sales and profitability. The aim is to turn Rasamas into the most successful home grown brand in Malaysia. Rasamas expects to open a number of new outlets in 2008.

Our feedmill operations are faced with the extreme challenge of rising input costs. In addition, the open market for feed is shrinking as major livestock producers become more and more integrated and self sufficient in feed supply. Further rises in corn and soya bean meal prices are expected to continue through 2008 and thus threaten margins.

On a positive front, we predict that our LIFE brand sauces, produced by Region Food, will increasingly close the gap with its competitors in terms of market share. Meanwhile, the bakery and commissary will continue to support the needs of the Group with existing and new products, and the bakery will also look into venturing into the open market.

In the years ahead, KFCH will continue to pursue its strategy of seeking out opportunities for growth, both organically and through acquisition of food-related businesses, so as to fulfil our vision to be the leading integrated food services group in the ASEAN region, delivering consistently quality products and excellent customer-focused service.

Overall, the Board is therefore optimistic that the Group will once again perform well in 2008, to the benefit of all its stakeholders.

GIVINGTHANKS

In January 2008, Ms Rita A/P Benoy Bushon, En Abdul Wahab bin Jaafar Sidek and En Mohd Zam bin Mustaman resigned their directorships of KFCH (though En Mohd Zam remains Director of Legal & Corporate Services). On behalf of the Board and all our management, staff and shareholders, we would like to thank them for their insight, contributions and advice.

By their skills, initiative and commitment in 2007, our people once again delivered top quality products and an outstanding level of service. On behalf of the Board, we offer each and every one of them our warmest congratulations and gratitude.

We also deeply appreciate the support we received from our customers, shareholders, financiers, suppliers and various governmental and regulatory authorities. We are equally grateful to YUM! Brands Inc for their continued confidence in us and for the guidance we received from them throughout the year.

Finally, we would like to thank our colleagues on the Board and the entire management team for their outstanding contribution. Their dedication to the business has again produced results we can be proud of.

Tan Sri Dato’ Muhammad Ali bin HashimChairman

Ahamad bin MohamadDeputy Chairman

Jamaludin bin Md AliManaging Director

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