Summary Report of PricewaterhouseCooper on Pempena Companies

Overview of Pempena

In 2005, Pempena established a business plan for 2005-2009 to implement the following key activities:

(i) Equity participation in tourism related industries
(ii) Implementation of activities under the Shopping Malaysia Secretariat
(iii) Placement of funds in the money market and unit trusts.

There were 14 key areas of new businesses indentified by Pempena for implementation.

Pempena planned to invest a total of RM49.8m over the period of its business plan (ie 2005 – 2009) representing equity and profit sharing arrangements.

As at June 2008, Pempena has invested a total of RM54.4m via equity participation in and advances made to the Investee Companies.

High level financial performance review

Out of the 24 Investee Companies:

(i) 6 Investee Companies do not any financial information
(ii) 3 Investee Companies have partial financial information.

Most of the 24 Investee Companies have not been recording operational profits over the last 3 years with the exception of:

(i) Malaysia Travel Business Sdn Bhd (“MTB”)
(ii) Max Airplay Sdn Bhd (‘FlyFM’)
(iii) Malaysian Restaurant Londan Ltd (“Awana Chelsea”)
(iv) Bistro & Theatre Restaurant Sdn Bhd (“Saloma Theatre Restaurant”)

Only 4 Investee Companies have positive shareholders’ funds as at June 2008. They are:

(i) Malaysia My Destination Sdn Bhd (“My Destination”)
(ii) Dalamasa Sdn Bhd (“Dalamasa”)
(iii) SDCorp Communication (M) Sdn Bhd (“SD Corp”)
(iv) Nathena LIFZ (M) Sdn Bhd (Nathena)

Review of investment process

• Based on our review of Pempena’s documents, we have not seen any documented policy and procedure governing Pempena’s investing activities.

• Our review shows that there is a lack of:

(i) Investment analysis setting out consideration of how long would Pempena hold on to its investment and how Pempena would potentially exit from its investment
(ii) Critical assessment of the background, credentials and relevant experience of the respective Investee Companies’ business partners, financial projections and strategic business plans.
(iii) Considerations of tourism related initiatives or KPIs for most of its Investee Companies.
(iv) Documentation which clearly outlines the procedures for operational and financial review of investments, roles, and responsibilities for representation on Investee Companies BODs.

• Pempena’s investment process could be enhanced if there is a clearly defined investment policy and procedure on:

(i) Investment approach
– Determining the approach in setting the tone for the oversight of its investments

(ii) Investment targets
– Setting of financial, tourism and/or operational KPIs for its investment via a structured plan

(iii) Investment governance
– Setting out requirements for management and monitoring of investee companies based on their shareholding structure and ability to influence decision making.

• Pempena’s investment monitoring mechanism (in respect of the 14 Investee Companies) is primarily focused on historical performance through:

(i) Review of monthly management reports (without commentary).
(ii) Weekly management meetings chaired by Pempena’s CEO to discuss the current business activities undertaken by the Investee Companies
(iii) Representation in Investee Companies’ BOD
(iv) Periodic reporting of Investee Companies’ performance and activities to Pempena’s BOD by Pempena’s Corporate Service Department.

• Based on the existing monitoring mechanism as represented by management of Pempena, we have not seen any documentation which clearly outlines the:

(i) Procedures for operational and financial review of investments
(ii) Roles and responsibilities for representation on Investee Companies BOD
(iii) Requirement for complete and timely information from Investee Companies

Proposed way forward

• In view that Pempena’s primary objectives of investing in the 14 Investee Companies are focused on creating “tourism value” and there is expectation by Pempena that these investments would be able to generate financial returns, the following key considerations and criteria were used in the development of strategic options for the 14 Investee Companies:

Key considerations –

1) Tourism objective
(Criteria) Achievement of Pempena’s key tourism objectives in investing in the 14 Investee Companies

2) Financial returns
(Criteria i) Achievement of predetermined financial targets for the Investee Companies
(Criteria ii) Investee Companies’ financial performance trend todate
(Criteria iii) Investee Companies financial prospects moving forward

3) Adequacy of working capital
(Criteria) Sufficient funds to sustain operations

4) Ability of business partner to manage operations
(Criteria) Experience and capability of business partners in dealing with management and operational issues.

• Out of the 14 Investee Companies, the proposed way forward is to retain and enhance 7 Investee Companies which is as follows:

(i) MTB
(ii) Virtual Malaysia Sdn Bhd (“Virtual Malaysia”)
(iii) Lambaian Maya/Max Airplay
(iv) SD Corp
(v) Malaysia Restaurant Beijing Limited (“Awana Beijing”)
(vi) Pempena Executive Taxi Service Sdn Bhd (“PETS”)
(vii) Sky Vans Sdn Bhd (“Sky Vans”)

• It is also proposed that pempena exit from the following investments:

(i) Malaysia Tourism Executive Sdn Bhd (“Matex”)
(ii) Sri Kebaya Restaurant Sdn Bhd (“Sri Kebaya”)
(iii) Malaysia Restaurant Hyderabad Limited (“Awana Hyderabad”)
(iv) Dalamasa
(v) Nathena

• Should Pempena exit its investments from the 5 companies, the immediate impact to Pempena’s profit and loss is estimated to be a loss of approximately RM20 million

• Awana Chelsea has been proposed to be maintained as is whilst My Destination will be liquidated.

(Lim Kit Siang’s media conference in Parliament on Tuesday, 18.11.98)