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Notice of Annual General Meeting Notice of Nomination Corporate Information Chairman s Statement Corporate Governance Statement Directors Prole

Audit Committee Report Statement Of Internal Control Directors Report Income Statement Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes To The Financial Statements Statement By Directors Statutory Declaration Report Of The Auditors Financial Highlights Other Information Additional Compliance Information Proxy Form 1-3 4 5 6 7 -11 12 -13 14 -15 16 -17 19 -20 21 22 23 24 25 -42 43 43 44 45 46 -47 48 49

NOTICE IS HEREBY GIVEN that the Forty-Third Annual General Meeting of the Compan y will be held at Hotel Armada, Lorong Utara C, Section 52, 46200 Petaling Jaya, Selangor Darul Ehsan, o n Tuesday, 23 May 2006 at 10.00 a.m. for the purpose of transacting the following business: AGENDA AS ORDINARY BUSINESS Ordinary Resolution 1 1 To receive the Audited Financial Statements for the nancial yearended 31 December 2005, together with the Reports of the Directors and Auditors thereon. Ordinary Resolution 2 2 To approve the payment of a nal dividend of gross 6.25 sen per share, less income tax, and a tax exempt dividend of 3.75 sen per share, in respect of the nancial year ended 31 December 2005. Ordinary Resolution 3 3 To approve the increase in Directors fees for the nancial year ended 31 December 2005. Ordinary Resolution 4 4 To consider and if thought t, pass the following resolution to re-appoint Tan Sri Kamarul Arin bin Mohd. Yassin as a Director of the Company pursuant to Section 129(6) of the Companies Act, 1965: THAT, pursuant to Section 129(6) of the Companies Act, 1965, Tan Sri Kamarul Arin bin Mohd. Yassin be and is hereby re-appointed as a Director of the Companytoholdoceuntiltheconclusionofthenext Annual General Meeting. Ordinary Resolution 5 & 6 5 To re-elect the following Directors, who retire by rotation pursuant to Article 94(a) of the Company s Articles of Association: (i) Dato Dr. Mhd. Nordin bin Mohd. Nor (ii) Mr. Foo Swee Leng Ordinary Resolution 7 6 To appoint Auditors and to authorise the Directors to x their remuneration. Notice of Nomination pursuant to Section 172(11) of

the Companies Act, 1965, a copy of which is annexed hereto has been received by the Company for the nomination of Messrs Deloitte & Touche (AF: 0834), whohavegiventheirconsenttoact,forappointmentas Auditors and of the intention to propose the following ordinary resolution : That Messrs Deloitte & Touche (AF: 0834) be and is hereby appointed Auditors of the Company in place of the retiring Auditors, Messrs Ernst & Young to hold oce until the conclusion of the next Annual General Meeting and that the directors be authorized to determine their remuneration. AS SPECIAL BUSINESS To consider and if thought t, pass the following ordinary resolution: Ordinary Resolution 8 7 PROPOSED NEW SHAREHOLDERS MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE THATapprovalbeandisherebygiventotheCompany to enter into and to give eect to the Recurrent Related Party Transactions of a Revenue or Trading Nature as stated in Section 2.4 with the specied classes of Related Parties as stated in Section 2.3 of the Circular to Shareholders dated 28 April 2006 which are necessary for the Company s day-to-day operations subject to the following: (i) the transactions are in the ordinary course of business and are on terms not more favourable to the Related Parties than those generally available to the public and are not to the detriment of the minority shareholders; and (ii) the aggregate value of such transactions conducted pursuant to the Shareholders Mandate during the financial year will be disclosed in the Annual Report for the said nancial year; DUTCH LADY MILK INDUSTRIES BERHAD

AND THAT such approval shall continue to be in force until: the conclusion of the next Annual General Meeting ( AGM ) of the Company at which time it will lapse, unless by a resolution passed at the Meeting the authority is renewed; or theexpirationoftheperiodwithinwhichthenext AGM of the Company subsequent to the date it is required to be held pursuant to Section 143(1) of the Malaysian Companies Act, 1965 ( the Act )(but shall not extend tosuchextensionasmaybeallowedpursuanttoSection 143(2) of the Act); or revoked or varied by resolution passed by the shareholders in a general meeting; whichever is earlier. AND THAT the Directors of the Company be and are herebyauthorisedtocompleteanddoallsuchactsand things as they may consider expedient or necessary in the best interest of the Company (including executing all such documents as may be required) to give eect to the transactions contemplated and/or authorised by this Ordinary Resolution. 8 (a) (b) (c) Amendment to the meanings of the following words as contained in Article 2(a) Article 2(a) Words Meanings (i) PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION THAT the Company s Articles of Association be amended as follows: (ii) Listing Requirements Amendment to Article 139 as follows :A copy of the audited accounts and such other statement(s) as may be required by the Act which are to be laid before a general meeting of the Company (including every document required by the Act and/or the Listing Requirements to be annexed thereto) together with a copy of every report of the Auditors relating thereto and of the Directors report, in printed form or in CD-ROM form or in such other form of electronic media, shall not more than 4 months after the close of the nancial year be sent to the Exchange and not less than 21 days before the date of the meeting, be sent to every Member of, and every holder of debentures (if any) of the Company and to every other person who is entitled to receive notices from the Company under the provisions of the Act or of these Articles provided that these Articles shall not require a copy of these documents to be sent to any person whose name or address is not listed in the Record of Depositors but any

Member to whom a copy of these documents has not been sent shall be entitled to receive a copy free of charge on application at the Oce. In the event that these documents are sent in CDROM form or in such other form of electronic mediaandaMemberrequiresaprintedformofsuch documents,theCompanyshallsendsuchdocuments to the Member within four (4) market days from the date of receipt of the Member s request. u n l e s s t h e c o n t e x t other wise requires of the Exchange including a n y a m e n d m e n t s o r modications thereto that may be made from time to time. Central Depository Bursa Malaysia Depository Sdn Bhd (Company No. 165570-W) 9 Totransactanyotherbusinessforwhichduenotice shall have been given. Exchange Bursa Malaysia Securities Berhad and includes any other stock exhange upon which the Company s shares may for the time being be listed. Special Resolution 1 DUTCH LADY MILK INDUSTRIES BERHAD

Notice of Dividend Entitlement NOTICE IS ALSO HEREBY GIVEN that a nal dividend of gross 6.25 sen per share, less income tax, and 3.75 sen per share, tax exempt, in respect of the nancial year ended31December2005,ifapprovedbytheshareholders, will be paid on 21 June 2006 to shareholders whose names appear in the Register of Members and Record of Depositors at the close of business on 30 May 2006. A Depositor shall qualify for entitlement only in respect of: (a) SharestransferredtotheDepositor ssecuritiesaccount before 4.00 p.m. on 30 May 2006 in respect of ordinary transfers; and (b) Shares bought on the Bursa Malaysia Securities Berhad on a cum entitlement basis accordingto the Rules of the Bursa Malaysia Securities Berhad. By Order of the Board HUANG SHI CHIN (MIA 3891) Petaling Jaya Company Secretary 28 April 2006 Notes: AMemberentitledtoattendandvoteattheAnnualGeneral MeetingoftheCompanyisentitledtoappointaproxy/ proxiestoattendandvoteinsteadofhim.Aproxyneednot beamemberoftheCompanyandSection149(1)(b)ofthe Companies Act, 1965 shall not apply. SaveforanAuthorisedNomineeasdenedunderthe Securities Industry(Central Depositories)Act 1991 whichmayappointatleastoneproxyinrespectofeach securitiesaccountitholdswithordinarysharesofthe Companystandingtothecreditofthesaidsecurities account,aMembershal llbeentitledtoappointnotmore thantwoproxiestoattendandvoteatthesamemeeting providedthatwhereaMemberappointstwoproxies, theappointmentshallnotbevalidunlesssuchMember speciestheproportionofhisholdingstoberepresented by each proxy. Theinstrumentappointingtheproxymustbesignedby theMemberorhisattorneydulyauthorisedinwriting,or iftheappointorisacorporation,theinstrumentmustbe executedunderitscommonsealorunderthehandofits ocer or attorney duly authorised. Tobevalid,theinstrumentappointingaproxy,duly completed(and,ifapplicable,thepowerofattorneyor otherauthorityunderwhichitissignedornotarial lly certified copy ofthatpower of authority)must be

depositedattheRegisteredOceoftheCompanynotless than48hoursbeforethetimesetforholdingtheMeeting or any adjournment thereof. Explanatory Notes on Special Business: Ordinary Resolution 8 Please refer to Circular to Shareholders dated 28 April 2006. Special Resolution 1 This will facilitate the issuance of nancial statements in CD-ROM form or in such other form of electronic media, if deemed appropriate. Statement Accompanying Notice of Forty-Third Annual General Meeting 1 Directors who are standing Forty-Third Annual General Company Pursuant to Section 129(6) 1965:Tan Sri Kamarul Arin bin Mohd. for re-election at the Meeting of the of the Companies Act, Yassin

Pursuant to Article 94(a) of the Company s Articles of Association: (i) Dato Dr. Mhd. Nordin bin Mohd. Nor (ii) Mr. Foo Swee Leng Details of Directors who are standing for re-election are set out in the Directors Prole appearing on pages 12 to 13 of the Annual Report. 2 Details of attendance of Directors at Board meetings There were four Board meetings held during the nancial year ended 31 December 2005. Details of attendance of the Directors are set out in the Directors Prole appearing on pages 12 to 13 of the Annual Report. 3 Place, Date and Time of the Forty-Third Annual General Meeting Place : Hotel Armada Lorong Utara C, Section 52 46200 Petaling Jaya Selangor Darul Ehsan Date & Time : Tuesday, 23 May 2006 at 10.00 a.m. DUTCH LADY MILK INDUSTRIES BERHAD

Frint Beheer IV Blankenstein 142 7943 PE Meppel The Netherlands 2 March 2006 The Board of Directors Dutch Lady Milk Industries Berhad 13 Jalan Semangat 46200 Petaling Jaya Selangor Darul Ehsan Dear Sirs, NOTICE OF NOMINATION OF MESSRS DELOITTE & TOUCHE (AF: 0834) AS AUDITORS I, being a registered holder of shares of Dutch Lady Milk Industries Berhad, her eby give notice, pursuant to Section 172(11) of the Companies Act, 1965 of my nomination of Messrs Deloitte & Touche (AF: 083 4) as Auditors of the Company in place of the retiring auditors at the forthcoming Annual General Meeting of the Company and of my intention to propose the following resolution as an ordinary resolution: THAT Messrs Deloitte & Touche (AF: 0834) be and is hereby appointed Auditors of t he Company in place of the retiring auditors, Messrs Ernst & Young to hold oce until the conclusion of the next Annua l General Meeting and that the directors be authorised to determine their remuneration. Yours faithfully, Frint Beheer IV DUTCH LADY MILK INDUSTRIES BERHAD

Board of Directors Chairman Tan Sri Kamarul Arin bin Mohd. Yassin Independent NonExecutive Director Directors Cornelis H.M.Ruijgrok Managing Director Dato Dr. Mhd. Nordin bin Mohd. Nor Non-IndependentNonExecutive Director Freek Rijna Non-IndependentNonExecutive Director Foo Swee Leng Independent NonExecutive Director Huang Shi Chin Executive Director Boey Tak Kong Independent NonExecutive Director Joint-Secretary Huang Shi Chin (MIA 3891) Chin Ngeok Mui (MAICSA 7003178) Audit Committee Members Chairman Boey Tak Kong Tan Sri Kamarul Arin bin Mohd. Yassin Cornelis H.M. Ruijgrok Foo Swee Leng Registered Oce Nomination Committee Remuneration Committee Members Chairman Foo Swee Leng Dato Dr. Mhd. Nordin bin Mohd. Nor

Cornelis H.M. Ruijgrok Members Chairman Foo Swee Leng Tan Sri Kamarul Arin bin Mohd. Yassin Boey Tak Kong 13, Jalan Semangat 46200 Petaling Jaya Selangor Darul Ehsan Telephone : 03-7956 7477 Facsimile : 03-7954 6301 Registrar Symphony Share Registrars Sdn Bhd Level 26, Menara Multi-Purpose Capital Square No. 8, Jalan Munshi Abdullah 50100 Kuala Lumpur Telephone : 03-2721 2222 Facsimile : 03-2721 2530 Auditors Stock Exchange Listing Website www.dutchlady.com.my Main Board of Bursa Malaysia Securities Berhad Ernst & Young Level 23A Menara Milenium Jalan Damanlela 50490 Kuala Lumpur Principal Bankers Bumiputra Commerce Public Bank Berhad Malayan Banking Berhad Bank Berhad 12, Jalan 14/14 18A, Jalan 14/14 6, Jalan 14/14 46100 Petaling Jaya 46100 Petaling Jaya 46100 Petaling Jaya Selangor Darul Ehsan Selangor Darul Ehsan Selangor Darul Ehsan Solicitors Khaw & Partners Oh Seng Dee & Co. H.K. Teh & Associates 6th Floor, No. 11, 3rd Floor No. 5, Mezzanine & Menara Boustead Jalan 19/29 1st Floor Jalan Raja Chulan 46300 Petaling Jaya Jalan SS2/67 50200 Kuala Lumpur Selangor Darul Ehsan 47300 Petaling Jaya Selangor Darul Ehsan DUTCH LADY MILK INDUSTRIES BERHAD

O this reason, the Company is representing a gross 86.25 sen per share, in the form of nal, interim and special dividends. DUTCH LADY MILK INDUSTRIES BERHAD

The Board of Directors is pleased to report to shareholders the manner in which the Company has applied the principles and the extent of compliance with the best practices of good governance as set out in Part 1 and Part 2 respectively of the Malaysian Code on Corporate Governance (the Code) pursuant to Paragraph 15.26 of the Listing Requirements of Bursa Malaysia Securities Berhad (the Listing Requirements). The Company will continually review its corporate governance principles and practices in its eort to achieve a higher standard of governance in the Company. 1 The Board of Directors 1.1 Composition The Board comprises seven directors; two of whom are non-independent non-executive directors, three are independent non-executive directors and two Executive Directors within the meaning of Chapter 1.01 of the Listing Requirements. The Board is required under Paragraph 15.02 of the Listing Requirements to ensure that it has one-third independent directors. The Board has identied its senior Independent and Non-Executive Chairman, Tan Sri Kamarul Arin bin Mohd. Yassin, to whom concerns of shareholders, Management and others may be conveyed. Duties and Responsibilities The Company is led by an experienced Board underaChairmanwhoisanIndependentandNonExecutive director. The roles of the Chairman and Managing Director are separate and each has a clearly accepted division of responsibilities. Members of the Board are professionals from varied backgrounds, bringing depth and diversity in experience, expertise and perspectives to the Company s business operations. The proles of themembersoftheBoardaresetoutinthisAnnual Report on pages 12 to 13. TheBoard is ensuredof a balancedviewat all board deliberations largely due to the presenceof its nonexecutivedirectorsthatformama jorityintheBoard. More importantly, the Board has as members, independent non-executive directors who are independent from Management and major shareholders of the Company. The independent directors are also free from any business or other relationships that could materially interfere with the exercise of their independent judgement.

Together with the Managing Director who has an intimate knowledge of the Company s business, the Board is constituted of individuals who are committed to business integrity and professionalism in all its activities. As part of its commitment, the Board supports the highest standards of corporate governance and the development of best practices for the Company. The Board retains full and eective overall control of and responsibility for the Company. This includes the following six specic responsibilities in the discharge of its duties: reviewing and adopting a strategic plan for the Company. overseeing the conduct of the Company s business to evaluate whether the business is being properly managed. The Board plays a supportive yet watchful role over the performance of Management. identifying principal risks to ensure the implementation of appropriate systems to manage these risks. establishing succession planning, including the appointment, training and fixing of compensation and where appropriate, replacement of senior management. maintainingshareholderandinvestor relations for the Company. reviewing the adequacy and the integrity of the Company s internal control systems and management systems; including systems for compliance with applicable laws, regulations, rules, directives and guidelines. DUTCH LADY MILK INDUSTRIES BERHAD

2 Board Meetings The Board meets at least four times a year and has a formal schedule of matters reserved to it. Additional The Company s Articles of Association provide that the Managing Director is also subject to re-election by rotation once every three years. meetingsareheldasandwhenrequired.Itmeetswithin two months of the end of every quarter of the nancial year, whereat the Company s nancial statements and results are deliberated and considered. The Board and itsCommitteesaresuppliedwithsucientinformation to enable them to discharge their duties. During these meetings,theBoardalsoappraisesbusinessproposals, reviews the management or performance of the business and any other strategic issues that aect or may aect the Company s business. During the nancial year, the Board met four times; whereat it deliberated and considered a variety of matters including the Company s nancial results, the business plan and direction of the Company. The Board receives documents on matters requiring its consideration prior to and in advance of each meeting. The Board papers are comprehensive and encompassallaspectsofthemattersbeingconsidered whichenabletheBoardtolookatboththequantitative and qualitative factors so that informed decisions are made. Directors have access to information within the Company and to the advice and services of the Company Secretary who is responsible for ensuring that Board meeting procedures are followed and that applicablerulesandregulationsarecompliedwith.The Directorsalsohaveaccesstoindependentprofessional advice in furtherance of their duties. 4 Directors Training All membersofthe Boardhavesuccessfullycompleted the Mandatory Accreditation Programme and accumulated the requisite Continuing Education Programme points for the years 2003 and 2004 as specied by Bursa Malaysia Securities Berhad. UndertherevisedBursaMalaysiaListingRequirements, the Board will assume the onus of determining or overseeing the training needs of their Directors from 2005 onwards. In addition to orgainising specic training programesforitsDirectors annually,Directors areencouragedtoattendrelevantseminarsandtraining programmestoequip themselveswiththe knowledge to eectively discharge their duties as Directors. For the year under review, all the Directors except for Mr. Freek Rijna, attended a training programme that covered various topics including Managerial Accountability, Corporate Governance and the Media, Enhancing Shareholder Value and Updates on recent legislations and regulations. In addition, the Executive Directors and Mr. Freek Rijna attended training courses on Operational Management and on Long Term Planning Methodology. 3

The attendance of the Directors at the Board Meetings is set out in the Directors s Prole appearing on pages 12 and 13 of the Annual Report. Re-Election of Directors At least one-third of the Directors are required to retire by rotation each nancial year in accordance with the Company s Articles of Association and can offer themselves for re-election at the Annual General Meeting. DirectorswhoareappointedbytheBoardtollacasual vacancy during the year are subject to election by shareholders at the next Annual General Meeting following their appointment. 5 Directors Remuneration Non-executive directors are paid an attendance allowance for each Board or Committee Meeting that they attend. Directors fees are paid to non-executive directorsandtheseareapprovedbyshareholdersatthe Annual General Meeting. The Executive Directors are not paid an attendance allowance nor directors fees. The Company has adopted the objectives as recommended by the Malaysian Code on Corporate Governance to determine the remuneration of Directors so as to ensure that the Company attracts and retains the Directors needed to run the Company successfully. DUTCH LADY MILK INDUSTRIES BERHAD

The aggregate remuneration of Directors of the Company for the nancial year ended 31 December 2005 are as follows: Non-Executive Directors Executive Directors RM 984, 000 RM 114, 000 The number of Directors whose total remuneration falls within the following bands are as follows: Range of Executive Non-Executive Renumeration Directors Directors Below RM50,000 -4 RM300,001 to RM350,000 1 RM600,001 to RM650,000 1 6 Board Committees As appropriate, the Board has delegated certain responsibilities to Board Committees that operate within clearly defined terms of reference. These Committees are: 6.1 Audit Committee The Company s Audit Committee assists and supports the Board s responsibility to oversee the Company s operations in the following manner: provides a means for review of the Company s processes for producing nancial data, its internal controls and independence of the Company s External and Internal Auditors. reinforces the independence of the Company s External Auditors. reinforces the objectivity of the Company s Internal Audit function. The Audit Committee comprises four directors (three of whom, including the Chairman, are independent non-executive directors). The members of the Committee are: 1. Tan Sri Kamarul Arin bin Mohd. Yassin (Independent Non-Executive Director)-Chairman 2. Mr. Boey Tak Kong

(Independent Non-Executive Director) 3. Mr. Cornelis H.M. Ruijgrok (Executive Director) 4. Mr. Foo Swee Leng (Independent Non-Executive Director) The Committee s terms of reference include the review of and deliberation on the Company s nancial statements, the audit findings of the External Auditors arising from their audit of the Company s Financial Statements and the audit findings and issues raised by the Internal Auditors together with Management s responses thereon. The Director of Finance, Internal Auditors and External Auditors attend meetings at the invitation of the Audit Committee. The Committee also reviews the Company s Quarterly unaudited statements and final audited (twelve months) Financial Statements before they are considered, deliberated and approved by the Board as well as related party transactions and any conicts of interest situations during the year. The Audit Committee Report for the nancial year pursuant to Paragraph 15.16 of the Listing Requirements is contained on pages 14 to 15 of this Annual Report. 6.2 Nomination Committee The Committee comprises three directors, all of whom are independent non-executive directors. The members of the Committee are: 1. Tan Sri Kamarul Arin bin Mohd. Yassin (Independent Non-Executive Director)-Chairman 2. Mr. Boey Tak Kong (Independent Non-Executive Director) 3. Mr. Foo Swee Leng (Independent Non-Executive Director) DUTCH LADY MILK INDUSTRIES BERHAD

The Committee s responsibility among others, is to 7.2 Statement of Directors nsibility in propose or review new nominees for the Board and BoardCommittees,toassesstheeectivenessofBoard as a whole, examine its size with a view to determine the impact of its number upon its eectiveness, the Committees of the Board and the individual directors on an on-going basis, and to annually review the requiredskillsandcorecompetenciesofnon-executive directors. The Committee also ensures that an orientation and education programme is in place for new Board members. 6.3 Remuneration Committee The Committee comprises three directors, two of whom are non-executive directors. The members of the Committee are: 1. Dato Dr. Mhd. Nordin bin Mohd. Nor (Non-Independent Non-Executive Director) - Chairman 2. Mr. Foo Swee Leng (Independent Non-Executive Director) 3. Mr. Cornelis H.M. Ruijgrok (Executive Director) The Committee s primary responsibility is to recommend to the Board, the remuneration of Directors (executive and non-executive) in all its forms, drawing from outside advice if necessary. Nevertheless, the determination of remuneration packages of Directors is a matter for the Board as a whole and individuals are required to abstain from discussion of their own remuneration. 7 Accountability and Audit 7.1 Financial Reporting: The Board aims to provide and present a balanced and meaningful assessment of the Company s nancial performance and prospects at the end of the nancial year, primarily through the Financial Statements and the Chairman s Statement in the Annual Report. respect of Audited Financial Statements pursuant to Paragraph 15.27(a) of the Listing Requirements. DirectorsarerequiredpursuanttoSection169(15) of the Companies Act, 1965 to state whether the Company s Financial Statements for the nancial year are drawn up in accordance with approved

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accounting standards so as to give a true and fair view of the Company s state of aairs and of the results of the Company s business operations for the nancial year. In preparing the above Financial Statements, the Directors have: adopted suitable accounting policies and applied them consistently; made judgements and estimates that are prudent and reasonable; ensured applicable accounting standards have been followed; and prepared the Financial Statements on an ongoing basis. The Company s quarterly and annual results announcement are released to shareholders within the stipulated time frame to reinforce the Board s commitment to provide a true and fair view of the Company s operations. 7.3 Internal Audit Deloitte Enterprise Risk Services Sdn Bhd carries out the Company s Internal Audit function. They report to the Audit Committee. As such, the Company s internal audit function is independent of its activities and is performed with professionalism and impartiality. During the year, the Internal Auditors had four meetings with the Audit Committee. They reported on the Company s system of internal and operational controls with focus on key areas of business risks. DUTCH LADY MILK INDUSTRIES BERHAD

The Internal Auditors audit plan, nature and scope of the audit were agreed with the Audit Committee prior to the commencement of their audit. They reported on weaknesses in control procedures and made recomendations on areas for improvement. They also reviewed the extent to which their recommendations have been implemented by the Company. 7.4 External Audit The Company s independent External Auditors play an essential role to the shareholders by enhancing the reliability of the Company s Financial Statements and by giving assurance of that reliability to users of the Financial Statements. The External Auditors have an obligation to bring any signicant weaknesses in the Company s system of controls and compliance to the attention of Management, the Audit Committee and the Board. 8 Relations with Shareholders and Investors The Company s Annual General Meeting (AGM) is the principal forum for dialogue with individual shareholders. It is a crucial mechanism in shareholder communication for the Company. At the Company s AGM, which is generally well attended, shareholders are encouraged to ask questions about the resolutions being proposed and on the Company s operations in general. A press conference is held immediately after the AGM whereat the Chairman and the Managing Director advise members of the media of the resolutions passed, and answer questions on the Company s operations posed by the reporters. Members of the media are also invited to the Company s major product launches where clarications are given on the products and the business in general. Briengs are also held with investment analysts upon request. Announcements are made on a timely basis to Bursa Malaysia Securities Berhad and these are made electronically available to the public via Bursa Malaysia s internet website at http://announcements. bursamalaysia.com.my. The Company s website, www.dutchlady.com. my provides corporate and nancial information. It highlights news, events, products, as well as providing medical advice.

DUTCH LADY MILK INDUSTRIES BERHAD 11

TAN SRI KAMARUL ARIFFIN BIN MOHD YASSIN Aged 72. Malaysian. Independent Non-Executive Director. Chairman of the Company since 27 February 1976. Chairman of the Audit Committee and Nomination Committee. He i s also a director of British American Tobacco (M) Berhad and Commission Member of the Mal aysian Communication & Multimedia Commission. Formally a Member of the Senate of the Ma laysian Parliament. A lawyer by profession. He does not have any family relationship wit h any director and / or major shareholder of the Company, nor any conict of interest with the Co mpany. He has no convictions for any oences within the past ten years. He does not hold any shares in the Company. He attended three of the total four Board meetings held during the nancial year. Aged 72. Malaysian. Independent Non-Executive Director. Chairman of the Company since 27 February 1976. Chairman of the Audit Committee and Nomination Committee. He i s also a director of British American Tobacco (M) Berhad and Commission Member of the Mal aysian Communication & Multimedia Commission. Formally a Member of the Senate of the Ma laysian Parliament. A lawyer by profession. He does not have any family relationship wit h any director and / or major shareholder of the Company, nor any conict of interest with the Co mpany. He has no convictions for any oences within the past ten years. He does not hold any shares in the Company. He attended three of the total four Board meetings held during the nancial year. MR. CORNELIS H.M. RUIJGROK Aged 54. Dutch. Executive Director. Managing Director of the Company since 1 Dec ember 2002. Member of the Audit Committee and Remuneration Committee. A board member of the Malaysian Dutch Business Council. He holds a degree in Marketing from the Netherlands Inst itute of Marketing. He does not have any family relationship with any director and / or m ajor shareholder of the Company other than as nominee director of Koninklijke Friesland Foods NV. He does not have any conict of interest with the Company and has no convictions for any oences with in the past ten years. He does not hold any shares in the Company. He attended all four Boar d Meetings held during the nancial year. MR. FOO SWEE LENG Aged 60. Malaysian. Independent Non-Executive Director. Appointed to the Board o n 18 June 1986. Member of the Audit Commitee, Remuneration Committee and Nomination Commit tee. He was formerly the Managing Director of the Company and Regional Director of Fr iesland Asia

Pacic. He holds a degree in Economics from University Malaya. He does not have an y family relationship with any director and / or major shareholder of the Company. He doe s not have any conict of interest with the Company and has no convictions for any oences within t he past ten years. He does not hold any shares in the Company. He attended all four Board Me etings held during the nancial year. DUTCH LADY MILK INDUSTRIES BERHAD

MR. BOEY TAK KONG Aged 52. Malaysian. Independent Non-Executive Director. Appointed to the Board o n 12 November 2001. Member of the Audit Committee and Nomination Committee. He is also a Direc tor of RB Land Holdings Berhad, Sanbumi Holdings Berhad and Green Packet Berhad. Currently , he is the Managing Director of Terus Mesra Sdn Bhd, a management consulting and corporate advisory services company. A Fellow Member of the Chartered Association of Certied Account ants, United Kingdom, Associate Member of the Institute of Chartered Secretaries & Administra tors, United Kingdom and Chartered Accountant of the Malaysian Institute of Accountants. He d oes not have any family relationship with any director and / or major shareholder of the Comp any, nor any conict of interest with the Company. He has no convictions for any oences within t he past ten years and he does not hold any shares in the Company. He attended all four Board Meetings held during the nancial year. MR. FREEK RIJNA Aged 51. Dutch. Non-Independent Non-Executive Director. Appointed to the Board o n 16 January 2002. Currently the Managing Director of Friesland Region Asia Pacic, a division of Koninklijke Friesland Foods NV. He holds a degree in Economics / Business Administration fro m Erasmus University, the Netherlands. He does not have any family relationship with any d irector and / or major shareholder of the Company other than as nominee director of Koninklijke F riesland Foods NV. He does not have any conict of interest with the Company and has no convictio ns for any oences within the past ten years. He does not hold any shares in the Company. He attended two of the total four Board Meetings held during the nancial year. DATO DR. MHD. NORDIN BIN MOHD NOR Aged 60. Malaysian. Non-Independent Non-Executive Director. Appointed to the Boa rd on 6 August 2003. Chairman of the Remuneration Committee. He was formerly the Directo r-General of the Department of Veterinary Services, Malaysia. He is also the Chairman of the Malaysian Animal Welfare Foundation and Patron of the Malaysian Feline Society. He holds a degree in Veterinary Science from the University of Queensland, Australia. He does not have any famil y relationship with any director and / or major shareholder of the Company other than as nomine e director of

Permodalan Nasional Berhad. He does not have any conict of interest with the Comp any and has no convictions for any oences within the past ten years. He does not hold any shares in the Company. He attended all four Board Meetings held during the nancial year. MR. HUANG SHI CHIN Aged 48. Malaysian. Executive Director. Appointed to the Board on 6 May 2004. He is currently the Company s Director of Finance and Joint Company Secretary. A Member of the Ins titute of Chartered Accountants (England & Wales) and a Chartered Accountant of the Malays ian Institute of Accountants. He does not have any family relationship with any director and / or major shareholder of the Company. He does not have any conict of interest with the Company and has no convictions for any oences within the past ten years. He does not hold any shares in the Comp any. He attended all four Board Meetings held during the nancial year. DUTCH LADY MILK INDUSTRIES BERHAD 13

1 Membership and Meeting of the Committee 3 Terms of Reference Members of the Audit Committee are: 1. Tan Sri Kamarul Arin bin Mohd. Yassin (Independent, Non-Executive Director) Chairman 2. Mr. Boey Tak Kong (Independent, Non-Executive Director) 3. Mr. Cornelis H.M. Ruijgrok (Executive Director) 4. Mr. Foo Swee Leng (Independent, Non-Executive Director) Mr. Boey Tak Kong, being a member of the Malaysian Institute of Accountants, fullls the requirement of paragraph 15.10(1) (c) of the Listing Requirements of Bursa Malaysia Securities Berhad. The Audit Committee held four meetings during the nancial year ended 31 December 2005. Details of attendance of the Audit Committee members are as follows: Name of Members Total Meetings Attended Percentage of Attendance Tan Sri Kamarul Arin 3 out of 4 75% bin Mohd. Yassin Mr. Boey Tak Kong 4 out of 4 100% Mr. Cornelis H.M. 4 out of 4 100% Ruijgrok Mr. Foo Swee Leng 4 out of 4 100% 2 Role of the Audit Committee An independent Audit Committee assists, supports and implements the Board s responsibility to oversee the Company s operations in the following manner:

provides a means for the review of the Company s processes for producing nancial data, its internal controls and independence of the Company s External and Internal Auditors. reinforces the independence of the Company s External Auditors. reinforces the objectivity of the Company s Internal Audit function. DUTCH LADY MILK INDUSTRIES BERHAD Composition The Committee comprises four Directors, a majority of whom is independent. The Chairman is an Independent Non-Executive Director. One member of the Committee is a professional accountant. Quorum The quorum for the Meeting is three. Agenda and Notice of Meeting The Company Secretary is responsible, with the concurrence of the Chairman, for preparing and circulating the Agenda and the Notice of Meeting, together with supporting explanatory documentation to members of the Committee prior to each meeting. Attendance at Meeting The Director of Finance, Internal Auditors and External Auditors attend meetings by invitation of the Committee. Other Board Members have the right of attendance. Frequency of Meetings Meetings are held not less than four times a year. The External Auditors may request a meeting if they consider that one is necessary. Authority The Committee is authorised by the Board to investigate any activity within its terms of reference. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Committee. The Committee is authorised by the Board to obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise as it deems necessary.

Duties The duties of the Committee are: (a) To recommend to the Board the appointment of the External Auditors and x their audit fee thereof. (b) To make appropriate recommendations to the Board on matters of resignation or dismissal of the External Auditors. (c) To discuss with the External Auditors their audit plan, the nature and scope of the audit, evaluation of the Company s system of internal controls and audit report on the annual Financial Statements.

(d) To review the quarterly and annual Financial Statements of the Company before submission to the Board of Directors, focusing particularly on: (i) public announcement of the results and dividend payment. (ii) any changes in accounting policies and practice. (iii) the going concern assumption. (iv) compliance with approved accounting standards. (v) compliance with stock exchange and legal requirements, and (vi) signicant and unusual events. (e) To discuss problems and reservations arising from the interim and nal audits, and any matters the External Auditors may wish to discuss. (f) To review the External Auditors letter to Management and Management s response thereon. (g) To review the internal audit programme, ensure co-ordination between the Internal and External Auditors, ensure that the internal audit function is professionally managed, adequately resourced and given the necessary authority to carry out its work. (h) To consider the ndings of internal audit and investigations and Management s response thereon. (i) To consider any related party transactions and conict of interest situations that may arise within the Company. (j) To review the draft Circular on Proposed Shareholders Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature before submission to the Board of Directors. (k) To consider the level of assistance given by the employees of the Company to the External and Internal Auditors, and (l) To consider any other topics, as requested by the Board. Reporting Procedures The Secretary shall circulate the minutes of meetings of the Committee to all members of the Board.

Detailed audit reports by the Internal Auditors and the respective Management response are circulated to members of the Committee before each Meeting at which the said reports are tabled. 4 Internal Audit Function The Company s Internal Audit function is carried out by Deloitte Enterprise Risk Services Sdn Bhd, who is independent of the activities or operations of the Company. The Internal Auditors are empowered to audit the Company s business units, review the units compliance with internal control procedures, highlight areas of weaknesses and make appropriate recommendations to the Company for improvements. 5 Summary of Audit Committee s Activities The Audit Committee met at scheduled times during the year; with due notices of meetings issued, and with agendas planned and itemised so that matters were deliberated and discussed in a focused and detailed manner. The minutes of each meeting held were distributed to each member of the Board at the subsequent Board Meeting. The Audit Committee Chairman reported on each meeting to members of the Board. The activities of the Audit Committee s during the nancial year ended 31 December 2005 where as follows: (i) Reviewed the audit plan, nature and scope of the audit with the Internal and External Auditors; (ii) Discussed the ndings and recommendations by the Internal and External Auditors on systems and control weaknesses, and ensured that corrective actions were taken by Management; (iii) Reviewed the compliance with accounting standards issued by the Malaysian Accounting Standards Board and ensured that the Company used appropriate accounting policies for its nancial statements; (iv) Reviewed the Company s quarterly nancial results and recommended the same to the Board for approval and announcement to Bursa Malaysia Securities Berhad; (v) Reviewed the Company s audited accounts for the year and audit report of the External Auditors on the nancial statements and recommended the same to the Board for approval; (vi)

Reviewed the related party transactions and any conicts of interest situations during the year, and (vii) Reviewed the Circular on Proposed Shareholders Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature and recommended the same to the Board for approval. DUTCH LADY MILK INDUSTRIES BERHAD 15

Board s Responsibility The Board has overall responsibility for the Company s system of internal controls, which includes the establishment of an appropriate control environment and framework, and reviews its eectiveness, adequacy and integrity. The Board is responsible for identifying the major business risks faced by the Company and for determining the appropriate course of action to manage those risks. The Company continually evaluates and manages risks and regularly reviews the planned actions. The Board maintains full control over strategic, nancial, organisational and compliance issues and has put in place an organisation with formal lines of responsibility and delegation of authority. The Board and Audit Committee have delegated to executive management the implementation of the system of internal controls within an established framework throughout the Company. Internal Control Structure and Processes The system of internal controls is designed to safeguard the assets of the Company, to ensure the maintenance of properaccountingrecordsandtoprovidereliablenancial informationforusewithinthebusinessandforpublication. However, these controls provide only reasonable and not absolute assurance against material error, misstatement, loss or breach of set regulations. The principal features of the Company s internal control structure are summarised as follows: Board Committees There is a clear denition to the functions and responsibilities of the various committees of the Board of Directors. These include the Audit Committee, the Nomination Committee and the Remuneration Committee. Organisational structure and responsibility levels The Company has a well-dened organisational structure with clear lines of accountability and has strict authorisation, approval and control procedures within which senior management operates. Authority levels, acquisitions and disposals There are clear denitions of authorisation procedures and delegated authority levels for major tenders, major capital expenditure projects, acquasitions and disposals of businesses and other signicant transactions. Investment decisions are delegated to executive

management in accordance with authority limits. Comprehensive appraisal and monitoring procedures are applied to all major investment decisions. Authority of the Directors is required for key treasury matters including changes to equity and loan nancing, cheque signatories and the opening of bank accounts. Procedures and control environment ControlproceduresandenvironmentatCompanyand individual business unit levels and on sta policies have been established. The integrity and competence of personnel are ensured through high recruitment standards, the Hay Reward Management System, a comprehensive Performance Management System and employee development programme. The Company also publishes and distributes to every employee guidelines on safety, health and environment. Standards of business ethics Employees are contractually bound to observe prescribed standards of business ethics when conducting themselves at work and in their relationship with external parties, such as customers and suppliers. Employees are expected to conduct themselves with integrity and objectivity and not be placed in a position of conict of interest. In line with this, the Company has adopted the Group s Corporate Citizenship framework, Code of Conduct and Whistle-Blowing Procedures. DUTCH LADY MILK INDUSTRIES BERHAD

Formalised strategic planning and operating plan processes The Company undertakes a comprehensive business planning and budgeting process each year, to establish plans and targets against which performance is monitored on an ongoing basis. Key business risks are identied during the business planning process and are reviewed regularly during the year. Reporting and review The Company s management team regularly monitors the monthly reporting and reviews the nancial results and forecasts for all the businesses within the Company against the operating plans and annual budgets. The results are communicated on a regular basis to employees. The Managing Director also regularly reports to the Directors on signicant changes in the business and the external environment in which the Company operates. Financial performance The preparation of quarterly and full year nancial results and the state of aairs, as published to shareholders, are reviewed and approved by the Board. The full year Financial Statements are also audited by External Auditors. Internal compliance The Board, Audit Committee and Management regularly review the internal audit reports and monitor the status of the implementation of corrective actions to address internal control weaknesses noted. Update on developments Regular reporting is made to the Board at its meetings of legal, accounting and environmental developments. The outsourced Internal Audit function independently focuses on the key areas of business risk based on a work programme agreed annually with the Audit Committee, and reports on the systems of nancial and operational controls on a quarterly basis to the Audit Committee. The Internal Audit team advises executive and operational management on areas for improvement and subsequently reviews the extent to which its recommendations have been implemented. The extent of compliance is reported to the Audit Committee on a regular basis. The Audit Committee in turn reviews the eectiveness of the system of internal controls in

operation and reports the results thereon to the Board. In addition to internal controls, the Directors have ensured that safety and health regulations, environmental controls and political risks have been considered and complied with. The quality of the Company s products is paramount. Quality Assurance and Quality Control are prime considerations and in line with this, compliance to the procedures outlined for the ISO 9001 (Year 2000 version) accreditation is strictly adhered to, via regular internal and external quality audits. Strong emphasis is also given to food safety with the implementation of the HACCP (Hazard Analysis Critical Control Point) System progressively to cover all plants by end 2006. Conclusion The Directors have reviewed the eectiveness, adequacy and integrity of the system of internal controls in operation during the nancial year through the monitoring process set out above. There were neither material internal control failings nor signicant problems that had arisen during the nancial year. DUTCH LADY MILK INDUSTRIES BERHAD 17

FINANCIAL STATEMENTS FINANCIAL STATEMENTS

The Directors have pleasure in presenting their report At the forthcoming Annual General Meeting, nal together with the audited nancial statements of the dividends in respect of the na ncial year ended 31 Company for the year ended 31 December 2005. December 2005, of 6.25 sen less 28% income tax and 3.75 sen tax exempt, per RM1.00 ordinary share, amounting PRINCIPAL ACTIVITIES to a total dividend payable of RM5,280,000 (8.25 sen net per share) will be proposed for shareholders approval. The principal activities of the Company are the The nancial statements for the cu rrent nancial year manufacture of sweetened condensed milk, milk powder, do not reect these proposed dividends. Such dividends, dairy products and fruit juice drinks for distribution in the if approved by the shareholders, will be accounted for in home market and for export. shareholders equityasanappropriationofretainedprots in the nancial year ending 31 December 2006. There have been no signicant changes in the nature of these activities during the nancial year. DIRECTORS RESULTS RM 000 The names of the directors of the Company in oce Net Prot for the year 27,123 since the date of the last report and at the date of this report are: There were no material transfers to or from reserves or provisions during the nancial year. Tan Sri Kamarul Arin bin Mohd. Yassin Foo Swee Leng In the opinion of the directors, the results of the Boey Tak Kong operations of the Company during the nancial year Freek Rijna have not been substantially aected by any item, Cornelis Hubertus Maria Ruijgrok transaction or event of a material and unusual nature. Dato Dr. Mhd Nordin bin Mo hd Nor Huang Shi Chin DIVIDENDS The dividends paid by the Company since 31 December DIRECTORS BENEFITS 2004 were as follows : RM 000 Neither at the end of the nancial year, nor at any time In respect of the nancial year ended 31 during that year, did there subsist any a rrangement to December 2004: which the Company was a party, whereby the directors Final dividend of 6.25 sen less 28% income might acquire benets by means of the a cquisition of 2,880tax, paid in June 2005 shares in or debentures of the Company or any other Final tax exempt dividend of 3.75 sen, paid body corporate. 2,400in Jun 2005 Since the end of the previous nancial year, no director In respect of the nancial year ended 31 has received or become entitled to receiv e a benet December 2005: (other than benets included in the aggregate amount Special Interim dividend of 30 sen less of emoluments received or due and receiv able by 13,82428% income tax, paid in June 2005 the directors as disclosed in Note 6 to the nancial Interim dividend of 6.25 sen less 28% statements or the xed salary of a full-time employee 2,880income tax, paid in December 2005 of the Company) by reason of a contract m ade by the Special Interim dividend of 40 sen less Company or a related corporation with an

y director or 18,43228% income tax, paid in December 2005 with a rm of which the director is a member or with a company in which the director has a substantial nancial 40,416 interest. DUTCH LADY MILK INDUSTRIES BERHAD

DIRECTORS

INTEREST the register of directors, none of the oce at the end of the nancial year had in shares in the Company or its related during the nancial year.

According to directors in any interest corporations

OTHER STATUTORY INFORMATION (a) Before the income statement and balance sheet of the Company were made out, the directors took reasonable steps: (i) to ascertain that proper action had been taken in relation to the writing o of bad debts and the making of allowance for doubtful debts and satised themselves that all known bad debts had been written o and that adequate allowance had been made for doubtful debts; and (ii) to ensure that any current assets which were unlikely to realise their value as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise. (b) At the date of this report, the directors are not aware of any circumstances which would render: (i) the amount written o for bad debts or the amount of the allowance for doubtful debts in the nancial statements of the Company inadequate to any substantial extent; and (ii) the values attributed to the current assets in the nancial statements of the Company misleading. (c) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Company misleading or inappropriate. (d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or nancial statements of the Company which would render any amount stated in the nancial statements misleading. (e) As at the date of this report, there does not exist: (i) any charge on the assets of the Company which has arisen since the end of the nancial year which secures the liabilities of any other person; or (ii) any contingent liability in respect of the

Company which has arisen since the end of the nancial year. (f) In the opinion of the directors: (i) no contingent liability or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the nancial year which will or may aect the ability of the Company to meet its obligations when they fall due; and (ii) no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the nancial year and the date of this report which is likely to aect substantially the results of the operations of the Company for the nancial year in which this report is made. AUDITORS The auditors, Ernst & Young, have expressed their willingness to continue in oce. Signed on behalf of the Board in accordance with a resolution of the directors. CORNELIS H.M. RUIJGROK HUANG SHI CHIN Petaling Jaya, Malaysia 15 February 2006 DUTCH LADY MILK INDUSTRIES BERHAD

REVENUE COST OF SALES GROSS PROFIT OTHER OPERATING INCOME DISTRIBUTION COSTS ADMINISTRATIVE EXPENSES OTHER OPERATING EXPENSES PROFIT FROM OPERATIONS FINANCE COSTS PROFIT BEFORE TAXATION TAXATION NET PROFIT FOR THE YEAR EARNING PER SHARE Basic earnings per share (RM) Note 3 3 4 7 8 9 2005 RM 000 459,051 (303,213) 155,838 2,019 (82,249) (11,795) (25,858) 37,955 (290) 37,665 (10,542) 27,123

0.42 2004 RM 000 420,471 (283,951) 136,520 4,166 (77,752) (11,701) (23,697) 27,536 (731) 26,805 (7,082) 19,723 0.31

The accompanying notes form an integral part of the nancial statements. DUTCH LADY MILK INDUSTRIES BERHAD

NON-CURRENT ASSETS Property, plant and equipment CURRENT ASSETS Inventories Trade receivables Other receivables Amount due from related companies Cash and cash equivalents CURRENT LIABILITIES Provisions for liabilities Trade payables Other payables Amount due to related companies Taxation NET CURRENT ASSETS FINANCED BY: Share capital Retained prots Deferred tax liabilities Note 11 12 13 14 15 16 17 18 19 15 20 21 22 2005 2004 RM 000 RM 000 57,798 61,631 49,810 62,799 6,465 4,140 18,758 141,972

798 38,829 26,874 8,238 4,263 79,002 62,970 120,768 64,000 54,298 118,298 2,470 120,768 59,840 52,291 4,775 2,973 25,861 145,740 1,340 36,578 22,968 9,468 2,456 72,810 72,930 134,561 64,000 67,591 131,591 2,970 134,561

22 DUTCH LADY MILK INDUSTRIES BERHAD

At 1 January 2004 Net prot for the year Dividends (Note 10) At 31 December 2004 At 1 January 2005 Net prot for the year Dividends (Note 10) At 31 December 2005 Share Capital RM 000 64,000 -

64,000 64,000

64,000 Distributable Retained Prots RM 000 83,676 19,723 (35,808) 67,591 67,591 27,123 (40,416) 54,298 Total RM 000 147,676 19,723 (35,808)

131,591 131,591 27,123 (40,416) 118,298 The accompanying notes form an integral part of the nancial statements DUTCH LADY MILK INDUSTRIES BERHAD

Note Note CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations Income tax paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Interest income Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Interest paid Dividends paid 7 10 Net cash used in nancing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 16 2005 RM 000 446,923 (398,607) 48,316 (9,235) 39,081 (6,482) 434 570 (5,478) (290) (40,416) (40,706) (7,103) 25,861 18,758 2004 RM 000 425,043

(395,008) 30,035 (6,218) 23,817 (7,744) 2,871 524 (4,349) (731) (35,808) (36,539) (17,071) 42,932 25,861 The accompanying notes form an integral part of the nancial statements DUTCH LADY MILK INDUSTRIES BERHAD

1 CORPORATE INFORMATION The principal activities of the Company are the manufacture of sweetened condens ed milk, milk powder, dairy products and fruit juice drinks for distribution in the home market and fo r export. There have been no signicant changes in the nature of these activities during the nancial year. The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Board of Bursa Malaysia Securities Berhad. The registered oce and princi pal place of business of the Company are located at 13, Jalan Semangat, 46200 Petaling Jaya. The holding company is FRINT BEHEER IV BV and the ultimate holding company is Ko ninklijke Friesland Foods NV, both of which are incorporated in the Netherlands. The number of employees in the Company at the end of the nancial year was 570 (20 04: 586). The nancial statements are expressed in Ringgit Malaysia. The nancial statements were authorised for issue by the Board of Directors in acc ordance with a resolution of the directors on 15 February 2006. 2 SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Preparation The nancial statements of the Company have been prepared under the historical cos t convention and comply with the provisions of the Companies Act, 1965 and applicable MASB Approv ed Accounting Standards in Malaysia. (b) Property, Plant and Equipment and Depreciation Property, plant and equipment are stated at cost or valuation less accumulated depreciation and impairment losses. The policy for the recognition and measurement of impairment losses is in accordance with Note 2(k). Certain leasehold land of the Company have not been revalued since they were rst revalued in 1968. The directors have not adopted a policy of regular revaluations of such assets. As permitted under the transitional provisions of IAS 16 (Revised): Property, Plant and Equipment, these assets continue to be stated at their 1968 valuation less accumulated depreciation. Leasehold land is amortised on a straight line basis over the periods of the leases, both of which expire in 2059. Depreciation of other property, plant and equipment is provided for on a straight line basis to write o the cost of each asset to its residual value over the estimated useful life, at the following annual rates: DUTCH LADY MILK INDUSTRIES BERHAD

Building -2% Plant and machinery -10%-15% Motor vehicles -20% Furniture and equipment -10%-25% Upon the disposal of an item of property, plant or equipment, the dierence betwee n the net disposal proceeds and the net carrying amount is recognised to the income statement. (c) Inventories Inventories are stated at the lower of cost (determined on the rst-in, rst-out bas is) and net realisable value. The cost of nished goods and work-in-progress comprise raw materials, dire ct labour, other direct costs and appropriate production overheads. Net realisable value is the e stimated selling price in the ordinary course of business less the estimated costs of completion and th e estimated costs necessary to make the sale. (d) Cash and Cash Equivalents For the purposes of the cash ow statement, cash and cash equivalents include cash on hand and at bank, deposits at call and short term highly liquid investments which have an insignicant risk of changes in value. (e) Leases A lease is recognised as a nance lease if it transfers substantially to the Compa ny all the risks and rewards incident to ownership. All other leases are classied as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the term of the relevant lease. (f) Provisions for Liabilities Provisions for liabilities are recognised when the Company has a present obligat ion as a result of a past event and it is probable that an outow of resources embodying economic ben ets will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reect the current best estima te. Where the eect of the time value of money is material, the amount of a provision is the pre sent value of the expenditure expected to be required to settle the obligation. (g) Income Tax Income tax on the prot or loss for the year comprises current and deferred tax. C urrent tax is the expected amount of income taxes payable in respect of the taxable prot for the ye ar and is measured using the tax rates that have been enacted at the balance sheet date.

DUTCH LADY MILK INDUSTRIES BERHAD

Deferred tax is provided for, using the liability method, on temporary dierences at the balance sheet date between the tax bases of assets and liabilities and their carrying am ounts in the nancial statements. In principle, deferred tax liabilities are recognised for all taxabl e temporary dierences and deferred tax assets are recognised for all deductible temporary dierences, un used tax losses and unused tax credits to the extent that it is probable that taxable prot will be av ailable against which the deductible temporary dierences, unused tax losses and unused tax credits can be utilised. Deferred tax is measured at the tax rates that are expected to apply in the peri od when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is recognised in the income statement, e xcept when it arises from a transaction which is recognised directly in equity, in which case the rel ated deferred tax is also recognised directly in equity. (h) Employee Benets (i) Short term benets Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Company. Short term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences, and short term non-accumulating compensated absences such as sick leave are recognis ed when the absences occur. (ii) Dened contribution plans As required by law, companies in Malaysia make contributions to the Employees Pr ovident Fund ( EPF ). Such contributions are recognised as an expense in the income statement as incurred. (i) Revenue Recognition Revenue is recognised when it is probable that the economic benets associated wit h the transaction will ow to the enterprise and the amount of the revenue can be measured reliably. Sale of Goods Revenue relating to sale of goods is recognised net of sales taxes and discounts upon the transfer of risks and rewards. Interest Income Interest is recognised on a time proportion basis that reects the eective yield on

the assets. Revenue from Services Revenue from services rendered is recognised net of sales tax as and when the se rvices are performed. DUTCH LADY MILK INDUSTRIES BERHAD 27

(j) Foreign Currencies Transactions in foreign currencies are initially recorded in Ringgit Malaysia at rates of exchange ruling at the date of the transaction. At each balance sheet date, foreign currency mon etary items are translated into Ringgit Malaysia at exchange rates ruling at that date. Non-mone tary items initially denominated in foreign currencies, which are carried at historical cost, are tra nslated using the historical rate as of the date of acquisition and non-monetary items which are c arried at fair value are translated using the exchange rate that existed when such fair values were deter mined. The principal exchange rates applied for each respective unit of foreign currenc y ruling at balance sheet date are as follows: Foreign Currency 1 1 1 1 1 United States Dollar Euro Singapore Dollar Australian Dollar Thai Baht

(k) Impairment of Assets 2005 2004 RM RM 3.8090 4.5300 2.2966 2.8030 0.0964 3.8250 5.2270 2.3490 2.9930 0.1014

At each balance sheet date, the Company reviews the carrying amounts of its asse ts to determine whether there is any indication of impairment. If any such indication exists, im pairment is measured by comparing the carrying values of the assets with their recoverable amounts. R ecoverable amount is the higher of net selling price and value in use, which is measured by refere nce to discounted future cash ows. An impairment loss is recognised as an expense in the income statement immediate ly. (l) Related Companies Related companies in these nancial statements refer to companies within the Konin klijke Friesland Foods NV group of companies. DUTCH LADY MILK INDUSTRIES BERHAD

(m) Financial Instruments Financial instruments are recognised in the balance sheet when the Company has b ecome a party to the contractual provisions of the instrument. Financial instruments are classied as liabilities or equity in accordance with th e substance of the contractual arrangement. Interest, dividends and gains and losses relating to a n ancial instrument classied as a liability, are reported as expense or income. Distributions to hold ers of nancial instruments classied as equity are recognised directly to equity. Financial instr uments are oset when the Company has a legally enforceable right to oset and intends to settle ei ther on a net basis or to realise the asset and settle the liability simultaneously. Trade Receivables Trade receivables are carried at anticipated realisable values. Bad debts are wr itten o when identied. An estimate is made for doubtful debts based on a review of all outstanding amou nts as at the balance sheet date. Trade Payables Trade payables are stated at cost which is the fair value of the consideration t o be paid in the future for goods and services received. Interest Bearing Borrowings Interest-bearing bank loans and overdrafts are recorded at the amount of proceed s received, net of transaction costs. Equity Instruments Ordinary shares are classied as equity. Dividends on ordinary shares are recognis ed in equity in the period in which they are declared. The transaction costs of an equity transaction, other than in the context of a b usiness combination, are accounted for as a deduction from equity, net of tax. Equity transaction cos ts comprise only those incremental external costs directly attributable to the equity transaction which would otherwise have been avoided. 3 REVENUE AND COST OF SALES Revenue represents the gross invoiced value of goods supplied less returns and d iscounts and cost of sales comprise the cost of raw materials, direct labour, other direct costs a nd the cost of nished goods purchased.

DUTCH LADY MILK INDUSTRIES BERHAD 29

4 PROFIT FROM OPERATIONS Prot from operations is stated after charging/(crediting): Sta costs (Note5) Depreciation of property, plant and equipment Rental of buildings Hire of equipment Operating lease expense Auditors remuneration - Audit - Other services Allowance for doubtful debts Bad debts written o Reversal of allowance for doubtful debts Interest income Loss/(Gain) on disposal of property, plant and equipment 5 STAFF COSTS Wages and salaries Social security costs Short term accumulating compensated absences Pension costs - dened contribution plans Other sta related expenses 2005 RM 000 28,993 9,301 134 68 1,640 55 18 1,847 299 (462) (570) 580 24,135 246 225 3,325 1,062 28,993 2004

RM 000 27,185 8,941 114 61 1,169 51 23 2,073 39 (736) (524) (2,569) 23,128 207 96 3,106 648 27,185 Included in the sta costs are executive directors remuneration amounting to RM747,0 00 (2004: RM564,000) as further disclosed in Note 6. DUTCH LADY MILK INDUSTRIES BERHAD

6 DIRECTORS

REMUNERATION

2005 2004 RM 000 RM 000 Executive directors: Salaries and other emoluments 700 540 Pension cost - dened contribution plans 47 24 Benets-in-kind 237 210 984 774 Non-Executive directors: Fees 114 84 Total 1,098 858 The number of directors of the Company whose total remuneration during the nancia l year fell within the following bands is analysed below: Executive RM150,001 RM300,001 RM550,001 RM600,001 directors: - RM200,000 - RM350,000 - RM600,000 - RM650,000

Non-executive directors: Below RM50,000 7 FINANCE COSTS Interest expense on: Bank overdraft Trade facilities Number of Directors 2005 1 1 2004 1 1 4 3 RM 000 RM 000 290 290 17 714 731 DUTCH LADY MILK INDUSTRIES BERHAD

8 TAXATION 2005 2004 RM 000 RM 000 Income tax: Malaysian taxation based on prot for the year: Current 11,042 6,687 Underprovided in prior years -925 11,0427,612 Deferred tax (Note 22): Relating to origination and reversal of temporary dierences (1,176) 217Under/ (Ov er) provided in prior years 676 (747) (500) (530) Tax expense for the year 10,542 7,082 Domestic income tax is calculated at the Malaysian statutory tax rate of 28% (20 04: 28%) on the estimated assessable prot for the year. A reconciliation of income tax expense applicable to prot before taxation at the statutory income tax rate to income tax expense at the eective income tax rate of the Company is as fo llows: Prot before taxation Taxation at Malaysian statutory tax rate of 28% (2004: 28%) Eect of income not subject to taxes Eect of expenses not deductible for tax purposes Eect of utilisation of current year s reinvestment allowances Underprovision of tax expense in prior years Under/(Over) provision of deferred tax in prior years Tax expense for the year 37,665 26,805 10,546 7,505 -(718) 3151,785 (995) (1,668) -925676 (747) 10,542 7,082 DUTCH LADY MILK INDUSTRIES BERHAD

9 EARNINGS PER SHARE Basic earnings per share is calculated by dividing the net prot for the year by t he weighted average number of ordinary shares in issue during the nancial year. Net prot for the year (RM 000) Weighted average number of ordinary shares in issue ( 000) Basic earnings per share (RM) 10 DIVIDENDS Dividend paid - 6.25 sen (2004:6.25sen), less income tax, per RM1.00 ordinary share - 3.75 sen (2004:3.75 sen) tax exempt, per RM1.00 ordinary share - 30.00 sen (2004: 60.00), less income tax, per RM1.00 ordinary share - 6.25 sen (2004:6.25sen), less income tax, per RM1.00 ordinary share - 40.00 sen (2004: Nil), less income tax, per RM1.00 ordinary share 2005 27,123 64,000 0.42 RM 000 2,880 2,400 13,824 2,880 18,432 40,416 2004 19,723 64,000 0.31 RM 000 2,880 2,400 27,648 2,880

35,808 At the forthcoming Annual General Meeting, a nal dividend in respect of the curre nt nancial year ended 31 December 2005, of 6.25 sen less 28% income tax and 3.75 sen tax exempt per RM1.00 ordinary share, amounting to a total dividend of RM5,280,000 (8.25 sen net per s hare) will be proposed for shareholders approval. The nancial statements for the current nancial year do not reect this proposed dividend. Such dividend, if approved by the shareholders, wil l be accounted for in shareholders equity as an appropriation of retained prots in the nancial year ending 31 December 2006. DUTCH LADY MILK INDUSTRIES BERHAD

11 PROPERTY, PLANT AND EQUIPMENTCOST/VALUATION Long leasehold land At Valuation RM 000 At Cost RM 000 Building RM 000Plant & Equipment RM 000Capital WorkinProgress RM 000 Total 2005 RM 000 At 1 January 2005 Additions Disposals/write-os Reclassication 535 --5,104 --36,831 -1,082 85,372 4 (8,534) 5,396 6,478 (6,478) 127,842 6,482 (8,534) At 31 December 2005 535 5,10437,913 82,238 -125,790 ACCUMULATED DEPRECIATION At 1 January 2005 Charge for the year Disposals/write-os 185 6 1,375 68 10,212 901 54,439 8,326 (7,520) --66,211 9,301

(7,520) At 31 December 2005 191 1,44311,113 55,245 -67,992 NET BOOK VALUE At 31 December 2004 350 3,72926,619 30,933 -61,631 At 31 December 2005 344 3,66126,800 26,993 -57,798 DETAILS AT 1 JANUARY 2004 Cost Valuation Accumulated depreciation 535 (179) 5,104 (1,307) 36,506 (9,330) 80,334 (49,348) 815 -122,759 535 (60,164) Depreciation charge 6 68 882 7,985 -8,941 for 2004 Plant and equipment comprises plant, machinery, motor vehicles, furniture and eq uipment. Details of the latest independent professional valuation of long leasehold land owned by the Company as at 31 December 2005 are as follows: Valuation Basis of Date of Valuation Description of Property Amount Valuation RM 000 2 August 1968 Leasehold land in Section13, Open market Petaling Jaya 535 value As allowed by the applicable transitional provisions, this property has continue d to be stated on the basis of its 1968 valuation. Had the revalued leasehold land been carried at historical cost, the net book value of the leasehold land that would have been included in the nancial statements of the Company as at 31 D ecember 2005 would have been RM138,854 (2004: RM142,241). DUTCH LADY MILK INDUSTRIES BERHAD

12 13 INVENTORIES 2005 2004 RM 000 RM 000 At cost: Finished goods 28,169 33,201 Raw materials 18,587 22,296 Packaging materials 3,054 4,343 49,810 59,840 The cost of inventories recognised as an expense during the nancial year in the C ompany amounted to RM276,677,000 (2004 : RM262,361,000) TRADE RECEIVABLES Balance outstanding 70,695 58,672 Less: allowance for doubtful debts (7,896) (6,381) 62,799 52,291 Allowance for doubtful debts is analysed as follows: Balance at 1 January 6,381 5,083 Bad debts written o (299) (39) Reversal of allowance for doubtful debts (33) (736) 6,049 4,308 Additional provision for the year 1,847 2,073 Balance at 31 December 7,896 6,381 The Company s normal credit terms range from 30 to 60 days. Other credit terms are assessed and approved on a case by case basis. The Company has no signicant concentration of credit risk that may arise from exp osure to a single debtor or group of debtors. DUTCH LADY MILK INDUSTRIES BERHAD

14 OTHER RECEIVABLES 2005 RM 000 2004 RM 000 Sundry debtors Less: allowance for doubtful debts 9,510 (3,471) 8,284 (3,900) 6,039 4,384Deposits Prepayments 387 39 322 69 6,465 4,775 Allowance for doubtful debts is analysed as follows: Balance at 1 January Written back during the year 3,900 (429) 3,900 Balance at 31 December 3,471 3,900 The Company has no signicant concentration of credit risk that may arise from exp osure to a single debtor or group of debtors. 15 AMOUNT DUE FROM/(TO) RELATED COMPANIES The amount due from / (to) related companies arose from trade transactions which are unsecured, interestfree and under normal credit terms. 16 CASH AND CASH EQUIVALENTS Cash at bank 5,204 3,957 Deposits with licensed banks 9,416 21,904Deposits with other licensed nancial ins titutions 4,138 Cash and cash equivalents 18,758 25,861 DUTCH LADY MILK INDUSTRIES BERHAD

The weighted average eective interest rate of deposits and average maturities of deposits as at the end of the nancial year were as follows: Weighted average eective interest rate Licensed banks Other licensed nancial institutions 2005 1.96% 0.82% 2004 2.69% Average maturities Licensed banks Other licensed nancial institutions 6 days 9 days 24 days 17 PROVISIONS FOR LIABILITIES Employee Compensated Absences RM 000 Employee Pension Contribution RM 000 Total RM 000 At 1 January 2005 Additional provision during the year Utilised during the year Payments during the year 1,250 (570) 90 69 ( 41) 1,340 69 (570) (41) At 31 December 2005 680 118 798 At 31 December 2005 Current 680 118 798 At 31 December 2004 Current 1,250 90 1,340 (a) Employee Compensated Absences Provision for employee compensated absences reects provisions made for short term accumulating compensated absences such as paid annual leave. The provision is recognised for unutilised leave at the balance sheet date based on the latest basic salary. (b) Employee Pension Contribution

Provision for employee pension contribution reects provisions made for additional contributions to the statutory Employee s Provident Fund that would vest upon unionised sta havin g completed ve years of service. The provisions have been made on the assumption that all rel evant sta will complete their ve year term and that therefore their benets will vest in its entir ety. No actuarial valuation has been performed in view of the relative amounts involved. DUTCH LADY MILK INDUSTRIES BERHAD

18 TRADE PAYABLES The Company s normal credit terms range from 30 to 60 days. Other credit terms are assessed and approved on a case by case basis. 19 OTHER PAYABLES Sundry creditors Accruals 20 SHARE CAPITAL Authorised: Ordinary shares of RM1 each At beginning/ at end of year Issued and fully paid: Ordinary shares of RM1 each At beginning/ at end of year 21 RETAINED PROFITS No. of shares Amount The Company has sufficient tax credit under Section 108 of the Income Tax Act 19 67 and balance in tax-exempt income account to frank the payment of dividends out of its entire re tained profits as at 31 December 2005. 22 DEFERRED TAX LIABILITIES At 1 January Recognised in the income statement (Note 8) At 31 December

DUTCH LADY MILK INDUSTRIES BERHAD

The components and movements of deferred tax assets and liabilities during the na ncial year prior to osetting are as follows: Deferred tax liabilities of the Company: Accelerated OthersTotal Capital Allowances RM 000 RM 000RM 000 At 1 January 2005 5,998 62 6,060 Recognised in the income statement (367) (26) (393) At 31 December 2005 5,631 36 5,667 At 1 January 2004 6,872 6,872 Recognised in the income statement (874) 62(812) At 31 December 2004 5,998 62 6,060 Deferred tax assets of the Company: Allowances Provisions for OthersTotal Liabilities RM 000 RM 000 RM 000RM 000 At 1 January 2005 (2,230) (382) (478)(3,090) Recognised in the income statement 130 159 (396)(107) At 31 December 2005 (2,100) (223) (874)(3,197) At 1 January 2004 (2,311) (847) (214)(3,372) Recognised in the income statement 81 465 (264) 282 At 31 December 2004 (2,230) (382) (478) (3,090) CAPITAL COMMITMENTS 23 2005 2004 RM 000RM 000 Authorised capital expenditure not provided for in the nancial statements: - Contracted 1,262 - Not Contracted 6,525 5,258 DUTCH LADY MILK INDUSTRIES BERHAD

24 OPERATING LEASES The total future minimum lease payments under non-cancellable operating leases a re as follows : Not later than 1 year Later than 1 year and not later than 5 years Leases are negotiated for a term of between 4 to 5 years. 25 RELATED PARTY TRANSACTIONS Operating lease payments represent rentals payable by the Company for use of veh icles and forklifts. Transactions with related companies in which the ultimate holding company has signicant interest: Sales to: Friesland (Singapore) Pte. Ltd Friesland Foods Ltd. Hong Kong Purchases from: Friesland Foods BV Friesland Foods Foremost (Thailand) Public Co. Ltd Royalties and technical assistance fees paid to: Friesland Brands BV Management fee payable to: Frint Beheer IV BV Call centre facilities from: Friesland Foods Service Centre Asia Pacic Sdn Bhd The directors are of the opinion that all the transactions above have been enter ed into in the normal course of business and have been established on terms and conditions that are not mater ially dierent from those obtainable in transactions with unrelated parties. DUTCH LADY MILK INDUSTRIES BERHAD

26 FINANCIAL INSTRUMENTS (a) Financial Risk Management Objectives and Policies The Company s nancial risk management policy seeks to ensure that adequate nancial r esources are available for the development of the Company s businesses whilst managing its inte rest rate, foreign exchange, liquidity and credit risks. The Company operates within clearly dened g uidelines and the Company s policy is not to engage in speculative transactions. (b) Interest Rate Risk The Company s primary interest rate risk relates to interest on short-term bank de posits, as the Company had no borrowings as at 31 December 2005. The investments in nancial assets are m ainly short term in nature and they are not held for speculative purposes but have been mostly pl aced in short-term deposits. (c) Foreign Exchange Risk The Company procures mainly raw materials and, where required, plant and equipme nt, internationally and is exposed to various currencies, mainly United States Dolla r and Euro. Foreign currency denominated assets and liabilities together with expected cash ows from highly probable purchases give rise to foreign exchange exposures. Foreign exchange exposures in transactional currencies are kept to an acceptable level. The net unhedged nancial assets and nancial liabilities of the Company that are no t denominated in its functional currency, Malaysian Ringgit, is as follows: Financial assets held in non-functional currency Receivables: United States Dollar

Financial liabilities held in non-functional currency Payables: United States Dollar Euro Singapore Dollar Australian Dollar Thai Baht Total DUTCH LADY MILK INDUSTRIES BERHAD

(d) Liquidity Risk The Company maintains sucient levels of cash or cash convertible investments to m eet its working capital requirements. In addition, the Company strives to maintain available ban king facilities of a reasonable level to its overall working capital liabilities. The Company raises committed funding from nancial institutions and balances its portfolio with some short term funding so a s to achieve overall cost eectiveness. (e) Credit Risks Credit risks, or the risk of counter parties defaulting, is managed by the appli cation of credit approvals, limits and monitoring procedures. Trade receivables are monitored on an ongoing basis via the Company s management reporting procedures. The Company does not have any major con centration of credit risk related to any nancial instruments. (f) Fair Values The carrying amounts of nancial assets and liabilities of the Company at the bala nce sheet date approximate their fair values due to the relatively short term maturity of these nancial instruments. 27 SEGMENT INFORMATION The primary reporting segment information is in respect of the business segment as the Company s risk and rates of return are aected predominantly by dierences in the products it produces. No segment information is provided as the Company operates principally in Malays ia and in one major business segment. DUTCH LADY MILK INDUSTRIES BERHAD

We, CORNELIS H. M. RUIJGROK and HUANG SHI CHIN, being two of the directors of DU TCH LADY MILK INDUSTRIES BERHAD, do hereby state that, in the opinion of the directors, t he accompanying nancial statements set out on pages 21 to 42 are drawn up in accordance with applicable MASB Approved Accounting Standards in Malaysia and the provisions of the Companies Act, 1965 so as to giv e a true and fair view of the nancial position of the Company as at 31 December 2005 and of the results and the cash ows of the Company for the year then ended. Signed on behalf of the Board in accordance with a resolution of the directors. CORNELIS H.M. RUIJGROK HUANG SHI CHIN Director Director Petaling Jaya, Malaysia 15 February 2006 I, HUANG SHI CHIN, being the Director primarily responsible for the nancial manag ement of DUTCH LADY MILK INDUSTRIES BERHAD, do solemnly and sincerely declare that the accompanying n ancial statements set out on pages 21 to 42 are in my opinion correct, and I make this solemn declarat ion conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Ac t, 1960. Subscribed and solemnly declared by the above named HUANG SHI CHIN at Petaling Jaya on 15 February 2006 HUANG SHI CHIN Before me, E.RADAKRISHNAN, AMN, PPN, PK, PPM, PPA, PKB, PJP (Sel) Commissioner for Oaths (No. 008) Petaling Jaya DUTCH LADY MILK INDUSTRIES BERHAD

We have audited the nancial statements set out on pages 21 to 42. These nancial st atements are the responsibility of the Company s directors. Our responsibility is to express an opi nion on these nancial statements based on our audit. We conducted our audit in accordance with applicable Approved Standards on Audit ing in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assura nce about whether the nancial statements are free of material misstatement. An audit includes examining , on a test basis, evidence supporting the amounts and disclosures in the nancial statements. An audit also i ncludes assessing the accounting principles used and signicant estimates made by the directors, as well as evaluating the overall presentation of the nancial statements. We believe that our audit provides a reas onable basis for our opinion. In our opinion: (a) the nancial statements have been properly drawn up in accordance with the provisi ons of the Companies Act, 1965 and applicable Approved Accounting Standards in Malaysia so as to give a true and fair view of: (i) the nancial position of the Company as at 31 December 2005 and of the results and the cash ows of the Company for the year then ended; and (ii) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the nancial statements; and (b) the accounting and other records and the registers required by the Act to be kep t by the Company have been properly kept in accordance with the provisions of the Act. ERNST & YOUNG AF:0039 MOHD SUKARNO BIN TUN SARDON 1697/03/07(J) Chartered Accountants Partner Kuala Lumpur, Malaysia 15 February 2006 DUTCH LADY MILK INDUSTRIES BERHAD

2005 459,051 37,665 27,123 40,416 64,000 118,298 199,770 1.85 42 2004 2003 2002 2001 REVENUE RM 000 420,471 372,687 357,239 329,045 PROFIT BEFORE TAX RM 000 26,805 20,916 20,066 15,134 NET PROFIT FOR THE YEAR RM 000 19,723 15,484 15,540 12,004 NET DIVIDEND PAID RM 000 35,808 8,160 3,680 3,680 ISSUED & FULLY PAID CAPITAL RM 000 64,000 64,000 64,000 16,000 SHAREHOLDERS FUNDS RM 000

131,591 147,676 141,582 126,423 TOTAL ASSETS RM 000 207,371 208,096 188,729 183,630 NET TANGIBLE ASSET BACKING PER SHARE RM 000 2.06 2.31 2.21 1.98 EARNINGS PER SHARE (NET) sen 31 24 24 19 DUTCH LADY MILK INDUSTRIES BERHAD

Analysis of Shareholdings as at 21 March 2006 Class of Shares Ordinary shares of RM1.00 each Voting Rights On show of hands : 1 vote On a poll : 1 vote for each share held Distribution Schedule Of Shareholders Size of Holdings No. of % of No. of % of ShareholdersShareholdersSharesSharesLess than 100 shares 40 1.05 827 0.00100 to 1,000 shares 1,720 45.08 1,496,938 2.341,001 to 10,000 shares 1,851 48.52 6,967, 487 10.8910,001 to 100,000 shares 186 4.88 4,443,844 6.94100,001 to Less than 5% of the 16 0.42 3,008,104 4.70issued shares 5% and above of the issued shares 2 0.05 48,082,800 75.13 Total 3,815 100.00 64,000,000 100.00 Name of 30 Largest Shareholders No. of Share % of Holdings 1. Frint Beheer IV BV* 32,074,800 50.12 2. Permodalan Nasional Berhad* 16,008,000 25.01 3. RHB Nominees (Asing) Sdn Bhd 540,000 0.84 - Sarasin-Rabo Nominees (Singapore) Pte Ltd for Cooperatieve Centrale Raieisen-Boerenlenbank B.A. 4. Yong Siew Lee 360,000 0.56 5. Universal Trustee (Malaysia) Berhad 267,600 0.42 - SBB Emerging Companies Growth Fund 6. Yeo Khee Bee 255,000 0.40 7. Menteri Kewangan Malaysia Section 29 (SICDA) 180,800 0.28 8. Quek Guat Kwee 160,000 0.25 9. Kumpulan Wang Simpanan Guru-Guru 156,300 0.24 10. Universiti Malaya 144,000 0.23 11. Zulkii Bin Hussain 134,200 0.21 12. Tong Yoke Kim Sdn Bhd 130,000 0.20 13. Lee Sim Kuen 120,000 0.19 14. Foo Mee Lee 117,404 0.18 15. Public Nominees (Tempatan) Sdn Bhd 112,800 0.18 - Pledged Securities Account for Aun Huat & Brothers Sdn Bhd (E-IMO/BCM) 16. Wong So-Ch I 111,000 0.17 17. Ng Lam Shen 110,000 0.17 18. Wong So Haur 109,000 0.17 19. Lim Teh Realty Sdn Bhd 90,000 0.14 20. HSBC Nominees (Asing) Sdn Bhd 80,000 0.13 - Pictet and Cie for Ace Fund Sicav (Emerging Market) DUTCH LADY MILK INDUSTRIES BERHAD

21. Foo Yoke Keong Adrian 80,000 0.13 22. Ng Mee Fong 78,000 0.12 23. Asnida Binti Abdul Daim 60,200 0.09 24. HSBC Nominees (Tempatan) Sdn Bhd 60,000 0.09 - Pledged Securities Account for Goh Hiong Eng 25. Hamzah Bin Bakar 60,000 0.09 26. Sak Moy @ Sak Swee Len 58,000 0.09 27. Theo Chin Lian 56,000 0.09 28. Lim Pin Kong 55,400 0.09 29. Meng Hin Holdings Sdn Bhd 52,000 0.08 30. Ong Tatt Poh 50,000 0.08 51,870,504 81.04 *Registered in the Company s Register as Substantial Shareholders Substantial Shareholders Name Direct % Indirect % 1. Frint Beheer IV BV 32,074,800 50.12 0 0.00 2. Permodalan Nasional Berhad 16,008,000 25.01 0 0.00 Directors Shareholdings Name Direct % Indirect % 1. Tan Sri Kamarul Arin bin Mohd Yassin 2. Cornelis H.M. Ruijgrok -3. Foo Swee Leng -4. Boey Tak Kong -5. Freek Rijna -6. Dato Dr. Mhd. Nordin Bin Mohd Nor 7. Huang Shi Chin -Particulars of properties as at 31 December 2005 Location of Property

13 & 15, Jalan Semangat, Lot 79, Jalan 13/6, Petaling Jaya Petaling Jaya Brief Description Factory buildings and oce complex Warehouse Approximate Land Area (sq. ft.) 358,482 74,135 Tenure Leasehold land Leasehold land expiring in the year 2059 expiring in the year 2059 Age of property Between 20 years to 41 years 18 years Net Book Value (RM mln) 27.4 3.4 DUTCH LADY MILK INDUSTRIES BERHAD

Material contracts To ensure the Company s continuing relationship with the Koninklijke Friesland Foo ds Group ( the Group ), which is vital to the Company s continued successful operations and its obligation for the use of the Group s brands, a Technical Assistance and Royalty Agreement dated 24 December 2001 was entered into between the Company and Friesland Brands BV, a wholly owned subsidiary of the Group, for the grant of a licence for the exclusive use in Malaysia of propriety intellectual property, including trad emarks and know-how, and the provision of technical assistance. Consideration is by way of monthly Royalty an d Technical fees at a rate of 2% of net sales. Share Buybacks During the nancial year, there were no share buybacks by the Company. Options, Warrants or Convertible Securities During the nancial year, the Company did not issue any options, warrants or conve rtible securities. American Depository Receipt (ADR) or Global Depository Receipt (GDR) Programme During the nancial year, the Company did not sponsor any ADR or GDR programme. Imposition of Sanctions and/or Penalties There were no sanctions and/or penalties imposed on the Company, Directors or ma nagement by any relevant regulatory bodies. Non-Audit Fees During the nancial year, the Company paid RM18,000 in non-audit fees to the Exter nal Auditors. Prot Estimate, Forecast or Projection There was no material variance between the results for the nancial year and the u naudited results previously announced. The Company did not release any prot estimate, forecast or projection for the nancial year. Prot Guarantees During the nancial year, there were no prot guarantees given by the Company. Revaluation Policy on Landed Properties The Company does not have a policy to revalue its landed properties. Utilisation of Proceeds The Company did not carry out any corporate exercise to raise funds during the na

ncial year. DUTCH LADY MILK INDUSTRIES BERHAD

No. of Shares held DUTCH LADY MILK INDUSTRIES BERHAD (5063-V) (Incorporated in Malaysia under the then Companies Ordinances, 1940-1946)

FORM OF PROXY I/We ........... ............ (NRIC No. . . ....... .. .. of .................................... . . ............... being a member/members of DUTCH LADY MILK INDUSTRIES BERHAD ( the Company ), do here by appoint #the Chairman of the Meeting or .................................... . . (NRIC No. . of .................................... . . .............. as my/our proxy/proxies to vote for me/us and on my/our behalf at the Forty-Thir d Annual General Meeting of the Company to be held at Hotel Armada, Lorong Utara C, Section 52, Petaling Jaya, Selangor Darul Ehsan, on Tuesday, 23 May 2006 at 10.00 a.m. and any adjournment thereof, in respect of my/our shareholding in the manner indicated below: RESOLUTION NO. *FOR *AGAINST Ordinary Resolution 1. Receive the Audited Financial Statements for the nancial y ear ended 31 December 2005, together with the Reports of the Directors and Auditors thereon. Ordinary Resolution 2. Approve the payment of nal dividend of gross 6.25 sen per share, less income tax, and 3.75 sen per share, tax exempt. Ordinary Resolution 3. Approve the increase in Directors fees for the nancial year ended 31 December 2005. Ordinary Resolution 4. Re-election of Tan Sri Kamarul Arin bin Mohd. Yassin. Ordinary Resolution 5. Re-election of Dato Dr. Mhd. Nordin bin Mohd. Nor. Ordinary Resolution 6. Re-election of Mr. Foo Swee Leng. Ordinary Resolution 7. Appoint of Messrs Deloitte & Touche as Auditors of the Co mpany. Ordinary Resolution 8. Approve the Proposed New Shareholders Mandate for Recurren t Related Party Transactions of a Revenue or Trading Nature. Special Resolution 1. Approve the Proposed Amendment to Articles of Association. * Please indicate with an X how you wish your vote to be cast. If no specic direction as to voting is given, the proxy will vote or abstain at his/her discretion. # Delete the words the Chairman of the Meeting if you wish to appoint some other per son(s) to be your proxy. Signed this . day of .2006

. Signature(s) of Shareholder/Attorney (if Shareholder is a corporation, this part should be executed under seal) Notes:A Member entitled to attend and vote at the Annual General Meeting of the Compan

y is entitled to appoint a proxy/proxies to attend and vote instead of him. A proxy need not be a member of the Company and Section 149(1)(b) of the Co mpanies Act, 1965 shall not apply. Save for an Authorised Nominee as dened under the Securities Industry (Central De positories) Act 1991 which 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, a Member shall be entitled to appoint not more than two proxies to attend and vote at the same meeting provide d that where a Member appoints two proxies, the appointment shall not be valid unless such Member species the proportion of his holdings to be represen ted by each proxy. The instrument appointing the proxy must be signed by the Member or his attorney duly authorised in writing, or if the appointor is a corporation, the instrument must be executed under its common seal or under the hand of its ocer o r attorney duly authorised. To be valid, the instrument appointing a proxy , duly completed (and, if applica ble, the power of attorney or other authority under which it is signed or notarially certied copy of that power of authority) must be deposited at the Regi stered Oce of the Company not less than 48 hours before the time set for holding the Meeting or any adjournment thereof. DUTCH LADY MILK INDUSTRIES BERHAD