PROTON · proven Saga and Wira range, the fun-to-drive Savvy and the desirable sporty Satria Neo....

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Transcript of PROTON · proven Saga and Wira range, the fun-to-drive Savvy and the desirable sporty Satria Neo....

Page 1: PROTON · proven Saga and Wira range, the fun-to-drive Savvy and the desirable sporty Satria Neo. ... • Merdeka Millennium Endurance Race 2005 - 1st place Overall
Page 2: PROTON · proven Saga and Wira range, the fun-to-drive Savvy and the desirable sporty Satria Neo. ... • Merdeka Millennium Endurance Race 2005 - 1st place Overall
Page 3: PROTON · proven Saga and Wira range, the fun-to-drive Savvy and the desirable sporty Satria Neo. ... • Merdeka Millennium Endurance Race 2005 - 1st place Overall

PROTON SHARESIN MALAYSIA’S 50TH YEARCELEBRATIONS

The Malaysian flag flying resplendent, symbolically leads the way

for a country and her people celebrating 50 years of nationhood.

As PROTON carries the mantle of national car manufacturer, the

2007 Annual Report is a reflection of our commitment to grow

alongside Malaysia, with the people of the Group playing an

integral part.

Malaysiaku Gemilang.

Individuals on the cover are staff from the various divisions of the

PROTON Group of companies.

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06 Corporate Mantra & Core Values

08 Financial Calendar

09 Key Financial Indicators

10 Summary of Financial Highlights

for Five Years

14 Corporate Profile

18 Awards & Recognition

Contents

20 Corporate Information

22 Group Operations

24 Profile of Directors

32 Senior Management

36 Chairman’s Statement

48 Managing Director’s Review

Page 5: PROTON · proven Saga and Wira range, the fun-to-drive Savvy and the desirable sporty Satria Neo. ... • Merdeka Millennium Endurance Race 2005 - 1st place Overall

58 Operations Review

96 Statement on

Corporate Governance

111 Additional Compliance Information

114 Statement on Internal Control

118 Risk Management

124 Calendar of Events 2006 - 2007

134 Statutory Financial Statements

224 Shareholdings Statistics

227 Properties Owned by

PROTON Group

233 Share Price and Volume Traded

234 Notice of Annual General Meeting

236 Statement Accompanying the

Notice of Annual General Meeting

Form of Proxy

PROTON HoldingsBerhad

Page 6: PROTON · proven Saga and Wira range, the fun-to-drive Savvy and the desirable sporty Satria Neo. ... • Merdeka Millennium Endurance Race 2005 - 1st place Overall

PROTON in MalaysiaPROTON WAJA

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Page 8: PROTON · proven Saga and Wira range, the fun-to-drive Savvy and the desirable sporty Satria Neo. ... • Merdeka Millennium Endurance Race 2005 - 1st place Overall

PROTON 2007 ANNUAL REPORT6corporate mantra & core values

CORE IDEOLOGY

The PROTON Way

PROTON employees are dedicated to the Group's long-term success.Every PROTON employee shall operate under the Group's shared valuesand rely on these values to guide their behaviour with each other and thecustomers. These values form the foundation of how we work andconduct business.

AUDACIOUS GOAL

Driving Malaysia's transformation into a leader in technology

and quality.

VIVID DESCRIPTION

We deliver innovative and superior quality products and services.

Our brands inspire confidence and pride.

PURPOSE

We are a passionate group of people working together, creating

exhilarating products and services for global markets, synonymous

with great styling, innovation and leading technology.

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PROTON 2007 ANNUAL REPORT 7corporate mantra & core values

QUALITY

We make products that work the first time, every time.

CUSTOMER FOCUS

Customers are the source of our income. We deliver on our

promises to our customers’ satisfaction

INNOVATION

We challenge convention, always seeking new and better ways

of doing things. We view change as opportunity.

TEAMWORK

We trust, respect and share knowledge to foster teamwork at

the workplace.

SPEED

We have a “can-do” attitude and will not rest until the problem

is solved. We have an inherent sense of urgency in everything

we do.

CARING

As a responsible corporate citizen, we invest in safety, health

and the environment.

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• 29 August 2006Unaudited First (1st) Quarter results for the period ended

30 June 2006

• 8 September 2006Third (3rd) Annual General Meeting

• 14 September 2006Entitlement date for the final dividend of 5 sen (tax exempt)

for the financial year ended 31 March 2006.

• 13 October 2006Payment of the tax exempt dividend of 5 sen for the

financial year ended 31 March 2006

• 30 November 2006Unaudited Second (2nd) Quarter results for the period

ended 30 September 2006

• 27 February 2007Unaudited Third (3rd) Quarter results for the period

ended 31 December 2006

• 31 May 2007Unaudited Fourth (4th) Quarter results for the period

ended 31 March 2007

• 31 July 2007Audited accounts for the financial year ended 31 March 2007

• 15 August 2007Notice of 4th Annual General Meeting

• 6 September 20074th Annual General Meeting

PROTON 2007 ANNUAL REPORT8financial calendar

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PROTON 2007 ANNUAL REPORT 9key financial indicators

2003 2004 2005 2006 2007

197.7

92.980.6

8.5

BASIC EARNINGSPER SHARE (Sen)

2003 2004 2005 2006 2007

9.46 9.5210.08

10.67 10.69

NET ASSETS PER SHARE (RM)

2003 2004 2005 2006 2007

87.9 93.3

137.3

54.9

27.5

DIVIDEND PAID(RM’ Million)

2003 2004 2005 2006 2007

4,195.1 4,291.7

4,611.84,916.9 4,908.7

RETAINED PROFITS CARRIEDFORWARD (RM’ Million)

-107.3

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PROTON 2007 ANNUAL REPORT10summary of financial highlights for five years

BALANCE SHEET AS AT 31 MARCH

RM Million 2007 2006 2005 2004 2003(Restated) (Restated) (Restated) (Restated)

Non-Current Assets

Property, plant and equipment 3,179.4 3,312.9 3,299.0 2,890.1 2,203.5

Goodwill 29.0 29.0 29.0 29.0 29.0

Other intangible 169.1 18.0 14.3 18.3 17.9

Associated companies 169.8 160.4 165.6 171.9 146.9

Jointly controlled entities 223.6 245.3 251.8 108.9 75.2

Other long term investments 10.4 10.4 6.3 6.3 6.3

Deferred tax assets - 105.8 38.4 46.6 25.7

3,781.3 3,881.8 3,804.4 3,271.1 2,504.5

Current Assets

Inventories 1,273.6 1,389.0 967.1 795.8 813.6

Receivables 1,192.0 1,244.0 1,403.2 930.0 822.5

Current investments 73.4 212.0 201.5 182.0 166.4

Deposits, bank and cash balances 626.5 1,586.0 2,454.7 2,877.4 3,713.7

3,165.5 4,431.0 5,026.5 4,785.2 5,516.2

Total Assets 6,946.8 8,312.8 8,830.9 8,056.3 8,020.7

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PROTON 2007 ANNUAL REPORT 11summary of financial highlights for five years

BALANCE SHEET AS AT 31 MARCH

RM Million 2007 2006 2005 2004 2003(Restated) (Restated) (Restated) (Restated)

Equity and Liabilities

Share capital 549.2 549.2 549.2 549.2 549.2

Other reserves 389.7 412.7 393.8 406.1 421.8

Retained profits 4,291.7 4,908.7 4,916.9 4,611.8 4,195.1

Equity attributable to equity holders of the parent 5,230.6 5,870.6 5,859.9 5,567.1 5,166.1

Minority interest - - 0.3 - 1.6

Total Equity 5,230.6 5,870.6 5,860.2 5,567.1 5,167.7

Non-Current Liabilities

Long term liabilities 181.6 100.3 759.6 447.4 221.3

Deferred tax liabilities 0.8 0.8 1.1 1.0 1.0

182.4 101.1 760.7 448.4 222.3

Current Liabilities

Payables 1,531.6 2,324.2 2,207.4 1,900.5 2,438.4

Taxation 2.2 16.9 2.6 140.3 192.3

1,533.8 2,341.1 2,210.0 2,040.8 2,630.7

Total Liabilities 1,716.2 2,442.2 2,970.7 2,488.2 2,853.0

TOTAL EQUITY AND LIABILITIES 6,946.8 8,312.8 8,830.9 8,056.3 8,020.7

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PROTON 2007 ANNUAL REPORT12summary of financial highlights for five years

INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH

RM Million 2007 2006 2005 2004 2003(Restated) (Restated) (Restated) (Restated)

Revenue 4,911.8 7,796.9 8,483.3 6,361.2 9,268.0

(Loss)/Profit before taxation (618.1) 18.0 399.3 556.2 1,352.7

(Loss)/Profit after taxation (589.5) 46.7 442.4 510.3 1,086.0

Retained profit attributable to shareholders 4,319.2 4,963.6 5,054.2 4,705.1 4,283.0

Dividend (27.5) (54.9) (137.3) (93.3) (87.9)

Retained profit carried forward 4,291.7 4,908.7 4,916.9 4,611.8 4,195.1

SHARE INFORMATION

2007 2006 2005 2004 2003

Per Share

Basic (loss) earnings (sen) (107.3) 8.5 80.6 92.9 197.7

Tax-exempt dividend paid 5.0 10.0 25.0 17.0 16.0

Net assets 9.52 10.69 10.67 10.08 9.46

Issued share capital 549,213 549,213 549,213 549,213 549,213

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PROTON 2007 ANNUAL REPORT14corporate profile

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PROTON was incorporated on 7 May 1983 with threeprimary national policy objectives:• To spearhead the development of component

manufacturing industries, • To acquire/upgrade technology and industrial skills

within the automotive manufacturing industry,• To strengthen the international competitiveness of

Malaysia's industrial capability.

PROTON 2007 ANNUAL REPORT 15corporate profile

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PROTON commands a substantial share of the domestic market

for passenger cars and over the years has been building up

distribution networks in key market centers across the four regions:

• United Kingdom / Western Europe, • the Middle East, • South-East Asia, and• Australasia.

The business of the Group encompasses engineering consultancy,

manufacturing, distribution, financial services and property

investments.

The Group designs and produces cars for diverse consumer

preferences. The portfolio of PROTON models includes the reliable

family-sedan Waja, the stylish Gen.2, the versatile Arena, the

proven Saga and Wira range, the fun-to-drive Savvy and the

desirable sporty Satria Neo. The Group also has in its portfolio, the

world-renowned Lotus sports cars, with models such as Elise,

Esprit, Exige and Europa. These cars are manufactured in Malaysia

and the United Kingdom.

PROTON 2007 ANNUAL REPORT16corporate profile

PROTON GEN.2

Page 19: PROTON · proven Saga and Wira range, the fun-to-drive Savvy and the desirable sporty Satria Neo. ... • Merdeka Millennium Endurance Race 2005 - 1st place Overall

The Group conducts research in its centers in the United Kingdom

and Malaysia on new technologies with the ultimate aim of putting

these innovations into production through partnerships with Tier-

One Suppliers of OEM customers. A number of these patents have

been licensed to leading car manufacturers.

Currently, the Group has almost 11,000 employees who are

involved in the whole spectrum of the business, from research,

design, development, testing, stamping, casting, machining and

assembly to marketing, distribution and after-sales.

Strong customer orientation and competitively priced products are

the foundation of our business and essential to our success. We

aim to maintain market leadership by continuing to develop

innovative products and satisfy our customers better and more

profitably than our competitors.

PROTON 2007 ANNUAL REPORT 17corporate profile

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Awards & Recognition

PROTON received the following awards and accolades fromvarious organisations as testimony of our efforts in leading theMalaysian automotive industry as well as making inroads inbranding and motorsports.

PROTON 2007 ANNUAL REPORT18awards & recognition

2007• Reader's Digest Trusted Brand 2007 Gold Award for Car

Category.

• Winner of Coolest Car of 2006,

Awarded for PROTON Satria Neo by The Malay Mail.

2006• Reader's Digest Trusted Brand 2006 Gold Award for Car

Category.

• Nanyang Siang Pau's 2006 Chinese New Year Greeting

Advertisement Award - Full Color Category - 5th Runner Up.

2005• Reader's Digest Super Brand 2005 Gold Award for Car

Category.

• Merdeka Millennium Endurance Race 2005 - 1st place Overall

and Class 'O' Winner.

• Malaysian Rally Championship 2005 - Overall Class Winner

P10 Category.

2004• Malaysia’s Best Brand Award.

• National Creativity & Innovation Award 2004.

• PROTON Waja - 4.5 star out of a 5 star rating for being the

Most Economical and Greenest Sedan in Australia.

2003• Industry Excellence Award 2003,

Quality Management Category III.

• Industry Excellence Award 2003.

• Best Landscape Competition

(First Place - Factory Category).

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2002• Best Landscape Competition

(Second Place - Factory Category).

• Appreciation Award for Contribution to the Development of

Malaysian Motorsports for 2002.

• KPMG/The Edge Shareholder Value Award 2002 Sectoral

Winner - Industrial Market. The award measured economic

profit as a percentage of invested capital.

• Highest Increase in Turnover Award among companies listed

on the Kuala Lumpur Stock Exchange for financial year 2002-

2003.

• Motor Vehicles and Transport Equipment Sector Leader Award

among the top 1,000 Malaysian companies.

• Highest Increase in Net Profit Award among companies listed

on the Kuala Lumpur Stock Exchange for financial year 2002-

2003.

2001• Certificate of Merit for 2001 NACRA Award.

• Appreciation Award for sponsoring 'Le Tour de Langkawi'

2001 event.

• Superbrand Award for Automotive Sector for 2001.

1999• Satria GTI - Wheels Magazine

Best Hot Hatch Buy Year 1999.

PROTON 2007 ANNUAL REPORT 19awards & recognition

PROTON was also appreciated for its contributions to various

national causes and its support of community events by the

following organisations:

2006

• Certificate of Appreciation from the Badminton Association of

Malaysia for the Badminton Melayu Malaysia Piala DYMM

Sultan-Sultan ke-50 Tournament.

2005

• Certificate of Appreciation for the production of the Kelantan

Royal Project 2005 special documentary.

• Special Membership Certificate to commemorate the

Malaysian Industry-Government Group for High Technology's

10th Anniversary.

• Certificate of Appreciation in conjunction with QDay by the

Ministry of Cooperation and Entrepreneur Development.

• Certificate of Appreciation for the support of the Karnival Kulim

Hi-Tech Park.

• Support of the International CEOs Conference 2005 - Global

Issues and Challenges Facing Asian Corporations.

• Certificate of Appreciation for the National Anti-Drug

Campaign.

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PROTON 2007 ANNUAL REPORT20corporate information

Corporate Information

BOARD OF DIRECTORS

• Dato’ Mohammed Azlan Bin Hashim - Chairman Appointed on 17 December 2004

• Dato’ Haji Syed Zainal Abidin B Syed Mohamed Tahir

- Managing Director Appointed on 1 January 2006

• Tuan Haji Abdul Jabbar Bin Abdul Majid Appointed on 12 April 2004

• Encik Mohammad Zainal Bin Shaari Appointed on 17 December 2004

• Tuan Haji Abdul Kadir Bin Md Kassim Appointed on 10 March 2005

• Dato’ Ahmad Bin Haji Hashim Appointed on 26 October 2005

• Dato’ Michael Lim Heen Peok Appointed on 15 September 2006

• Dato’ Mohd Izzaddin Bin Idris Appointed on 15 September 2006

• Encik Badrul Feisal Bin Abdul Rahim Appointed on 12 April 2004(resigned with effect from 7 November 2006)

• Lt. Gen (R) Dato’ Seri Mohamad Daud Appointed on 12 April 2004

Bin Abu Bakar (resigned with effect from 8 September 2006by virtue of section 129 of the Companies Act, 1965)

• Datuk Kisai Bin Rahmat Appointed on 1 January 2006(resigned with effect from 31 July 2006)

Page 23: PROTON · proven Saga and Wira range, the fun-to-drive Savvy and the desirable sporty Satria Neo. ... • Merdeka Millennium Endurance Race 2005 - 1st place Overall

PROTON 2007 ANNUAL REPORT 21corporate information

BOARD EXECUTIVE COMMITTEE

• Dato’ Mohammed Azlan Bin Hashim - Chairman

• Dato' Haji Syed Zainal Abidin B Syed Mohamed Tahir

• Dato' Michael Lim Heen Peok

• Dato' Mohd Izzaddin Bin Idris

BOARD AUDIT COMMITTEE• Tuan Haji Abdul Jabbar Bin Abdul Majid - Chairman

• Encik Mohammad Zainal Bin Shaari

• Tuan Haji Abdul Kadir Bin Md Kassim

• Dato' Michael Lim Heen Peok

BOARD RISK MANAGEMENTCOMMITTEE

• Tuan Haji Abdul Kadir Bin Md Kassim - Chairman

• Datuk Tan Kim Leong

BOARD NOMINATION &REMUNERATION COMMITTEE• Dato’ Mohammed Azlan Bin Hashim - Chairman

• Encik Ahmad Tajuddin Bin Abdul Carrim

• Encik Md Ali Bin Md Dewal

• Dato' Michael Lim Heen Peok

BOARD DISCIPLINARY COMMITTEE• Dato’ Mohammed Azlan Bin Hashim - Chairman

• Tuan Haji Abdul Jabbar Bin Abdul Majid

• Tuan Haji Abdul Kadir Bin Md Kassim

• Dato’ Ahmad Bin Haji Hashim

AUDITORS

PricewaterhouseCoopers

(Chartered Accountants)

11th Floor Wisma Sime Darby, Jalan Raja Laut

P.O.Box 10192, 50706 Kuala Lumpur

Tel : 03 - 2693 1077

Fax : 03 - 2693 0997

REGISTERED OFFICEHicom Industrial Estate

Batu Tiga, 40000 Shah Alam

Tel : 03 - 8026 9741

Fax : 03 - 8026 9744

REGISTRAR

Tenaga Koperat Sdn. Bhd.

20th Floor, Plaza Permata

Jalan Kampar, Off Jalan Tun Razak, 50400 Kuala Lumpur

Tel : 03 - 4041 6522

Fax : 03 - 4042 6352

STOCK EXCHANGE LISTINGMain Board of Bursa Malaysia Securities Berhad

COMPANY SECRETARYEncik Mohd Nizamuddin Bin Mokhtar

(LS 006128)

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ENGINEERING SERVICESDIVISION

• LOTUS ADVANCE TECHNOLOGIES

SDN. BHD. [100%]

u Proton Engineering Research Technology

Sdn. Bhd. [100%]

n Marco Acquisition Corporation (USA)

[100%]

u Miyazu (Malaysia) Sdn. Bhd. [51%]

u Lotus Group International

Limited [100%]

n Group Lotus Plc. [100%]

n Lotus Cars Ltd. [100%]

- Lotus Engineering Ltd. [100%]

- Lotus Engineering (M)

Sdn. Bhd. [100%]

n Lotus Body Engineering Ltd. [100%]

n Lotus Motorsport Ltd. [100%]

n Lotus Holdings Inc. (USA) [100%]

- Lotus Engineering Inc. [100%]

- Lotus Cars USA Inc. [100%]

n Lotus Pension Trustees Ltd. [100%]

n Lotus Cars Foundation [100%]

n Lotus Finance Ltd. [49.9%]

PROTON 2007 ANNUAL REPORT22group operations

MANUFACTURING DIVISION

• PROTON TANJUNG MALIM SDN. BHD. [100%]

• PERUSAHAAN OTOMOBIL NASIONAL

SDN. BHD. [100%]

u Proton Automobiles

China Ltd. (BVI) [100%]

n Goldstar Proton Automobiles

Co. Ltd. [49%]

u PT Proton Tracoma Motors

(Indonesia) [100%]

u Vina Star Motors Corporation

(Vietnam) [25%]

PROTON Holdings Berhad

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FINANCIAL DIVISION

• PROTON CAPITAL SDN. BHD. [100%]

PROPERTY DIVISION

• PROTON HARTANAH SDN. BHD. [100%]

u Proton Properties Sdn. Bhd. [100%]

u Proton City Development Corporation Sdn.

Bhd. [40%]

MARKETING DIVISION

• PROTON MARKETING SDN. BHD. [100%]

u Proton Edar Sdn. Bhd. [100%]

n Proton Edar Resources

Sdn. Bhd. [100%]

n Proton Edar Ventures

Sdn. Bhd. [100%]

n Proton Singapore Pte. Ltd. [100%]

n PT Proton Edar Indonesia [95%]

n Proton Commerce Sdn. Bhd. [50%]

n Netstar Advanced Systems

Sdn. Bhd. [40%]

u Proton Parts Centre Sdn. Bhd. [55%]

u Proton Cars (UK) Ltd. [100%]

n Smith & Sons Motors Ltd. [100%]

n Proton Direct Ltd. [100%]

n Proton Cars (Imports) Ltd. [100%]

n Proton Cars Direct Ltd. [100%]

n Proton Finance Ltd. [49.99%]

u Proton Cars (Europe) Ltd. [55.56%]

u Proton Cars Australia Pty. Ltd. [100%]

u Proton Cars Benelux NV

SA (BELGIUM) [99%]

u Auto Compound And Distribution Centre Sdn.

Bhd. [100%]

u Proton Corporation Sdn. Bhd. [100%]

u Lotus Cars Asia Pacific Sdn. Bhd. [100%]

PROTON 2007 ANNUAL REPORT 23group operations

INVESTEE & ASSOCIATECOMPANIES

• EXEDY (MALAYSIA) SDN. BHD. [45%]

• PHN INDUSTRY SDN. BHD. [35%]

• ALUMINIUM ALLOY INDUSTRIES

SDN. BHD. [19%]

• MARUTECH ELASTOMER INDUSTRIES

SDN. BHD. [25%]

• TECHNOMEIJI RUBBER SDN. BHD. [15%]

• ARA BORGSTENA SDN. BHD. [6.67%]

• PEPS-JV SDN. BHD. [10.50%]

OTHERS

• YAYASAN PROTON

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Dato' Mohammed Azlan Bin HashimChairman / Non-Independent Non-Executive Director

Aged 50, Malaysian

Dato' Mohammed Azlan Bin Hashim was appointed as Director of the

Company on 17 December 2004 and subsequently Chairman of the

Board on 7 February 2005. He was nominated to the Board by

Khazanah Nasional Berhad. A Chartered Accountant by profession,

Dato' Azlan graduated with a Bachelor of Economics from Monash

University, Australia. He is a member of the Institute of Chartered

Accountants, Australia, Malaysian Institute of Accountants, Fellow

Member of Malaysian Institute of Directors, Fellow Member of the

Institute of Chartered Secretaries and Administrators and Hon. Member

of The Institute of Internal Auditors, Malaysia.

Dato' Azlan has extensive experience in the corporate sector including

financial services and investments. Among others, he has served as

Chief Executive / Executive Director of Bumiputra Merchant Bankers

Berhad, Group Managing Director of Amanah Capital Malaysia Berhad

and Executive Chairman of Bursa Malaysia Berhad (formerly known as

Kuala Lumpur Stock Exchange) Group. Dato' Azlan is a Board Member

of various government and non-government related organizations

including Labuan Offshore Financial Services Authority, Employees

Provident Fund, Khazanah Nasional Berhad, and Malaysian Industry-

Government Group for High Technology. He was appointed Chairman

of Universiti Darul Iman Malaysia in 2006.

Dato' Azlan is also currently the Chairman of public listed entities, D&O

Ventures Berhad, Golden Pharos Berhad, PECD Berhad and a director

of Scomi Group Bhd. Within PROTON Holdings Berhad, Dato' Azlan

serves as Chairman of the Board Executive Committee, Board

Nomination & Remuneration Committee and the Board Disciplinary

Committee. Dato' Azlan also sits on the Boards of various subsidiaries

of PROTON.

Dato' Azlan has attended all Board of Directors' Meetings held during

the Financial Year. He has no conflict of interest with the Company and

does not have any family relationships with any director and/or major

shareholder of the Company. He has had no conviction for any

offences within the past ten (10) years.

PROTON 2007 ANNUAL REPORT24profile of directors

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PROTON 2007 ANNUAL REPORT 25profile of directors

Dato’ Haji Syed Zainal Abidin B Syed Mohamed TahirManaging Director

Aged 45, Malaysian

Dato' Haji Syed Zainal Abidin B Syed Mohamed Tahir was appointed

Managing Director of PROTON on 1 January 2006. He also sits on the

Boards of various subsidiaries within the PROTON Group of

companies.

Dato' Haji Syed Zainal Abidin who graduated with a Bachelor of

Science in Engineering from the University of Maryland, USA, began

his career as a Project Engineer with Petronas Gas Sdn Bhd in 1987,

prior to joining Petroliam Nasional Berhad in 1992 as the Senior

Executive of Corporate Planning & International Business Development.

He then left to join HICOM Holdings Berhad in 1995, where he

assumed various senior positions in the company.

Dato' Haji Syed Zainal Abidin lent his expertise to PERODUA when he

was appointed Senior General Manager in 1999. Subsequently, he

was appointed Executive Director of PERODUA Auto Corporation Sdn

Bhd in 2002, and later promoted to Deputy Managing Director in

October 2005.

Dato' Haji Syed Zainal has attended all Board of Directors' Meetings

held during the Financial Year. He has no conflict of interest with the

Company and does not have any family relationships with any director

and/or major shareholder of the Company. He has had no conviction

for any offences within the past ten (10) years.

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PROTON 2007 ANNUAL REPORT26profile of directors

Tuan Haji Abdul Jabbar Bin Abdul MajidIndependent Non-Executive Director

Aged 62, Malaysian

Tuan Haji Abdul Jabbar Bin Abdul Majid was appointed as a Director

on 12 April 2004. He is a Fellow Member of the Institute of Chartered

Accountants, Australia, as well as a member of the Malaysian Institute

of Accountants. He is also a member of the Executive Council of the

Malaysian Institute of Certified Public Accountants (MICPA).

Tuan Haji Abdul Jabbar began his career in 1974 as Senior Manager

in the Internal Audit and Organisation Department of Bank Pertanian

Malaysia. In 1977, he joined KPMG Malaysia as Manager and was

admitted to partnership two years later. In 1993, he was promoted to

Deputy Senior Partner and was made Senior Partner in 1995, a

position he held until his retirement in 2000.

Tuan Haji Abdul Jabbar then joined Malaysia Derivatives Exchange

Berhad in 2001 and retired as Executive Chairman on 28 February

2004. He was a past president of MICPA. He was an Adjunct

Professor of the Faculty of Economics and Accounting of the

International Islamic University. He was a member of the Senate of the

Open University Malaysia Board.

Tuan Haji Abdul Jabbar is currently the Chairman of the Board Audit

Committee and a member of the Board Disciplinary Committee.

Besides PROTON, he also sits on the Boards of Tradewinds

Corporation Berhad (“Tradewinds”), Opcom Holdings Berhad and Bank

Muamalat Malaysia Berhad. Tuan Haji Abdul Jabbar is also the

Chairman of the respective Board Audit Committees of Tradewinds and

Bank Muamalat.

Tuan Haji Abdul Jabbar attended 14 out of 15 Board of Directors'

Meetings held during the Financial Year. He has no conflict of interest

with the Company and has no family relationships with any other

Director and/or major shareholder of the Company. He has had no

conviction for any offences within the past ten (10) years.

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PROTON 2007 ANNUAL REPORT 27profile of directors

Encik Mohammad Zainal Bin ShaariNon-Independent Non-Executive Director

Aged 44, Malaysian

Encik Mohammad Zainal bin Shaari was appointed as a Director on 17

December 2004. He is currently the Chief Operating Officer at

Khazanah Nasional Berhad (“Khazanah”). He spent 18 years in the

public accounting profession working in the United Kingdom, USA and

Malaysia. In 1997 he was made a partner in Price Waterhouse (now

PricewaterhouseCoopers). He left the public accounting profession in

2002, joining BinaFikir Sdn. Bhd. in 2003 as a principal and director. In

October 2004, he joined Khazanah.

Encik Mohammad Zainal is a member of the Board Audit Committee of

the Company.

He is a Fellow of the Institute of Chartered Accountants in England &

Wales and of the Association of Chartered Certified Accountants (UK),

as well as a member of the Malaysian Institute of Accountants and the

Malaysian Institute of Certified Public Accountants.

Encik Mohammad Zainal has attended all Board of Directors' Meetings

held during the Financial Year. He was nominated to the Board by

Khazanah Nasional Berhad and has no conflict of interest with the

Company and does not have any family relationships with any of the

directors and/or major shareholder of the Company. He has had no

conviction for any offences within the past ten (10) years.

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PROTON 2007 ANNUAL REPORT28profile of directors

Tuan Haji Abdul Kadir Bin Md KassimIndependent Non-Executive Director

Aged 67, Malaysian

Tuan Haji Abdul Kadir Bin Md Kassim was appointed to the Board of

PROTON Holdings Berhad on 10 March 2005. He serves as the

chairman of the Board Risk Management Committee. He is also a

member of the Board Audit Committee and Board Disciplinary

Committee of the Company.

Tuan Haji Abdul Kadir holds a Bachelor of Laws Degree from the

University of Singapore. He served in the Malaysian Administrative and

Diplomatic Service and in the Judicial and Legal Service between 1966

and 1973, holding various positions. He is currently the managing

partner of Messrs Kadir, Andri & Partners.

Tuan Haji Abdul Kadir is also the Chairman of Ho Hup Construction

Company Berhad and a director of UEM Group Berhad (formerly

known as United Engineers (Malaysia) Berhad), UEM World Berhad,

Suria Capital Holdings Berhad, TIME dotCom Berhad, Sino Hua-An

International Berhad and a few private companies, including being

Chairman of the Committee of Labuan International Financial

Exchange.

Tuan Haji Abdul Kadir has attended 13 out of 15 Board of Directors'

Meetings held during the Financial Year. He has no conflict of interest

with the Company and does not have any family relationships with any

Director and/or major shareholders of the Company. He has had no

conviction for any offences within the past ten (10) years.

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Dato’ Ahmad Bin Haji HashimDirector / Non-Independent Non-Executive Director

Aged 55, Malaysian

Dato' Ahmad Bin Haji Hashim was appointed Director of PROTON on26 October 2005. He graduated from the University of Malaya with aBachelor of Economics (Hons) in 1974 and obtained his Masters inBusiness Administration from City University, Washington State, USA in1983. He has attended the Oxford Advanced ManagementProgramme, University of Oxford, United Kingdom in 2004 and also theLeaders in Development: Managing Political and Economic Change,at Harvard University, USA in 2006.

Dato' Ahmad began his illustrious career in 1974, as an AssistantSecretary, Implementation and Coordination Unit in the Prime Minister'sDepartment and has served numerous Ministries including the Ministryof Finance (MoF) between 1977 and 1984, holding various positionsbefore joining the Ministry of International Trade and Industry as thePrincipal Assistant Secretary in 1985. In 1992, he joined the ForeignInvestment Committee, EPU, Prime Minister's Department as PrincipalAssistant Secretary. In 1996, Dato’ Ahmad was appointed as DeputySecretary, Economic and International Division, Treasury, MoF. He waslater appointed as Secretary in the Loan Management and FinancialPolicy Division, Treasury, MoF in 2000.

He served in the Ministry of Health as Deputy Secretary General(Finance) in 2003 until he assumed his present position as theDeputy Secretary General (Operations), Treasury, MoF in September2005. Dato’ Ahmad has previously held directorships andmemberships in several organisations between 1999 to 2004, suchas Institut Jantung Negara, Islamic Development Bank in Jeddah,Bank Simpanan Nasional, Lembaga Tabung Haji, PerbadananLabuan, Employees Provident Fund, Johor Corporation, MalaysianTimber Industry Board, Klang Port Management Sdn Bhd andPenang Regional Development Authority.

Throughout his illustrious career with the Malaysian civil service, Dato'Ahmad has also represented Malaysia in the APEC EconomicCommittee, APEC Finance Ministers/Leaders meetings, IslamicDevelopment Bank Board of Governors meetings, CommonwealthFinance Ministers meetings, Asia-Europe (ASEM) Leaders meeting,and WTO meetings among others.

Dato' Ahmad is also a Director of Telekom Malaysia Berhad andKeretapi Tanah Melayu Berhad.

He has attended 13 out of 15 Board of Directors' Meetings held duringthe Financial Year. He has no conflict of interest with the Company anddoes not have any family relationships with any director and/or majorshareholder of the Company. He has had no conviction for anyoffences within the past ten (10) years.

PROTON 2007 ANNUAL REPORT 29profile of directors

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PROTON 2007 ANNUAL REPORT30profile of directors

Dato' Michael Lim Heen PeokIndependent Non-Executive Director

Aged 59, Malaysian

Dato' Michael Lim was appointed to the Board on 15 September 2006.

He is also a Member of the PROTON Board Executive Committee,

Board Audit Committee and Board Nomination & Remuneration

Committee. He sits on the Boards of various companies within the

PROTON Group.

After graduating with a first class honours degree in Engineering from

the University of Strathclyde, in the United Kingdom, Dato' Michael Lim

began his career with the UMW Group in 1975, in various senior

managerial positions. In 1986 Dato' Michael Lim was appointed the

Managing Director / Chief Executive Officer of UMW Toyota Motor Sdn

Bhd, a joint venture company between UMW and Toyota Motor

Corporation of Japan. Dato' Michael Lim retired in 2004

Currently, Dato' Michael Lim is the Chairman of Furniweb Industrial

Products Bhd, an export oriented manufacturing company with plants

in Malaysia, Vietnam and Thailand. He also serves on the Board of

Alliance Bank Berhad.

Dato' Michael Lim has attended 8 out of 8 Board of Directors' Meetings

held during the Financial Year since his appointment on 15 September

2006. He has no conflict of interest with the Company and has no

family relationships with any other directors and/or major shareholders

of the Company. He has had no conviction for any offences within the

past ten (10) years.

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PROTON 2007 ANNUAL REPORT 31profile of directors

Dato’ Mohd Izzaddin Bin IdrisNon-Independent Non-Executive Director

Aged 45, Malaysian

Dato' Mohd Izzaddin was appointed as a Director on 15 September

2006. He is also a Member of PROTON's Board Executive Committee

and is currently the Chief Financial Officer of Tenaga Nasional Berhad.

Dato' Mohd Izzaddin graduated with a Bachelor of Commerce Degree

(First Class Honours) from the University of New South Wales,

Australia. He is currently a member of CPA Australia and the Malaysian

Institute of Accountants.

He began his career with Malaysian International Merchant Bankers

Berhad in 1985 where he held various positions within Corporate

Banking, Corporate Advisory and Business Development until 1996.

During that term he was seconded for 3 years to a London-based

investment bank.

Dato' Mohd Izzaddin moved on to Malaysian Resources Corporation

Berhad in 1996 where he was first appointed as the Group General

Manager, Business Development & Corporate Affairs and then the

Chief Operating Officer the subsequent year. Thereafter he served as

the Chief Financial Officer of Ranhill Berhad in 2001 and later as the

Senior Vice-President (Corporate Finance) of Southern Bank Berhad

before joining Tenaga Nasional Berhad in September 2004. Dato'

Mohd Izzaddin is a member of the Board of Directors of Kumpulan

Wang Persaraan (Diperbadankan).

Dato' Mohd Izzaddin has attended 6 out of 8 Board of Directors'

Meetings held during the Financial Year since his appointment on 15

September 2006. He has no conflict of interest with the Company and

has no family relationships with any of the directors and/or major

shareholders of the Company. He has had no conviction for any

offences within the past ten (10) years.

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PROTON 2007 ANNUAL REPORT32senior management

Senior Managementfrom left to right

Key Personnel Abroad

from left to right

1Michael J.KimberleyChief Executive Officer, Group Lotus Plc.

2Brian CollierManaging Director, Proton Cars (UK) Ltd.

3John StartariManaging Director, Proton Cars (Australia) Pty. Ltd.

1Tan Chun WengHead, Group Finance

3Datuk Kamarulzaman Bin DarusDirector, Manufacturing

2Abdul Wahab Mohamed KhalidHead, Engineering

4Dato’ Haji Syed Zainal Abidin B Syed Mohamed TahirManaging Director

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PROTON 2007 ANNUAL REPORT 33senior management

from left to right

1Robert BranerChief Executive Officer, Lotus Cars, USA

2Moses TanManaging Director, Proton Singapore Pte. Ltd.

3Dwi SasetiaDirector, P.T Proton Edar Indonesia

5Razif Bin AhmadDirector, Procurement

8Michelle Kythe LimHead, Group Legal

6Mohd Nizamuddin MokhtarHead, Group Secretarial & Compliance

9Low PhengHead, Group Internal Audit

7Dato’ Tony Chan Kok ChuenHead, Quality Management

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PROTON in the United KingdomPROTON GEN.2

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Chairman’s Statement

On behalf of the Board of Directors, I am pleased to present the AnnualReport and Audited Financial Statements of the PROTON Group for thefinancial year ended March 31, 2007.

PROTON 2007 ANNUAL REPORT36chairman’s statement

preferences towards people movers and passenger vehicles that

are perceived to be more economical in terms of fuel consumption

and maintenance.

This contraction and shifting consumer preference had an acute

impact on the PROTON Group, given its relatively limited and aging

product range. To make matters worse, this situation also adversely

affected the value of used cars, which in turn had a knock-on effect

on new car purchases.

From the indication of Malaysian vehicle sales performance in the

first half of calendar year 2007, the outlook for the local automotive

industry will continue to remain challenging, with estimated total

vehicle sales within the 460,000 units level and passenger vehicle1

sales of 415,000.

However, expectations of the medium to longer-term outlook

remain positive as income levels continue to rise and the value of

used cars begins to stabilise. Hence, despite moderating volumes

at present, automotive manufacturers continue to embark on new

product launches and aggressive sales and marketing initiatives to

remain in this sector.

INDUSTRY OVERVIEW

As one of the most competitive automotive markets in this region,

the challenges the Malaysian automotive industry has faced is

second to none. With increasing raw material and manufacturing

costs, compounded by a severely overcrowded operating

environment, Malaysia has also had to contend with the situation of

contracting vehicle sales, after eight consecutive years of growth.

The Malaysian Automotive Association (MAA), in its initial forecast

for 2006, projected vehicle sales volume of 565,000 units.

However, given the adverse market circumstances and rapidly

contracting volumes, MAA revised its forecast downwards to

520,000 units. By end December 2006, actual vehicle sales

achieved only 490,768 units, well below the original forecast. Of

this volume, passenger cars accounted for 75% or 366,738 units.

This declining trend, which commenced in early 2006, is primarily

due to macro-economic factors that include escalation in fuel

prices, higher interest rates and stricter lending practices, leading

to an overall depressed consumer demand for vehicles. Within this

contracted industry volume, there was also a shift in consumer

1. The Malaysian Automobile Association changed its classification of passenger cars to passenger vehicles in 2007, which now includes multi-purpose vehicles and sportsutility vehicles.

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PROTON 2007 ANNUAL REPORT 37chairman’s statement

Dato’ Mohammed Azlan Bin HashimChairman

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PROTON 2007 ANNUAL REPORT38chairman’s statement

FINANCIAL PERFORMANCE

This weakened industry state of affairs and the cumulative impact

of various legacy issues had adversely affected PROTON during

the financial year under review. Domestic sales volume for the

period declined by 46.8% to 88,635 units in comparison to the

166,656 units recorded in the previous financial year. PROTON's

market share in Malaysia also declined to 29.7% during the

financial year compared to 39.1% in the previous year, due to

persistent competitive pressures within the automotive sector.

Such conditions and circumstances have led PROTON to a net

loss after tax of RM590 million on a turnover of RM4.9 billion, as

compared to the previous year's results of a net profit after tax of

RM46 million on a turnover of RM7.8 billion.

The Group's losses for this financial year were also accentuated by

various provisions, which included right-sizing costs incurred by a

foreign subsidiary, higher component and raw material costs as

well as the impact of legacy issues such as additional expenditure

recognised in respect of vendor claims for previous years' project

development costs and settlement of onerous contractual

obligations previously committed. In addition, accounting

adjustments to PROTON's deferred tax assets also adversely

impacted the financial results.

Whilst all these have contributed to the disappointing results for the

year under review, PROTON Group will be stronger and more

prepared for the competitive environment ahead.

On a positive note, PROTON's export markets have improved

considerably by 64% representing 20,528 units sold compared to

the previous financial year's figure of 12,527 units. I am glad to note

that PROTON's business in the United Kingdom, Australia, the

Middle East and Africa continues to record encouraging growth

patterns. This financial year 2007/2008 is expected to see

PROTON make further inroads in the export markets, both directly

and indirectly, particularly in ASEAN, Iran and China.

DIVIDENDS

With the Group recording a loss for this fiscal period and as a

measure of prudence, the Board of Directors are not

recommending the declaration of any dividends for the financial

year ended March 31, 2007.

CORPORATE DEVELOPMENTS

PROTON is currently in the midst of a sea change, with the

objective of becoming a more resilient and efficient national

automotive company. We are cognizant that for this to happen, the

fundamentals must first be in place. As such, since the change in

management, PROTON has focussed on streamlining its non-core

businesses, reviewed its core competencies and taken greater

steps to arrest inefficiencies. * Starting from January 2007, MAA has reclassified the category into two: Passenger Vehicles which include Passenger Cars, 4WD, Window-Van, MPV & SUV and Commercial

Vehicles which include Truck, Pick-up, Panel-Van & Bus.

7,9057,275

17,234

12,527

20,528

0

5,000

10,000

15,000

20,000

25,000

'02/03 '03/04 '04/05 '05/06 '06/07

ExpExport Volume in the Last Five Years

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Marketing Initiatives

During the year under review, mindful of the need to continually

renew its product portfolio, PROTON launched the Satria Neo and

introduced new face-lifted variants of the Savvy and Waja. These

new models and new variants feature enhancements designed to

offer the best value-for-money package to customers in terms of

specifications, safety and equipment level for vehicles in its

category.

The new model and face-lifted variants were also introduced to

PROTON's various export markets. On the regional front,

Singapore became the first overseas market to receive the Satria

Neo when it was officially launched in the island state three months

after its inaugural debut. This was followed by the introduction of

the sporty 3-door hatchback in South Africa after an overwhelming

response in the 2006 Auto Africa Motor Show. Not long after the

Satria Neo was introduced in both Australia and the United

Kingdom in February 2007.

PROTON 2007 ANNUAL REPORT 39chairman’s statement

With respect to management, given the organisational structure

changes, there will be a need for continued review and

enhancement.

Whilst appreciating the urgency for the changes, given the size and

reach of the Group, it will take time for progress to be seen.

However, PROTON will get stronger as its core needs are

addressed. In line with this new corporate direction, the Group has

undertaken a number of initiatives, both strategic and tactical,

during the financial year under review.

Recapitalisation Efforts

In line with PROTON's continued commitment towards developing

its export markets, the year under review saw the Group

undertaking a recapitalization exercise that has strengthened the

balance sheets of PROTON Cars UK Limited and PROTON Cars

Australia Limited.

Similarly, given the need to fully capitalise on the capabilities and

brand image of Lotus, the Group also undertook a financial

restructuring of Lotus Group International Limited during the year.

With the completion of these recapitalisation efforts, these foreign

subsidiaries are now on a better financial footing, not only giving

greater confidence to the buying public but also enabling them to

better serve their customers. The recapitalisation has also instilled

greater confidence among vendors and suppliers to these

subsidiaries, thereby ensuring continued operational effectiveness.

Financial institutions will also be more confident when dealing with

these subsidiaries, as a result of their improved balance sheet. All

these will help these subsidiaries grow and prosper in the markets

they serve, in the long run.

PROTON being given the thumbs-up at the Jakarta launch.

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PROTON 2007 ANNUAL REPORT40chairman’s statement

The year under review also signalled PROTON's aggressive

expansion into the Indonesian market with the introduction of two

models - the Gen.2 and Savvy, in March 2007. To seize the

significant market opportunities, PROTON also officially opened a

one-stop sales and after-sales services centre and two other

dealer showrooms in Jakarta. More recently, PROTON launched

two further models - the Waja and the Satria Neo, in July 2007.

With a four-car line-up in Indonesia, PROTON will soon expand its

presence to Indonesia's other major cities. With the distribution

infrastructure in place, Indonesia from hereon, will be an important

part of the overall PROTON export strategy.

Beyond the ASEAN region, PROTON has also made further

inroads into the Middle-East and North African markets (MENA)

during the period under review. One notable market that has seen

very encouraging progress is Iran. Through its business partner

Zagross-Khodro, PROTON is involved in CKD operations as well

as CBU sales. PROTON has sold more than 5,600 CKD packs of

the Wira since its entry into the Iranian automotive market in 2002.

Although the numbers so far have been modest, the Group is

confident that this will improve with the introduction of the Gen.2

CKD operations in Iran later this year.

Launch of New Products

On 16 June 2006, PROTON launched the Satria Neo as a

successor to its popular Satria. With its unique combination of

good styling, performance and safety features, unparalleled in

many other cars within the same segment, this new product is

representative of PROTON's joint-efforts with Lotus Engineering.

The period under review also saw the introduction of new variants

of the Waja, now known as Waja Premium, and a face-lifted Savvy.

These updates are in line with PROTON's commitment to provide

customers with products that are current in its styling and features.

However these are mere product enhancements whilst the Satria

Neo is a niche market segment product.

Officiating the launch of the Waja and Satria Neo is thePresident of Indonesia, Susilo Bambang Yudhoyono

CKD operations in Iran

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PROTON 2007 ANNUAL REPORT 41chairman’s statement

It is a well-accepted fact that PROTON's current product line-up

needs to be made more current to meet the evolving needs and

requirements of the broader segment of the buying public.

Recognising that in the automotive industry it takes 2-3 years to

conceive and develop a new model, the Company has been

working diligently to renew its product portfolio over the last two

years. The first of PROTON's new product line-up for its improved

product portfolio will be launched in August 2007.

This new 4-door family sedan to be launched in mid-August 2007

will replace the long-standing Wira model. This new model has

been conceived and designed based on feedback and input from

the targeted markets. With this new model meeting the needs and

requirements of the general public, PROTON expects to regain

some of its previous significant market share.

Yet another 4-door value-for-money small sedan will be launched

early next year. This is expected to further supplement the

PROTON range of affordable and value-for-money passenger cars.

This new vehicle is expected to replace the aging Iswara.

With the launch of the new range of vehicle models, PROTON

must now focus on rebuilding its brand image in the market.

Within the PROTON Group, Lotus also launched several new

variants of its existing range of sports cars including the Lotus

Europa S.

Face-lifted Waja Campro

New variant of Lotus Europa S

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PERSONA. Unveiled.

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PROTON 2007 ANNUAL REPORT44chairman’s statement

Dealer Consolidation

The addition of new models allows PROTON to renew its aging

product line-up. This however, must be supplemented by having a

lean, knowledgeable and focussed dealer network optimised to

deliver good service at point-of-sales and after-sales.

To achieve this, as indicated previously, the Group is in the midst

of consolidating and optimising its domestic dealer network. This

will make the network more cost-effective, whilst at the same time

enabling improved customer satisfaction at point of sale as well as

after-sales service. I am pleased to report that the consolidation of

the domestic network is well underway with minimal disruption to

our customers. PROTON expects that the consolidation efforts will

meet its targeted optimal number of outlets by the end of 2008.

Once fully implemented, PROTON is confident that the domestic

dealer network will be on a better financial footing and will be able

to serve its customers better.

Vendor Rationalisation

A renewed product line-up and optimised dealer network in itself

will not yield the desired results PROTON is looking for, unless

processes are also put in place or manufacturing operations are

significantly improved to ensure the components used meet the

quality expectations of the buying public.

In order to improve manufacturing operations and overall quality of

finished products, PROTON needs to restructure the current

relationship to enable better management of vendors and parts

supplied to PROTON. This will involve the rationalisation of some of

the vendors into a tier ystem, based on their respective capabilities,

capacity and commitment to the industry.

During the period under review, there were more than 250 vendors

supplying directly to PROTON. This rationalisation programme is

currently progressing as planned and the Group expects significant

consolidation by end 2007 and full achievement of targets by end

2008.

Launch of Mizayu Tooling Facility

The launch of Miyazu Malaysia Sdn Bhd's (Miyazu Malaysia) new

tooling plant at PROTON City, Tanjung Malim, was a significant

milestone for the Group's manufacturing and engineering divisions.

A result of a multinational collaboration between PROTON Holdings

Bhd, Miyazu Seisakusho (Japan) and Sojitz Corporation, the

opening of this new tooling plant marks Malaysia's entry into the

highly specialized and technology-intensive industry of designing,

engineering and manufacturing of automotive tools.

The 3,600 square-metre plant on a 10.5-acre site, houses state-

of-the art design, engineering, machining and finishing facilities,

which include computer-aided design and manufacturing

applications (CAD/CAM), double column milling machines,

coordinate-measuring machines, surface digitisers, and pressing

machines. These are all critical tools required to design, engineer

and produce the dies and moulds for the production of automobile

Official launch of the Miyazu tooling factory.

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PROTON 2007 ANNUAL REPORT 45chairman’s statement

components, such as roof, bonnet/hood, fender, dashboard, door

panels, side panels, and other body panels.

In line with future growth of the tooling industry, Miyazu Malaysia will

reduce reliance on imports from the current 90% to 60% and

enhance human capital development and capability growth

throughout the local automotive industry. Given the vast potential of

this new line of business, PROTON has invested RM30 million into

this facility to date.

STRATEGIC INITIATIVES

It is imperative that PROTON keeps its focus firmly on the road

ahead. The Group must not only be flexible and adapt to the

constantly changing environment, but must also be committed to

carry out long-range initiatives aimed at further strengthening its

engineering and manufacturing foundations. With its expanded

product range, improved quality and value for money product

positioning, the PROTON brand will become increasingly attractive.

This is what will drive sustainable growth for PROTON and positive

returns for its shareholders.

Most certainly the road ahead will be paved with challenges, but

PROTON now has the benefit of experience and is rapidly

strengthening the foundation for its future growth.

However, PROTON cannot depend solely on the domestic market

to grow. As indicated in the previous year's report, to prosper and

thrive, PROTON has to expand its export potential further. Tangible

and sustainable growth in the international market will be the

mainstay for PROTON as it aims to expand its market share and

sales volume in the export markets. Whilst PROTON has already

gained a foothold in some markets, there is a need to explore new

emerging markets to tap into.

In line with PROTON's 10-year roadmap, the Group is committed

towards expanding its regional presence in terms of sales and

distribution, particularly in ASEAN, China, India, and the Middle

East. Already, its strategies to grow the brand beyond Malaysian

shores are beginning to show progress in terms of sales growth. It

must now also source components and identify manufacturing

facilities that will optimise costs and efficiency.

The Chinese automotive market in particular, remains a very

important market for many automotive manufacturers. PROTON,

like other automotive manufacturers, regards China as an important

market and one that it should participate in to be a competitive

automotive player in the long run. In July 2007, PROTON entered

into a business arrangement with Jinhua Youngman Automobile

Manufacturing Ltd (Jinhua Youngman) to supply 30,000 units of

Gen2 CBU cars over a period of 20 months. These cars will be

rebadged and sold in the Chinese automotive market under the

Europestar brand.

Although the numbers are modest compared to other automotive

manufacturers, this is a significant achievement for PROTON,

representing the largest single export order of PROTON cars since

its establishment in 1983.

There is also large growth potential in this arrangement with Jinhua

Youngman, both in terms of CBU units to be exported, licensing of

engine and platform, as well as expanded scope of opportunities

in engineering services and technical assistance. For the Malaysian

vendor community, this will also represent significant additional

volume for their manufactured components.

PROTON is also expanding its non-manufacturing business by

optimising revenue that can be obtained from its Group intellectual

property. An example of this strategy can already be seen in the

business arrangement entered into between PROTON and Jinhua

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PROTON 2007 ANNUAL REPORT46chairman’s statement

Youngman. This business arrangement not only enables PROTON

to indirectly enter the expanding Chinese automotive market, but

also enables its subsidiary, Lotus Group International Ltd, to gain a

strong foothold in the Chinese automotive engineering services

market.

PROTON is also mindful of the need to improve operational

efficiency, particularly with regard to improved capacity utilisation.

Towards this end, PROTON has identified contract manufacturing

for other OEMs interested to enter this region as a possible means

to supplement its own manufacturing volumes.

COLLABORATIONS AND ALLIANCE

The fast changing global automotive landscape demands that

players collaborate to gain further economies of scale and hasten

the speed of development. Those that choose to remain

independent must have the reach, resources and scale to secure

growth. Alternatively, participants can choose to build mutually

beneficial alliances.

PROTON as a company fully realises that it needs to keep up with

industry changes to meet the challenges of the present and the

future; in the areas of what it does, how it does and where it does

it. It is also recognised that although PROTON can substantially

proceed on its own, the company can utilise its limited resources

more efficiently via collaborations and alliances. Collaborations and

alliances can help PROTON achieve the desired end-state in a

faster, more cost-effective and more efficient manner.

By collaborating with suitable automotive industry participants,

PROTON can expect to reap the benefits from at least the

synergies in a more diverse product line-up being made available,

access to latest technology, economies of scale in procurement

and ongoing enhancements from their partners' research and

development. There should also be a significant reduction in

development time and cost, as well as human capital

development. Strategic alliances of this nature, appropriately

structured, will undoubtedly result in significant cost savings with

consequential improvements in both operational and financial

performance.

PROTON is committed to making a collaboration with suitable

partners succeed. At the same time, it is expected that the partners

will quickly and cost effectively assist PROTON in addressing the

issues facing the company at the moment, particularly with regard

to improving its product line-up across different price and market

segments, access to new markets, optimising PROTON's

manufacturing capacity utilisation rate, enhancing the company's

vendor base and refining its core technologies.

Notwithstanding this, the alliance to be entered into must be

flexible, balanced, mutually beneficial and specifically tailored to

meet the needs and requirements of PROTON and the local

automotive industry. It is without doubt that such an alliance will be

within the overall context of the nation's aspirations to develop the

local automotive industry and enable all Malaysians to continue to

be proud of a thriving and vibrant automotive industry that is owned

and managed by Malaysians, providing a variety of quality, cost

competitive products for Malaysia and the world.

PROSPECTS

The automotive industry in Malaysia is expected to grow as

consumer sentiments improve, spurred on by increasing

disposable income, both in the private and public sectors and the

introduction of new vehicle models designed for the Malaysian

market. There is also expected to be improving consumer

confidence spurred on by increasing disposable income and

arising from the implementation of the Ninth Malaysia Plan and

development of the new regional economic zones.

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PROTON 2007 ANNUAL REPORT 47chairman’s statement

In order to be positioned to take advantage of the forecasted

improvement, PROTON will continue to focus on improving its

operational efficiency and cost competitiveness in the coming

financial year. More importantly, an automaker needs to be able to

build and sell cars that meet the requirements of the market. It has

been almost 2 years since PROTON made the promise to deliver

the “right car to the right market for the right price at the right time”.

It is therefore encouraging to note that PROTON will finally be able

to replace some of its aging products with more market tailored,

cost-effective replacement products in the course of the next

financial year 2007/2008, beginning with the next new product

launch in August 2007.

Efforts are also being made to rationalise component suppliers

and technology acquisitions, as well as to consolidate the sales

and after-sales networks that aim to strengthen the customer-

focus services, delivering higher level of customer satisfaction. In

addition to these measures, PROTON will also be implementing

longer-term strategic operational plans that cover product

development, engine diversification and optimal facilities utilization

in the next few years.

What is important is for us to move with urgency, but nevertheless

to understand that there is no quick-fix to the issues and problems

faced by a full-fledged automobile manufacturer, the size and scale

of PROTON.

ACKNOWLEDGEMENTS

It is acknowledged that the recent financial year ended 31 March

2007 has been challenging and the financial results disappointing.

On behalf of the Board of Directors, I had already stated that

additional commitment and effort is necessary for the Management

of PROTON to implement significant changes to achieve a faster

pace of improvement. Just as important, is that greater cooperation

is also required from other industry participants in the value chain,

including component vendors and sales dealers, which is essential

to ensure timely success.

PROTON will of course continue to support efforts at the

shareholder and Government levels to further strengthen the

Group. We are confident that by working closely with all relevant

parties and in consultation with the Government, PROTON and the

broader national automotive industry will be further strengthened

and will add significant value to the overall national economy.

My sincerest appreciation to the Board of Directors for their

unwavering commitment and contributions to see through

PROTON's various initiatives. My thanks to the management and

staff for continuing to persevere. We continue to see a team of loyal

stalwarts that is willing to overcome what may at times seem to be

insurmountable.

PROTON Group and the automotive industry could not have

progressed if not for the unwavering and stoic support of the Rt.

Hon. Prime Minister, Y.A.B. Dato' Seri Abdullah Haji Ahmad Badawi

and the Malaysian Government through its various ministries and

agencies. We therefore express our utmost gratitude and sincerest

appreciation to YAB Dato' Seri and the Government.

And most certainly our shareholders deserve much praise for

continuing to remain with us at a time where challenges are at its

height. I thank you for this support and it is your continued faith in

PROTON that will drive the Group to travel past this period of

turbulence to the opportunities that lie ahead.

Thank you.

Dato' Mohammed Azlan Bin HashimChairman

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PROTON 2007 ANNUAL REPORT48managing director’s review

Dato’ Haji Syed Zainal AbidinB Syed Mohamed TahirManaging Director

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PROTON 2007 ANNUAL REPORT 49managing director’s review

OVERVIEW

We can regain our position as a leading profitable automotiveGroup offering quality and wide-ranging products and services. Todo this, we have to set short-range objectives and targets with aview towards achieving long-term goals.

These efforts require a culture change and a re-think of our currentoperations and processes. I, for one, am not keen on short-termgoals. We must affect long-term solutions that may involve somefundamental change to ensure permanent and sustainable growthfor PROTON.

We have implemented the seven key thrusts and initiatives laid outin the previous annual report. Whilst the results of some of theseinitiatives have borne fruit, most elements of the key thrusts are on-going exercises harvesting long-term results. For the period underreview, these key thrusts and initiatives have been furtherenhanced towards achieving long-term results, which are nowtargeted at achieving eleven focus areas, with the objective ofimproving our business efficiency and viability.

THE 11 FOCUS AREAS:

• Enhancing PROTON's product portfolio

• Improving sales and distribution

• Optimising export capabilities

• Reducing the cost of materials

• Reducing overhead costs

• Improving manufacturing efficiency

• Optimising working capital

• Liquidating non-core assets

• Improving quality

• Enhancing vendor management

• Developing human capital and organisational

effectiveness

Managing Director’s Review

How we must adapt and build on our strengths

PROTON is at a turning point. Upon a challenging backdrop of depressedconsumer demand, a regional slump in car sales, an intensely over saturatedmarket and an ever-intensifying competition, we must turn around this brandwhich is the pride of the country's automotive sector to ensure the yearsahead will bring improved results despite these challenges.

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To achieve this, we are concentrating on robust product planning

and intense market study. We must hold firm to the philosophy of

introducing the right car, for the right market, at the right price and

at the right time.

Notably, this philosophy has begun to bear fruit as evidenced by

the year-on-year growth in our export segment.

For the coming financial year, we expect to see PROTON

introducing new models and variants with a view to wrench back

market share in this highly competitive domestic market, whilst

strengthening our product offering in the international market.

PROTON 2007 ANNUAL REPORT50managing director’s review

We have implemented aspects of these initiatives and programs for

the year under review and we expect to bring results to these

efforts in the coming financial years.

In particular, I have outlined for the immediate term, four key areas

for improvement that should drive greater efficiency and bring

about a culture of change that is very much needed in PROTON.

These areas are product, quality, cost efficiency and distribution

network.

Product

We need to inject more speed into introducing new products and

variants to the market.

As promised, during the year under review, PROTON had

successfully introduced the all-new Satria Neo which was well

received, thanks to the model's enhanced quality and attractive

contemporary design.

Close on the wheels of Satria Neo, we also introduced new

variants of our Waja & Savvy models which gained stylish facelifts

as well as quality and performance enhancements.

Despite the challenging operating environment in our domestic

automotive industry, the impact of introducing new and improved

PROTON cars have demonstrated that it is crucial for us to

consistently and rapidly deliver quality and wide-ranging vehicles

that the market desires.

Face-lifted Savvy

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PROTON 2007 ANNUAL REPORT 51managing director’s review

To facilitate our ability to develop the right car at the right price, we

also aim to focus more on expanding our research and

development (R&D) capabilities in the coming years. In addition to

investing in the appropriate infrastructure and technologies,

PROTON is cognisant of the fact that our human resources in

terms of skill-set and a knowledgeable R&D team must also be

developed and enhanced concurrently.

Quality

During the financial year under review, PROTON had carried out a

series of quality improvement programmes and training initiatives

aimed at addressing the need to deliver products and services that

meet if not surpass customers' expectations.

Our focus on enhancing quality must begin from the

conceptualisation stage of a car right up to its after-sales service

experience. This can be achieved by incorporating lessons learnt

from the past, encouraging high standards, striving for innovation,

as well as implementing quality systems from the very onset of the

manufacturing process of our products.

It is imperative that the spirit of true partnership is solidified with our

vendors and suppliers to ensure that the parts and components

we receive for our products are of the highest standards and

quality. Subsequently, our manufacturing process must also be

closely monitored and continuously improved in order to deliver the

final product that is truly up to the mark.

I cannot stress enough that PROTON must embrace a system and

culture that is centred on quality. Hence, we have taken an

integrated approach that includes effective compliance

procedures, quality standards and audits as well as instilling the

significance of quality management among employees across the

board. To support this objective as well as develop organisational

effectiveness, we have also executed various human capital

capability initiatives during the period under review. These initiatives

sought to develop leadership competencies, create a talent pool

and put into motion a succession-planning programme to better

equip the workforce with the right skills to compete globally.

In the coming financial year, we shall continue to put in place

structured quality control programmes while improving the service

levels at our service centres, which is the 'front office' of our brand.

We are aware that our after-sales service and quality assurance

must be second to none in order to offer our customers a

seamless experience. The recent launch of the PROTON i.CAREcustomer service programme with the theme You Can Count OnUs, underscores PROTON's commitment to improve every quality

aspect of our business. It includes among others a hotline, 24-hour

breakdown services, improved after-sales service centres and 25

mobile service teams that will provide free inspections and quick

services for our customers.

MD with the A1 team

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PROTON 2007 ANNUAL REPORT52managing director’s review

Cost Efficiency

It would be highly ineffective if we were to generate satisfactory

revenue without putting in the same level of effort to contain our

costs. Given the size and reach of PROTON, we have initiated and

will continue to undertake necessary 'cost down' initiatives and

measures to increase plant utilisation and maximise economies of

scale.

Among the identified measures undertaken to improve cost

efficiency include the rationalisation and consolidation of vendors.

The implementation process involves the rationalisation of non-

performing vendors via a specialisation and tier system that entails

a strict monitoring and competency enhancement programme, as

well as the consolidation of specialised vendors via mergers and

acquisition, equity participation and new joint ventures. These

rightsizing processes aim to introduce a meritocratic system that

helps to increase productivity and minimise production delays and

downtime. It is envisaged that with a smaller vendor base,

PROTON shall be able to better accelerate development and better

manage the vendor network and thus enhance our quality,

capabilities and costs.

Merdeka Millennium Endurance Race at Sepang

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PROTON 2007 ANNUAL REPORT 53managing director’s review

Towards this end, PROTON must also continue to strive towards

reducing our bill of material (BOM) costs or the major cost of

producing a car. This can be achieved via a strict regime of Value

Analysis/Value Engineering (VAVE), which involves re-evaluating

and making the necessary adjustments to parts and components

to maximise cost effectiveness without compromising quality.

We also aim to reduce our BOM costs via high commonisation of

parts and components to achieve economies of scale in mitigating

high raw materials cost, which will continue to escalate. With a

certain level of success to date, the commonisation of parts and

components in our new models have already shown very positive

and encouraging results and we hope that this effort, which is

widely practised by larger car makers, will be successfully and

wholly implemented, without compromising style and uniqueness.

Distribution Network

Currently, a saturated market and declining sales compounded by

an over-expanded domestic sales network have threatened the

very survival of our dealers.

Nevertheless, during the year under review, PROTON has

aggressively sought to rationalise its dealer network with a two-

phased programme to address under-performance and

redundancies. With the successful rationalisation of our dealership

network, we expect to develop a more efficient and cost effective

network that can positively impact the Group's bottom-line in the

near future.

Whilst the local distribution network is being aligned, we also need

to break away from our traditional reliance on the domestic market

by adopting an aggressive export strategy. PROTON is set to focus

on expanding existing markets like South Africa and the Middle

East (especially Iran) and develop new high-growth markets in

Indonesia, China and India.

The main thrusts of the export strategy are to grow existing

businesses via market share enhancements, grow profits by

improving export margins through the rationalisation of product mix

and prices, strengthen the PROTON brand further through targeted

regional advertising to increase our brand equity, as well as

upgrade and enhance our after-sales facilities, competencies and

service levels at all PROTON networks overseas.

GEN.2

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PROTON 2007 ANNUAL REPORT54managing director’s review

MOVING FORWARD

The road ahead will be no less difficult for PROTON. We are

already making positive headway in addressing and overcoming

short-term challenges in order to remain a viable and relevant

participant in the domestic automotive industry.

Nevertheless, from a long-term corporate perspective and in line

with industry trends that not only affect PROTON but also other

global industry participants, forming a strategic alliance with the

right partner is naturally and clearly the path to follow.

In terms of the four core areas identified, a strategic partnership will

firstly enable PROTON to significantly reduce the time required to

introduce new products from the current 24 months to 18 months

or even less.

In terms of quality, we are confident that with our core strengths

and the right partner, we will also improve the structure of our

quality improvement plans at all levels via adoption of international

standards and benchmarking. Our training and design

collaboration with an established car manufacturer by means of a

strategic alliance will ensure greater design quality for our products.

We also expect to improve vendor efficiency and competitiveness

by gaining critical mass through worldwide marketing, thus

enhancing economies of scale. By having access to higher

technology by way of technology transfer and sharing of skills, our

vendors would be able to ensure reliability and consistency of their

products, and therefore significantly increase our cost efficiency.

Finally, a comprehensive strategic alliance would also provide

PROTON with a launch pad to gain access into international

markets. This is indeed important to PROTON as we must continue

to strive to break away from our reliance on the domestic market

and expand our reach further to tap global opportunities via a

dynamic export strategy that is poised on expanding existing

businesses and developing new markets, as well as increasing

export margins and growing the PROTON brand worldwide.

PROTON aims to deliver on its business objectives on a

sustainable basis. We are committed to doing our best in exploring

and implementing a new and integrated approach to achieve our

set targets.

Chief Minister of Perak, YAB Dato' Sri Di-Raja (Dr.) Mohamad Tajol Rosli Mohd Ghazali, officiating the launch of the Miyazu tooling plant.

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PROTON 2007 ANNUAL REPORT 55managing director’s review

More so, as a national carmaker, we are essentially the country's

flag bearer. Hence, it is imperative that PROTON works hand-in-

hand with the Malaysian Government in realising both the nation's

short-term and long-term strategic plans encapsulated in the 9th

Malaysia Plan, 3rd Industrial Master Plan as well as the National

Automotive Policy.

On a corporate perspective, PROTON is steadfast in charting a

course to realise its maximum potential and thus provide improved

value for our vendors, shareholders, stakeholders and our nation

as a whole.

Towards this end, I present to you our Operations Review on the

various key facets of PROTON. I trust you will find the information

comprehensive and insightful.

Thank you.

Dato' Haji Syed Zainal Abidin B Syed Mohamed TahirManaging Director

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PROTON in Indonesia

PROTON SAVVY

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Engineering Services

Being a national automaker that has clearly set its sights on the highlycompetitive global automotive sector, PROTON is steadfastly committedto continuously enhancing the Group’s engineering capabilities.

PROTON 2007 ANNUAL REPORT58operations review

In addition to our ability to develop new car models from the

ground up, it is important that we have the technology and skills to

be able to manufacture cars of high standard and quality, effectively

and efficiently.

Hence, the capability of employing state-of-the-art technology

directly to current and future product development was at the

forefront during the year under review.

In terms of testing and gauging a vehicle's durability, our

Homologation & Testing team was able to take full advantage of its

new Mileage Accumulation Chassis Dynamometer laboratory to

conduct fully automated mileage accumulation tests on PROTON's

current and future models being developed. The result of this work

will be seen on new models that will be released during the financial

year 2007-2008.

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This system is able to run 24/7 with a computer controlled

robot 'driving' the vehicle on a set of rollers. It can be utilized

to verify the 100,000 kilometre European On-Board Diagnostic

(EOBD) test required to ensure lifecycle performance of a car's

emission system. The system also ascertains Powertrain

endurance cycles required to quickly accumulate the mileage

needed, in addition to verifying engine and transmission

durability and reliability. Through this system which is part of

PROTON's ongoing product development and improvement

process, the routine of putting the car through its first thousand

kilometres or so is completed in hours instead of days.

PROTON was also able to utilize its new Engine Dynamometer

capability to conduct a variety of engine tests on its vehicles across

PROTON 2007 ANNUAL REPORT 59operations review

The new Miyazu tooling factory inTanjung Malim

the globe. The dynamometer was integral in the preparation of

Satria Neo’s and GEN.2’s drivability and performance tests in South

Africa, Savvy’s left-hand drive validation test in Egypt as well as

engine performance testing for the 2006 PROTON Rally Team.

PROTON's joint venture with Miyazu Seisakusho Company Ltd

Japan and Sojitz Corporation Japan, Miyazu Malaysia Sdn Bhd

(“MMSB”) went through an eventful year. In addition to the JV's

ongoing support providing tools, jigs and dies to PROTON, MMSB

has also been supplying dies and jigs to Perodua and Toyota's

Malaysian operations. MMSB has been at the forefront of

PROTON's new product development as a supplier of tools, jigs,

dies for body parts and moulds for plastic parts, but the company

hasn't stopped there. Miyazu is a supplier of pressed-steel

components to PROTON and offers stamping services to ASEAN

OEMs as well.