IT’S ALL ABOUT STEELhgmetal.listedcompany.com/misc/ar2012.pdf · offshore, electronics and other...

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HG METAL MANUFACTURING LIMITED

IT’S ALL ABOUTSTEELAR 2012


15 Jurong Port Road

Singapore 619119

T: (65) 6268 2828

F: (65) 6268 3838

www.hgmetal.com

CORPORATE PROFILE

OUR BUSINESS

OUR STRATEGY

OUR NETWORK

MESSAGE TO SHAREHOLDERS

BUSINESS HIGHLIGHTS

FINANCIAL HIGHLIGHTS

OPERATING & FINANCIAL REVIEW

FIVE-YEAR FINANCIAL SUMMARY

BOARD OF DIRECTORS & SENIOR MANAGEMENT

CORPORATE RESPONSIBLITY

CORPORATE STRUCTURE

CORPORATE INFORMATION

CORPORATE GOVERNANCE

Contents

01

02

04

05

06

08

09

10

12

13

16

20

21

22 Designed and produced by

(65) 6578 6522

We Are All About Steel

At HG Metal, we live and breathe steel.

After more than 40 years in the industry, we have built up a strong reputation as

one of the largest steel distributors and processors in the region.

Our value-add lies in bridging the gap between upstream steel producers and

end users of steel. Through our three main business units – HG Distribution, HG

Construction Steel and HG Industrial Steel & Services – we provide end-to-end

customised solutions for our 1,500-strong clientele base.

Equipped with strong sourcing capabilities from an extensive network of

suppliers, we carry more than 3,000 types of quality steel products for a

wide range of industries and applications. Our warehousing and processing

facilities are spread across over 875,000 sq ft of land in Singapore, Malaysia

and Indonesia.

HG Metal was listed on Singapore Exchange’s former junior board, SESDAQ, on

21 March 2002 and was upgraded to the Mainboard in May 2004.

Vision: To become a leading supplier of steel

products in South East Asia

Mission: To provide one-stop customised solutions,

while ensuring quality and enhancing value

Corporate Profi le

SAR1212010_HG Metal AR().indb 01SAR1212010_HG Metal AR().indb 01 3/23/2013 10:53:02 PM3/23/2013 10:53:02 PM

Our Business

ROLLING MILLS

Finished Steel

MINES

Raw Materials

HG METAL’S VALUE-ADD

Customised

Solutions

Logistics and Warehousing

CUSTOMERS

Industries

STEEL MILLS

Semi-fi nished

Steel

HG DISTRIBUTION

• Wide array of services such as

wholesale activities, retailing,

trading, sourcing of products

and distributing steel products to

ASEAN countries

• Competitively priced and extensive

portfolio of more than 3,000

types of quality steel products

for all industries, including BCA-

compliant materials and niche

products

• Strong and established sourcing

capabilities from an extensive

network of suppliers

• Value-added services such as

steel fi nishing services, product

customisation, logistics and local/

export shipment

• Combined steel storage capacity

in excess of 200,000 tonnes

across Singapore, Malaysia and

Indonesia

HG CONSTRUCTION STEEL

• Comprehensive packages that

cater to just-in-time production for

all construction steel requirements

• Products and services include

cut-and-bend reinforcing bars/

deformed bars/straight re-bars,

customised steel fi nishing services

like galvanising, coating, cutting

and drilling, as well as rental of

plates and beams

• State-of-the-art and fully automated

cut-and-bend production lines, with

a monthly production capacity of

5,000 tonnes and storage capacity

of 13,000 tonnes

ONE-STOP CENTRE, INTEGRATED AND CUSTOMISED SOLUTIONS

We aim to provide quality products and one-stop customised solutions, to meet all of our customers’ steel needs

in today’s demanding business environment. We offer end-to-end services ranging from distribution services to

downstream and value-added activities, via our business units:

HG INDUSTRIAL STEEL & SERVICES

• Broad range of processing

services and tailored solutions

for diversifi ed and specialised

industries, such as energy, marine

and offshore, transportation

and electronics

• Services include precision slitting

and shearing, CNC profi le cut and

surface protection

• Able to manufacture a wide range

of pipes, square/rectangular/

hollow sections, lip channels,

metal deck, scaffolds and fl at bars

• Products range from high tensile

strength steel plates and boiler

plates used in heavy industries, to

non-ferrous steel with light-weight

and high conductivity properties

required for electronics and

marine sectors

• Flexible commercial packages

such as blanket orders and rental

options

THE STEEL SUPPLY CHAIN

02


ANNUAL REPORT 2012


Our Business

EXTENSIVE PRODUCT PORTFOLIO FOR DIVERSE INDUSTRIES

At HG Metal, we pride ourselves on our extensive product portfolio comprising more than 3,000 types of steel

products of various dimensions, including BCA-compliant materials and higher grade, diffi cult-to-attain products. Our

customised steel solutions cater to diversifi ed industries including construction, energy, transportation, marine and

offshore, electronics and other sectors.

WIDE GEOGRAPHICAL

NETWORK AND COVERAGE

We boast a strong procurement network with

suppliers from China, Japan, Korea, Turkey, Russia,

Ukraine, and other Eastern European countries.

Similarly, our large and diversifi ed base of over

1,500 customers hails from all over the globe.

Our key markets include Singapore, Malaysia,

and Indonesia, and on a smaller scale, Brunei, Sri

Lanka, Thailand, Myanmar, Vietnam, New Zealand,

Australia and Papua New Guinea.

LARGE-SCALE

COMPREHENSIVE FACILITIES

In Singapore, the Group has close to 800,000 sq ft

of warehousing and processing facilities located at

15 Jurong Port Road, and 28 and 30 Jalan Buroh. The

three facilities have a combined steel storage capacity

of 200,000 tonnes and a combined monthly handling

capacity (in and out) of 80,000 tonnes.

In Malaysia, the Group has warehouse facilities on a

65,000 sq ft plot of land in West Port, Selangor, as well

as industrial steel and services facilities in Gelang Patah,

Johor. In Indonesia, we have a 12,000 sq ft warehouse

located in Pulo Gadung, Jakarta.

03


ANNUAL REPORT 2012


Our Strategy

ENSURING QUALITY,

ENHANCING VALUE

Our endeavour to ensure quality and

enhance value for our customers

underpins everything that we do at HG

Metal.

With our large-scale facilities and ability to

order steel in bulk, we enjoy economies

of scale which allow us to offer some

of the most competitive prices in the

market. This, together with our one-stop

customised solutions, strong procurement

network and wide geographical coverage,

are some of the key strengths which have

helped entrenched our 40-year position in

the steel industry.

Backed by highly experienced teams

in management, operations and sales,

we are able to leverage our decades

of know-how to deliver steel solutions

more effi ciently and effectively. From

supply chain management and logistics

and warehousing operation, to quality

assurance and dedicated customer

service, we go the extra mile to provide

greater value for our customers.

Our work to ensure quality and enhance

value never ends. In line with the steel

industry’s efforts to increase quality

standards, the Group is planning to invest

in a supply chain system that allows the

traceability of steel source and material

composition.

STRENGTHENING OUR FOOTHOLD

Leveraging on the expertise and network of HG Metal’s major shareholder, Oriental Castle

Group, which is one of the region’s key players in the foundation steel sector, we adopt an

ongoing broad-based growth strategy focused on:

• Diversifying our business model to include higher value-added services and direct sale

to end-users

• Expanding our product range to include higher grade and niche materials

• Widening our geographical reach in South East Asia

• Strengthening customer relationships by directly engaging end-users of steel who

require large and customised orders for specifi c projects, so as to better understand

their needs and enhance customer loyalty

• Enhancing our processing capabilities by offering more downstream customisation

services like cut-and-bend

04


ANNUAL REPORT 2012


Our Network

IndonesiaPT HG Metal Distribution Indonesia

Jl. Melawai VII No.10

Kebayoran Baru

Jakarta Selatan

Indonesia, 12160

Singapore

HG Metal Manufacturing Limited

Oriental Metals Pte Ltd

HG Construction Steel Pte Ltd

Niho (S) Pte Ltd

• 15 Jurong Port Road

Singapore 619119

• 30 Jalan Buroh

Singapore 619486

• 28 Jalan Buroh

Singapore 619486

Malaysia HG Metal Manufacturing Sdn Bhd

Level 16, Surian Tower

No. 1, Jalan PJU 7/3

Mutiara Damansara

47810 Petaling Jaya

Selangor, Malaysia

Jin Heng Li Hardware Sdn Bhd

AL 209, Lot 2243

Sungai Buloh New Village

47000 Selangor, Malaysia

IndonesiaSingapore

Malaysia

Supply Network Customer Network

05


ANNUAL REPORT 2012


DEAR SHAREHOLDERS,

YEAR IN REVIEW

We continued to reorganise the business in terms of our overall

management, operations, systems and services in the past

year. In this regard, we set up three distinct business units – HG

Distribution, HG Construction and HG Industrial Steel and Services.

These on-going efforts are aimed at providing a one-stop solution

for customers so as to serve them better.

In addition, we brought our entire staff under one roof at our new

headquarters at 15 Jurong Port Road, with the aim of increasing

overall productivity and effi ciency. Along with our facilities at 28

and 30 Jalan Buroh, the Group now has close to 800,000 sq ft

of warehousing and processing facilities, and a combined steel

storage capacity of 200,000 tonnes in Singapore.

The Group was involved in numerous business projects during the

year, which will continue to keep us busy well into the new fi nancial

year. Amid the challenging business landscape, it is critical that we

differentiate ourselves to retain our leadership position.

The Group recorded an increase in revenue from S$238.8 million in

FY2011 to S$405.4 million, following higher sales volume achieved

across our key markets in Singapore, Malaysia, Indonesia and

Myanmar. Selling prices of steel products fell steeply, which put

downward pressure on the Group’s gross profi t margin and led to

our gross profi t declining from S$26.0 million to S$17.2 million.

Operating expenses such as distribution and administrative

expenses rose in tandem with the higher volume of operational

activities, as the Group continued to ramp up its business

development and expansion efforts. Overall, the Group registered

a net profi t of S$5.3 million, translating to earnings per share of 0.52

Singapore cents in FY2012.

STRENGTHENING OUR CAPABILITIES

The Group continues to work on executing its roadmap for growth

which covers fi ve key areas – namely, diversifying our business

model, expanding our product range, widening our geographical

reach, strengthening our customer relationships and enhancing

our processing capabilities.

During the year, HG Distribution forged ahead with its regional

development plans. The Group expanded its steel distribution

services with warehouse facilities sited on a 65,000 sq ft plot of

land in West Port, Selangor, Malaysia. The Group also has a new

12,000 sq ft warehouse in Jakarta, Indonesia, with a team focused

on steel distribution and supplying customised steel to oil and gas

projects. Beyond logistics and warehousing services, we strive to

stay ahead of the game by providing value-added services such as

steel fi nishing and product customisation.

FY2012 also marked the start of the Group’s Construction Steel

business to cater to our customers’ steel requirements in the

construction sector. Our fully automated steel cut-and-bend facility

came online in the third quarter of 2012, with a monthly production

capacity of about 5,000 tonnes.

In fourth quarter of 2012, the Group completed the relocation of its

Industrial Steel and Services facilities, from our Jalan Buroh facility in

Singapore to our production facility in Johor, Malaysia to capitalise

on the cost advantages across the causeway. HG Industrial Steel

and Services is able to offer a range of processing services and

tailored solutions for diversifi ed and specialised industries, such as

energy, marine and offshore, transportation and electronics.

With your endorsement, we completed the sale-and-leaseback of

15 Jurong Port Road to Cambridge Industrial Trust for S$43 million

in the fi rst quarter of 2013. The transaction allowed the Group

to realise the fair value of its investment, while still enabling it to

continue using the property. The cashfl ow generated can be used to

fund the Group’s core business and expansion in steel distribution

and processing capability. With the Group’s low gearing, we also

have room to leverage and fi nance future growth.

Looking ahead, growth in Asia is likely to continue to be moderate.

The silver lining lies in the growing demand for steel in ASEAN

which remains a net importer of the product. In Singapore, the

construction sector is expected to remain healthy, anchored by

public sector projects. With our new construction steel facilities,

the Group is in a better position to tap on this sector.

Our reorganisation work has not ended and we are continuing to

invest strategically to enhance our capabilities and value-added

services. Moving forward, we will continue to focus on our multi-

pronged strategy to position the Group for long-term sustainable

growth.

06


ANNUAL REPORT 2012

Message to Shareholders


Message to Shareholders

MR GOH KIAN SINMANAGING DIRECTOR AND

CHIEF EXECUTIVE OFFICER

MR YAP XI MINGNON-EXECUTIVE CHAIRMAN

DELIVERING SHAREHOLDER VALUE

HG Metal’s 40-year track record is testament to its staying power

and strength of its steel business. HG Metal is, and will always

remain, committed to delivering long-term value to shareholders.

As part of the Group’s on-going efforts to return value to

shareholders, the Group has paid out an interim dividend of 0.6

cents per share on 5 April 2012, with another 0.3 cents per share

to be paid out in 2013.

Since January 2012, the Group embarked on a share buyback

programme as part of our efforts to manage our capital and

improve shareholders’ value. As at 31 December 2012, the Group

has bought from the market 23,268,000 shares or 2.29% of our

issued share capital, which are now held as treasury shares.

ACKNOWLEDGEMENTS AND APPRECIATION

On behalf of the Board of Directors, we would like to express our

sincerest gratitude to all our stakeholders. Everyone involved with

the Group put in the proverbial 110% this year.

To our shareholders, thank you for your continued support in HG

Metal. To our fellow board members, management team and

employees, thank you, your commitment and hard work is what

makes this company what it is. And to our customers, suppliers,

business partners and bankers, we are grateful for your confi dence

in us.

HG Metal is expecting an even busier year ahead, and we look

forward to everyone’s support as we strive to take the Group to

higher levels of growth.

07


ANNUAL REPORT 2012


Business Highlights

Key Business Developments in FY2012

• Continued to reorganise our business in terms of

our overall management, operations, systems and

services; setting up three business units:

– HG Distribution

– HG Construction Steel

– HG Industrial Steel and Services

• Opened new headquarters at 15 Jurong Port Road,

and subsequently did a sale-and-leaseback for

S$43 million

• Boosted warehousing facilities with opening of

15 Jurong Port Road:

– 230,000 sq ft of land

– 100,000 tonnes of warehousing/storage capacity

– 40,000 tonnes of monthly handling capacity

(in and out)

• Strengthened our capabilities in construction steel

with new fully-automated cut-and-bend line:

– 5,000 tonnes monthly production capacity

– 13,000 tonnes of storage capacity

• Expanded our steel distribution services in

Indonesia and Malaysia:

– 65,000 sq ft warehouse in West Port, Selangor,

Malaysia

– 12,000 sq ft warehouse in Pulo Gadung, Jakarta,

Indonesia

• Shifted our industrial steel and services facilities

from Singapore to Johor, Malaysia, to capitalise on

cost effi ciencies

• Provided steel solutions for:

– Cilacap Resid Fluid Catalytic Cracking Project

in Indonesia

• Participating in ongoing construction projects

in Singapore:

– Ng Teng Feng General Hospital

– Bendemeer station of the new Downtown Line 3

– Phase 2A of Fusionpolis (Tower C)

– Various projects on Jurong Island

08


ANNUAL REPORT 2012


405.4

FY2011

FY2010

FY2012

238.8

203.1

137.0

FY2011

FY2010

FY2012

132.8

98.6

5.3

FY2011

FY2010

FY2012

16.3

0.3

Plates Bars Beams Pipes Others

Plates Bars Beams Pipes Others

Singapore Indonesia Malaysia Others

REVENUE BY REGION (%) REVENUE (S$’m)

REVENUE BY PRODUCTS (%) NET PROFIT (S$’m)

19%

FY2011

FY2011

FY2012

FY2012

10%

4%

12%

13%

11%

64%

41%

26%

SHAREHOLDERS’ FUNDS (S$’m)

11%

10%

11%

44%

24%

17%

7%

13%

63%

5%

SALES VOLUME BY PRODUCT (%)

FY2011

FY2012

9% 8%32%45%

26% 13% 9% 3%48%

09


ANNUAL REPORT 2012

Financial Highlights


Operating & Financial Review

INCOME STATEMENT

REVENUERevenue for FY2012 rose by 70% on the back of higher sales volume, mainly in key markets such as Singapore, Malaysia, Indonesia and Myanmar.

GROSS PROFIT AND MARGINSelling prices of steel products fell steeply in FY2012, which put downward pressure on the Group’s gross profi t margin. This led to a 34% decline in gross profi t in FY2012.

OTHER OPERATING INCOMEOther operating income increased signifi cantly by S$4.2 million due to: (i) S$7.6 million gain on sale of property at

15 Jurong Port Road which was completed on 31 December 2012

(ii) No fair value gain in FY2012 compared to fair value gain of S$4.5 million on call options in FY2011

(iii) S$0.9 million foreign exchange gain in FY2012(iv) S$0.4 million increase in rental income

in FY2012, comprising mainly of rental of warehouse space to third parties

(v) S$0.2 million decline in commission income compared to FY2011

SELLING AND DISTRIBUTION COSTSSelling and distribution costs grew 47% in FY2012, in tandem with the higher sales volume and higher volume of operational activities.

ADMINISTRATIVE EXPENSESAdministrative expenses rose 66% in FY2012 mainly due to the payment of facility fee for the extension of new loan facilities and higher manpower costs as the Group continued to gear up for new businesses. Consultancy and legal service fees related to the new warehouse construction at Jurong Port Road also contributed to the increase.

OTHER OPERATING EXPENSESOther operating expenses increased mainly due to higher property tax and land rental on the Group’s leasehold properties and increase in business activities.

FINANCE COSTSFinance expenses rose 40% in FY2012, in line with higher sales and business activities.

PROFIT FOR THE PERIODAs a result of the above, net profi t after tax for FY2012 was lower than FY2011.

INCOME STATEMENT

FY20121

S$’000

FY20112

S$’000

% Change

(+/-)

Revenue 405,360 238,842 70

Cost of sales (388,135) (212,849) 82

Gross profi t 17,225 25,993 (34)

Gross margin 4.2% 10.9%

Other operating income 10,810 6,572 64

Selling and distribution costs (3,196) (2,169) 47

Administrative expenses (15,484) (9,353) 66

Other operating expenses (7,381) (6,703) 10

Finance costs (2,697) (1,923) 40

Share of associate profi ts 6,217 3,748 66

Profi t before income tax 5,494 16,165 nm*

Income tax (expense) /credit (158) 107 nm*

Profi t for the period 5,336 16,272 nm*

Profi t attributable to:

Equity holders of the Company 5,549 16,116 nm*

Non-controlling interests (213) 156 nm*

5,336 16,272 nm*

1 The Group changed its fi nancial year end from 30 September to 31 December on 25 October 2012. Accordingly, FY2012 results are for a 15-month period from 1 October 2011 to 31 December 2012.

2 FY2011 results are based on a 12-month period from 1 October 2010 to 30 September 2011.

* nm denotes not meaningful

10


ANNUAL REPORT 2012


Operating & Financial Review

BALANCE SHEET

As at

31 December 2012

S$’000

As at

30 September 2011

S$’000

Non-current assets 60,871 68,872

Current assets 201,770 151,627

Current liabilities 104,733 81,417

Net current assets 97,037 70,210

Non-current liabilities 19,019 4,133

Share capital 137,314 130,046

Treasury share (1,885) –

Other reserves 1,901 2,064

Accumulated (losses) / profi ts (302) 704

Non-controlling interests 1,861 2,135

Total equity 138,889 134,949

INVENTORIES

The Group’s level of inventory improved as

at 31 December 2012 to S$86.2 million

(30 September 2011: S$96.7 million). Inventory

turnover days improved to 108 days as at

31 December 2012, a reduction of 29 days

from 137 days as at 30 September 2011, which

was in line with the Group’s strategy to improve

supply chain management during the current

fi nancial year.

TRADE AND OTHER RECEIVABLES

Trade and other receivables as at 31 December

2012 was S$96.6 million (30 September 2011:

S$44.9 million). Out of this S$96.6 million,

S$43.0 million refers to outstanding receivables

from the sale of the Group’s 15 Jurong Port

Road property. Debtor turnover days remained

at 53 days, which was within the general credit

period extended to customers.

TRADE AND OTHER PAYABLES

Trade and other payables increased to

S$47.4 million as at 31 December 2012

(30 September 2011: S$42.9 million), due

to purchases made during the last quarter of

FY2012 which was in line with the increased

business activities.

CASH FLOW

FY20121

S$’000

FY20112

S$’000

Net cash (used in) operating activities (496) (31,069)

Net cash generated from / (used in)

investing activities (14,257) 3,353

Net cash fl ows generated from fi nancing activities 23,554 32,434

Cash and cash equivalents at end

of fi nancial period 17,867 9,066

CASH FLOW

The Group maintained similar levels of working

capital in FY2012, compared to FY2011. Net

cash used in operating activities was S$0.5

million in FY2012.

As at 31 December 2012, the Group recorded

higher cash and cash equivalents of S$17.9

million (30 September 2011: S$9.1 million)

mainly due to the drawdown of new term loans

to fi nance the Group’s newly completed building

at Jurong Port Road as well as the expansion

plans in warehousing and processing capacity.

1 The Group changed its fi nancial year end from 30 September to 31 December on 25 October 2012. Accordingly, FY2012 results are for a 15-month period from 1 October 2011 to 31 December 2012.

2 FY2011 results are based on a 12-month period from 1 October 2010 to 30 September 2011.

11


ANNUAL REPORT 2012


Five-Year Financial Summary

FY2012 FY2011 FY2010 FY2009 FY2008

FOR THE YEAR (S$’m)

Revenue 405.36 238.84 203.07 581.82 732.94

Gross Profi t 17.23 25.99 23.73 15.48 117.16

Profi t/(Loss) Before Tax 5.49 16.17 (0.03) (56.31) 27.58

Net Profi t/(Loss) After Tax 5.34 16.27 0.33 (58.80) 22.74

Operating Cash Flow (0.50) (31.07) 11.56 173.60 (15.17)

Free Cash Flow (14.75) (27.72) 23.51 138.65 (64.14)

AT YEAR END (S$’m)

Total Assets 262.64 220.50 163.87 339.14 681.49

Total Liabilities 123.75 85.55 63.26 206.12 514.65

Shareholders’ Funds 137.03 132.81 98.57 100.51 136.55

Cash and Cash Equivalents 18.52 9.85 5.11 16.37 49.98

Gearing Ratio 0.34 0.23 0.25 0.75 1.82

PER SHARE DATA (Singapore cents)

Basic Earnings Per Share 0.52 1.72 (0.32) (12.92) 5.31

SHAREHOLDERS’ RETURN

Return on Equity (%)1

3.89 12.25 0.33 -58.50 16.65

Return on Assets (%)2

2.03 7.38 0.20 -17.34 3.34

Gross Dividend (Singapore cents) 0.33

0.6 nil 0.25 1.25

Share Price at End of Year (S$) 0.084 0.088 0.095 0.13 0.11

1 Net Profit/Shareholders’ Fund

2 Net Profit/Total Assets

3 The dividend of 0.3 Singapore cents will be paid out of FY2011 profit

12


ANNUAL REPORT 2012


Board of Directors

YAP XI MINGNON-EXECUTIVE CHAIRMAN AND NON-INDEPENDENT DIRECTOR

Age : 51

Date of fi rst appointment as a director:

26 April 2010

Date of last re-election as a director:

28 January 2011

Board Committee(s) Served On:

Audit and Risk Committee (Member)

Remuneration Committee (Member)

Nominating Committee (Member)

Academic & Professional

Qualifi cation(s):

Diploma in Estate Management

Present Directorships

(on 31 December 2012)

Listed Companies

BRC Asia Limited

Others

Chye Hin Hardware Pte. Ltd.

Mlink Capital Pte. Ltd.

Regroup Capital Pte. Ltd.

Major Appointments

(other than Directorships)

Nil

Past Directorships held over the

preceding three years

(from 1 January 2010 to 31 December 2012)

Nil

TAN CHAN TOOEXECUTIVE DIRECTOR

Age: 62


4 August 1988


28 January 2011)


Nil


Qualifi cations(s):

Not Applicable



Listed Companies

Nil

Others

Oriental Metals Pte. Ltd.

HG Construction Steel Pte. Ltd.

HG Metal Investments Pte. Ltd.

HG Metal Pte. Ltd.

Niho (Singapore) Pte Ltd

Major Appointments


Nil




Nil

MR GOH KIAN SINCHIEF EXECUTIVE OFFICER, MANAGING DIRECTOR

Age: 45

Date of fi rst appointment as a director

15 November 2010




Qualifi cations(s):

The University of Hull

with a Master of Business Administration

University College of Southern Queensland

with a Bachelor of Business



Listed Companies

Nil

Others

Oriental Castle Sdn Bhd

Oriental Sheet Piling Sdn Bhd

Oriental Sheet Piling (China) Co. Ltd

Arcelor International Steel Trading (Shanghai)

Co. Ltd

Oriental Steel Pipe Sdn Bhd

DPM Engineering (Singapore) Pte Ltd

Oriental Castle Foundation Construction

Co. Ltd

Telegamas Capital Sdn Bhd

Goh Brothers Sdn Bhd

Wirazest Sdn Bhd

POS-SEA Pte Ltd.

Major Appointments


Nil




DPM Engineering Sdn Bhd

13


ANNUAL REPORT 2012


Board of Directors

WONG KEAN SHYONG (KENN)EXECUTIVE AND NON-INDEPENDENT

DIRECTOR

Age: 48


15 November 2010


12 January 2012

Re-designation of appointment as

Executive Director: 18 January 2013


Nil


Qualifi cations(s):

National University of Singapore with a

Degree in Civil Engineering



Listed Companies

Nil

Others

Eurasia Global Trading (HK) Limited

Major Appointments


Nil




China Steel Case (Camp) Pte. Ltd.

VSC Building Products Company Limited

亞萬鋼國際貿易(上海) 有限公司

GUI KIM YOUNG @ GUI KIM GANNON-EXECUTIVE AND INDEPENDENT DIRECTOR

Age: 74


1 February 2002


12 January 2012



Remuneration Committee (Chairman)



Qualifi cations(s):

Nanyang University with a Bachelor of

Commerce in Accountancy

Certifi ed Public Accountants



Listed Companies

Hongwei Technologies Ltd.

San Teh Ltd.

PCA Technology Ltd.

Others

Shangyew Public Accounting Corporation

Nucom Management Consultants

Pte Ltd

Ee Hoe Hean Club

Major Appointments


Nil




Nil

DR TAN ENG LIANGINDEPENDENT DIRECTOR

Age: 76


29 January 2010


12 January 2012


Audit and Risk Committee (Chairman)




Qualifi cations(s):

University of Oxford with a

doctorate in Philosophy



Listed Companies

Hartawan Holdings Limited

Sunmoon Food Company Ltd

Progen Holdings Ltd

Sapphire Corporation Limited

United Engineers Ltd

Tung Lok Restaurants (2000) Ltd

UE E&C Limited

Dr Tan also holds non-executive

directorships in various non-listed

companies

Major Appointments


Nil

Dr Tan has held past directorships over

the preceding three years

14


ANNUAL REPORT 2012


Board of Directors & Senior Management

CHEE WAI PONGNON-EXECUTIVE AND INDEPENDENT DIRECTOR

Age: 65


12 March 2012




Nominating Committee (Chairman)


Qualifi cations(s):

University of Singapore with a Bachelor

of Law Degree (L.L.B Hons)



Listed Companies

SunMoon Food Company Limited

Progen Holdings Ltd

Others

Nil

Major Appointments


Chee Wai Pong & Co (sole-proprietor)

Medical Alumni (Honorary legal advisor)

Ling Kwang Home For Senior Citizens

(Honorary legal advisor)

Students Care Service

(Member Management Committee)

Yishun Centre, Students Care Service

(Advisory Member)

Council of Estate Agency, Disciplinary Panel

(Member)




Nil

Senior Management

HO VUI SOONGROUP GENERAL MANAGER,CORPORATE DEVELOPMENT

KHONG SEE YUNGROUP FINANCIAL CONTROLLER

FOO CHIH YUENSENIOR MANAGER,SUPPLY CHAIN

GEORGES KEIPESCHIEF OPERATING OFFICER,HG CONSTRUCTION STEEL

15


ANNUAL REPORT 2012


Corporate Responsibilty

At HG Metal, we do business in a socially responsible manner. We take active measures to take care of and invest in our people, protect the environment, serve our society, and last but not least, engage our stakeholders.

HEALTH AND SAFETY

We are committed to ensure the occupational health and safety

of all our employees. HG Metal has attained the bizSAFE Level 3

certifi cation awarded by the Workplace Safety & Health (“WSH”)

Council, in recognition of our ability to effectively conduct risk

assessment as audited by independent Ministry of Manpower-

approved WSH auditors.

We closely monitor the activities of our operational sites to provide

a safe working environment at all times and have in place a Health

and Safety policy which all staff members are required to adhere to.

All our operational staff have attended the Safety Orientation

Course (Metal Working) and only certifi ed staff are allowed to use

specialised equipment such as overhead cranes and forklifts. In

addition, our staff undergo in-house training and attend safety

courses regularly to enhance their awareness of safety issues

and to inculcate a disciplined approach to safety standards and

procedures at every step of our entire operations.

16


ANNUAL REPORT 2012



Zero accident is a mission we take seriously, and we strive to

continually improve the safety conditions of our facilities. We

conduct monthly inspections of our equipment and premises and

are introducing annual fi re drills. We are pleased to report there

have been no major incidents pertaining to our staff in FY2012.

QUALITY

All our steel products are certifi ed, including materials which are

approved by the Building and Construction Authority. As part of our

efforts to improve quality, HG Metal is working towards tagging and

traceability programmes for our steel products. This is to allow easy

identifi cation of products and allow us to respond quickly to clients’

requests for mill certifi cations.

OUR PEOPLE

Development

We recognise that ‘software’ is as important as ‘hardware’. Our

people are our core assets and we need to invest in them. We have

put in place a talent management programme to attract, retain and

groom employees.

Training

Besides ensuring a safe working environment and a high standard

of staff welfare, we place strong emphasis on staff training and skills

upgrading. We also aim to provide a balanced work environment

that seeks to enhance our employees’ physical wellness and

mental well-being.

Culture

There is a strong culture of working hard and playing hard at HG

Metal. Our newly completed headquarters at 15 Jurong Port Road

was designed to provide our staff with a conducive, modern and

safe environment where they will be proud and happy to work in.

At our new premises, we have a big pantry-cum-dining area and

open-concept offi ce to encourage employee communication, an

open air garden for relaxation, and improved technology equipment

to help staff work more effi ciently.

Environment

Second only to the safety and welfare of our people is our

commitment to the environment. We believe that environmental

17


ANNUAL REPORT 2012



protection is one of the most important issues facing today’s

business world and aim to make it an integral part of our corporate

culture.

Steel itself is very friendly to the environment. It is completely

recyclable, possesses great durability, and, compared to other

materials, requires relatively low amounts of energy to produce.

Steel’s unique magnetic properties make it an easy material to

recover from the waste stream so it can be recycled – making it the

world’s most recycled material.1

At HG Metal, we do not waste any of our steel. Remnant steel

from the company’s operations are always reused and recycled.

Some of it have even found its way into the renovation of our

15 Jurong Port Road facility. In addition, we try to reduce our

carbon footprint by making efforts to reduce energy use and

recycling machine coolants, where possible.

COMMUNITY RELATIONS

By doing business in a socially responsible manner, it means

we do not only focus on profi tability, but also on giving and

serving, and enhancing our society. Over the years, HG

Metal has contributed to the society in the form of monetary

donations and our employees providing their time and effort

through volunteer work.

In FY2012, HG Metal donated to “Run for Home 2012”, an annual

charity event organised by Four Seasons Hotel Singapore, Regent

Singapore and the National Cancer Centre Singapore to raise

much-needed funds for cancer research. We were also one of

the main corporate donors for a charity concert – Metamorphosis

III: Simple Gifts – in support of The Straits Times School Pocket

Money Fund and D’Artistes. D’Artistes is a non-profi t volunteer

group manned by a group of volunteer parents and special needs

children, focused on running activities especially in the performing

arts, for the benefi t of children with intellectual disabilities.

In addition, the Group contributed to the Singapore Children’s

Society “1000 Enterprises for Children-in-Need” initiative, a fund

raising project that hopes to encourage small, medium and large

companies to pledge their donation to the Society annually. We

also pledged to the UOB-SMU Asian Enterprise Institute, which is

Asia’s fi rst institute set up specifi cally to serve the needs of small

and medium enterprises.

1 http://www.worldsteel.org/faq/about-steel. html

During the year, we also made other ad-hoc donations to

associations such as Singapore Metal and Machinery Association

and the Ling Jiou Mountain Buddhist Society (Singapore).

Other charities we have sponsored in the past include:

• Singapore Buddhist Lodge Welfare Foundation

• Thian Leng Old Folks Home

• Home Nursing Foundation

• Senior Citizens Health

• Singapore Children’s Society

• Special Olympics Singapore

• Society for Contribution (Help Needy, Disabled & Elderly)

• Metta Charity Golf

• Long Wah Athletic Association

• Kidney Dialysis Foundation

• HSBC – Needy School Children

• SASCO Senior Citizen Home

• SICC – May Day Charity

• Singapore Armed Forces Veterans League

• Korean Chamber of Commerce (Charity Golf & Dinner)

INVESTOR RELATIONS

In today’s economic and investment climate, we understand

that investors need, more than ever, a clear picture of what the

company is doing and what its plans are for the future. We take the

responsibility to deliver information to our shareholders in a timely

manner, while adhering to compliance rules, seriously.

We endeavour to engage in two-way communication with the

investment community via face-to-face briefi ngs, phone calls or

emails. We maintain an updated website with a dedicated Investor

Relations section that provides relevant fi nancial and operational

information to help investors evaluate the company and make

informed investment decisions. Investors can also subscribe to

email alerts which keep them up to speed with the company’s

latest announcements, press releases and fi nancial results.

18


ANNUAL REPORT 2012



Our annual general meetings are also an important platform for shareholder communications. Besides the board of directors, our senior

management team is also present to answer shareholders’ queries and listen to their feedback. In December last year, we held our

extraordinary general meeting at our new Jurong Port Road headquarters, so as to give our shareholders an opportunity to view our new

offi ce and operational facilities.

We welcome comments, feedback and enquiries. Existing and potential investors can contact us or our external investor relations advisor

at:


Add: 15 Jurong Port Road Singapore 619119

Tel: (65) 6268 2828

Fax: (65) 6268 3838

SHARE INFORMATION

(as at 1 March 2013)

Listing Date 21 March 2002

Issued Shares 1,069,254,000

Market Capitalisation S$123.455 million

15-Month Price Range S$0.075 – S$0.116

August Consulting Pte Ltd

Tel: (65) 6733 8873

Fax: (65) 6733 9913

Contact: Chin May Nah ([email protected])

HG Metal FTSE Basic Material

50%

40%

30%

20%

10%

-10%

0%

-20%

Sep 2011 Dec 2012

FTSE ST Basic Materials IndexHG Metal

19


ANNUAL REPORT 2012


Corporate Structure

ORIENTAL METALS

PTE LTD

99.998%

HG METAL

INVESTMENTS PTE LTD

100%

JIN HENG LI

HARDWARE SDN BHD

59.23%

PT HG METAL

DISTRIBUTION INDONESIA

100%

HG METAL PTE LTD

100%

NIHO (S) PTE LTD

59.03%

HG METAL

MANUFACTURING SDN BHD

100%

HG CONSTRUCTION STEEL

PTE LTD

100%

BRC ASIA LIMITED

(SGX MAINBOARD LISTED)

23.71% w.e.f.08.03.2013

HG METAL

DISTRIBUTION SDN BHD

100%

NIHO KUNSHAN

LIMITED CO LTD

100%

HG METAL MANUFACTURING LIMITED(LISTED ON SGX MAINBOARD)

POS-SEA PTE. LTD.

24.5%

Associated company

20


ANNUAL REPORT 2012


Corporate Information

BOARD OF DIRECTORS

Yap Xi Ming

Non-Executive Chairman

Goh Kian Sin

Managing Director and Chief Executive Offi cer

Tan Chan Too

Executive Director

Wong Kean Shyong, Kenn

Executive Director

Dr Tan Eng Liang

Independent Director

Gui Kim Young @ Gui Kim Gan


Chee Wai Pong


AUDIT & RISK COMMITTEE

Dr Tan Eng Liang (Chairman)


Chee Wai Pong

Yap Xi Ming

NOMINATING COMMITTEE

Chee Wai Pong (Chairman)

Dr Tan Eng Liang


Yap Xi Ming

Goh Kian Sin

REMUNERATION COMMITTEE

Gui Kim Young @ Gui Kim Gan (Chairman)

Dr Tan Eng Liang

Yap Xi Ming

Chee Wai Pong

COMPANY SECRETARY

Tan Swee Gek

REGISTERED OFFICE

15 Jurong Port Road

Singapore 619119

Tel: (65) 6268 2828

Fax: (65) 6268 3838

Web: www.hgmetal.com

SHARE REGISTRAR

M&C Services Private Limited

112 Robinson Road #05-01

Singapore 068902

AUDITORS

Ernst & Young LLP Public Accountants

and Certifi ed Public Accountants Singapore

Partner-in-charge:

Ho Shyan Yan

(With effect from fi nancial year ended

30 September 2011)

PRINCIPAL BANKERS

Oversea-Chinese Banking Corporation Limited

United Overseas Bank Limited

INVESTOR RELATIONS

August Consulting Pte Ltd

101 Thomson Road

#30-02 United Square

Singapore 307591

21


ANNUAL REPORT 2012


CorporateGovernance

HG Metal Manufacturing Limited (the “Company”) is committed to complying with the Code of Corporate Governance 2005

(“Code”) so as to ensure greater transparency and to safeguard the interests of shareholders. This statement describes the

Company’s corporate governance practices and activities with specific reference to the Code established by the Singapore

Corporate Governance Committee and relevant sections of the Listing Manual issued by the SGX-ST.

1 BOARD MATTERS

Principle 1: Every company should be headed by an effective Board to lead and control the company. The

Board is collectively responsible for the success of the company. The Board works with Management to

achieve this and the Management remains accountable to the Board.

1.1 Role of the Board

The Board of Directors (the “Board”) comprises 3 Executive Directors and 4 Non-Executive Directors. 3 of the 4 Non-

Executive Directors are Independent Directors. The Board’s primary role is to protect and enhance long-term shareholder

value. To fulfill this, apart from its statutory responsibilities, the Board’s principal functions include the following:

(a) approving the Group’s corporate and strategic directions;

(b) establishing goals for management and monitoring the achievement of these goals;

(c) ensuring management leadership of high quality, effectiveness and integrity;

(d) approving annual budgets, investment and divestment proposals;

(e) appointment of Board Directors and key managerial personnel;

(f) ensuring an effective risk management framework is in place;

(g) reviewing financial performance and implementing financial policies which incorporate risk management, internal

controls and reporting compliance; and

(h) assuming responsibility for corporate governance.

1.2 Board Processes

To assist the Board in the discharge of its oversight function, certain functions have been delegated to various Board

Committees, namely, the Audit & Risk Committee (“ARC”), Nominating Committee (“NC”) and the Remuneration

Committee (“RC”), each of which has its own written terms of reference. The minutes of meetings of these committees

are circulated among the Board.

Formal Board meetings will be held at least once every quarter to oversee the business affairs of the Group and approve

any financial or business strategies or objectives. Where necessary, additional Board meetings are held to deliberate

on urgent substantive matters. The Board also approves transactions through circular resolutions which are circulated

to the Board together with all relevant information relating to the proposed transaction.

The agenda for meetings is prepared in consultation with the Chairman and Chief Executive Officer. The Agenda and

submissions are circulated in advance of the scheduled meetings.

22


ANNUAL REPORT 2012


CorporateGovernance

1.3 Directors’ meeting held in the Financial Period ended 31 December 2012 (“FP2012”)

The attendance of the directors at meetings for the financial period ended 31 December 2012 are as follows:

Board of

Directors

Audit & Risk

Committee

Remuneration

Committee

Nominating

Committee

Held Attend Held Attend Held Attend Held Attend

Yap Xi Ming(1) 5 5 – – 6 6 4 3

Goh Kian Sin 5 5 – – – – 4 4

Tan Chan Too 5 4 – – – – – –

Wong Kean Shyong,Kenn 5 4 – – – – – –

Gui Kim Young @ Gui Kim Gan 5 4 7 6 6 6 4 4

Dr Tan Eng Liang 5 5 7 7 6 6 4 4

Chee Wai Pong(2) 3 3 5 5 4 4 3 3

Roy Ling Chung Yee(3) 1 1 1 1 2 2 1 1

Notes:(1) Appointed to the Audit & Risk Committee on 12 November 2012.(2) Appointed to the Board, Audit & Risk Committee, Remuneration Committee and Nominating Committee on 12 March 2012.(3) Resigned on 12 January 2012, one Board meeting, one Audit & Risk Committee meeting, two Remuneration Committee meetings

and one Nominating Committee meeting were held prior to his resignation.

The directors were appointed based on their experience, stature and potential to contribute to the proper guidance of

the Group and its businesses. As such, we believe that each individual director’s contributions can be reflected in ways

other than the reporting of attendances at Board meetings and/or Board committee meetings.

1.4 Matters Requiring Board Approval

The directors have identified a few areas for which the Board has direct responsibility for decision making such as the

following:

• approval of the quarterly results announcements;

• approval of the annual report and accounts;

• declaration of interim dividends and proposal of final dividends;

• convening of shareholders’ meetings;

• approval of corporate strategy;

• authorisation of major transactions;

• approval of Board changes and appointments on Board committees;

• increase in investment in businesses and subsidiaries;

• divestment in any of the Group companies; and

• commitments to term loans and lines of credit from banks and financial institutions by the Company.

23


ANNUAL REPORT 2012


CorporateGovernance

While matters relating in particular to the Company’s objectives, strategies and policies require the Board’s direction and

approval, Management is responsible for the day-to-day operation and administration of the Company in accordance

with the objectives, strategies and policies set by the Board.

1.5 Training of Directors

Our directors are provided with extensive background information about our Group’s history, mission, values and

business operations. Changes to regulations and accounting standards are monitored closely by management. To keep

pace with such regulatory changes, the Company provides opportunities for ongoing education on Board processes

and best practices as well as updates on relevant new laws and regulations. Directors also have the opportunity to visit

the Group’s operational facilities and meet with management to gain a better understanding of the business operations.

The Company has set up a more formal procedure for the issue of the appointment letter setting out the directors’

duties and obligations. Newly appointed directors shall also be briefed on the business and organisational structure of

the Group and its strategic directions.

1.6 Board Composition and Balance

Principle 2: There should be a strong and independent element on the Board, which is able to exercise

objective judgement on corporate affairs independently, in particular, from Management. No individual or

small group of individuals should be allowed to dominate the Board’s decision making.

All directors exercise independent judgements and make decisions objectively in the best interest of the Company. The

assessment criteria in the Chairman’s assessment of directors include intensity of participation at meetings, quality of

interventions and special contribution.

The Board comprises members with diverse expertise and experience in the steel, finance and business industries.

As of the date of this report, the Board comprises the following directors:

EXECUTIVE DIRECTORS

Mr Goh Kian Sin (Managing Director and Chief Executive Officer)

Mr Tan Chan Too

Mr Wong Kean Shyong, Kenn – Re-designated on 18 January 2013

NON-EXECUTIVE AND NON-INDEPENDENT DIRECTOR

Mr Yap Xi Ming (Non-Executive Chairman)

INDEPENDENT NON-EXECUTIVE DIRECTORS

Dr Tan Eng Liang

Mr Gui Kim Young @ Gui Kim Gan

Mr Chee Wai Pong – Appointed on 12 March 2012

The profiles of the Board are set out in pages 13-15 of the Annual Report.

The composition of the Board is determined in accordance with the following principles:

• to form a strong independent element on the Board, it should comprise at least one-third of non-executive

independent directors;

24


ANNUAL REPORT 2012


CorporateGovernance

• the Board should have enough directors to serve on various committees of the Board without over-burdening

the directors or making it difficult for them to fully discharge their responsibilities;

• the Board should comprise directors with a broad range of competencies and expertise both nationally and

internationally; and

• directors appointed by the Board are subject to election by shareholders at the following Annual General

Meeting (“AGM”) and thereafter, directors are subject to re-election according to the provisions in the Articles of

Association of the Company. Article 89 of the Articles of Association of the Company states that one third of the

directors shall retire from office by rotation with the exception of the director holding office as Managing Director.

The Board regularly examines its size and, with a view to determining the impact of its number upon effectiveness,

decides on what it considers an appropriate size for itself, taking into account the scope and nature of the Company’s

operations. The composition of the Board is reviewed on an annual basis by the NC to ensure that the Board has the

appropriate mix of expertise and experience to enable management to benefit from a diverse perspective of issues that

are brought before the Board. The NC is of the view that the Board comprises directors capable of exercising objective

judgment on the corporate affairs of the Company independently of management and that no individual or small group

of individuals dominate the Board’s decision-making process.

When a vacancy exists, through whatever cause, or where it is considered that the Board would benefit from the

services of a new director with particular skills and knowledge, the NC, in consultation with the Board, determines the

selection criteria for the position based on the skills and knowledge deemed necessary for the Board to best carry out

its responsibilities. Candidates may be suggested by directors or management or sourced from external sources. The

NC will interview the candidates and assess them based on objective criteria approved by the Board such as integrity,

independent mindedness, possession of the relevant skills required or skills needed to complement the existing Board

members, ability to commit the time and effort to carry out his responsibilities, good decision making track record,

relevant experience and financial literacy. The NC will make a recommendation to the Board on the appointment. The

Board then appoints the most suitable candidate who must stand for election at the next AGM of shareholders.

Particulars of interests of directors who held office at the end of this financial period in shares and share options in

the Company and in related corporations (other than wholly-owned subsidiaries) are set out in the Directors’ Report.

1.7 Independent Members of the Board of Directors

The Board has 3 independent directors, representing at least one-third of the Board: Dr Tan Eng Liang, Mr Gui Kim

Young @ Gui Kim Gan and Mr Chee Wai Pong. The criteria for independence are based on the definition given in

the Code, which considers an independent director as one who has no relationship with the Company, its related

companies or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director’s

independent business judgement with a view to the best interest of the Company. The independence of each director

is reviewed annually by the NC.

1.8 Chairman and Chief Executive Officer

Principle 3: There should be a clear division of responsibilities at the top of the company – the working of

the Board and the executive responsibility of the company’s business – which will ensure a balance of power

and authority, such that no one individual represents a considerable concentration of power.

25


ANNUAL REPORT 2012


CorporateGovernance

The Company has a separate Non-Executive Chairman and a Chief Executive Officer, which ensures that there is a

balance of power and authority, increased accountability and greater capacity of the Board for independent decision-

making at the top of the Company. As at the date of this report, Mr Yap Xi Ming holds the post of Non-Executive

Chairman, whilst Mr Goh Kian Sin holds the post of Managing Director and Chief Executive Officer.

The Non-Executive Chairman ensures that board meetings are held when necessary and sets the board meeting agenda

(with the assistance of the company secretary and in consultation with the Managing Director and Chief Executive

Officer). The Chairman ensures that the board members are provided with complete, adequate and timely information.

The Chairman ensures that procedures are introduced to comply with the Code and ensures effective communication

within the board and with the shareholders.

The Board has delegated the daily operations of the Group to the Managing Director and the Chief Executive Officer.

The Managing Director and Chief Executive Officer leads the management team and executes the strategic plans in

alignment with the strategic decisions and goals set out by the Board and ensures that the directors are kept updated

and informed of the Group’s businesses.

1.9 Board Membership

Principle 4: There should be a formal and transparent process for the appointment of new directors to the

Board.

The Board has delegated to the NC the functions of developing and maintaining a transparent and formal process for

the appointment of new directors, making recommendations for directors who are due for retirement by rotation to

seek re-election at general meeting and determining the independent status of each director.

As at the date of this report, the NC comprises the following members, the majority of whom (including the Chairman)

are independent:–

Mr Chee Wai Pong (Chairman and Independent Director),

Dr Tan Eng Liang (Independent Director)

Mr Gui Kim Young @ Gui Kim Gan (Independent Director)

Mr Yap Xi Ming (Non-Executive Chairman and Non-Executive Director)

Mr Goh Kian Sin (Managing Director and Chief Executive Director)

The NC is regulated by its terms of reference and its key functions include:–

• making recommendations to the Board on new appointments to the Board;

• determining orientation programs for new directors and recommending opportunities for the continuing training

of the directors;

• making recommendations to the Board on the re-nomination of retiring directors standing for re-election at the

Company’s AGM, having regard to the directors’ contribution and performance (e.g. attendance, preparedness,

participation and candour);

• ensuring that all directors submit themselves for re-nomination and re-election at regular intervals and at least

every three years;

• determining annually whether or not a director is independent;

• reviewing the size and composition of the Board with the objective of achieving a balanced Board in terms of

the mix of experience and expertise;

26


ANNUAL REPORT 2012


CorporateGovernance

• reviewing the appointment of immediate family members (spouse, child, adopted child, step-child, sibling and

parent) of any of the Company’s directors or substantial shareholders to managerial positions in the Company;

• determining whether a director who has multiple board representations is able to and has been adequately

carrying out his duties as director of the Company;

• reporting to the board on its activities and proposals; and

• carrying out such other duties as may be agreed to by the NC and the Board.

The NC meets at least once a year. The Company’s Articles of Association provide that, at each AGM, one-third of the

directors for the time being (or, if their number is not a multiple of three, the number nearest to but not less than one-

third) shall retire from office by rotation. A retiring director is eligible for re-election by the shareholders of the Company

at the AGM, and prior to nominating a retiring director for re-election, the NC will evaluate the director’s contribution

and performance taking into consideration factors such as attendance, preparedness, participation and candour.

1.10 Board Performance

Principle 5: There should be a formal assessment of the effectiveness of the Board as a whole and the

contribution by each director to the effectiveness of the Board.

We believe that Board performance is ultimately reflected in the performance of the Group and the Company. The Board

should ensure compliance with applicable laws and Board members should act in good faith, with due diligence and

care in the best interests of the Group and the shareholders. In addition to these fiduciary duties, the Board is charged

with two key responsibilities of setting strategic direction and ensuring that the Group is ably led. The Board, through

the delegation of its authority to the NC, will review the Board’s composition annually to ensure that the Board has the

appropriate mix of expertise and experience to lead the Group.

The NC assesses the effectiveness of the Board as a whole and the contribution by each director to the effectiveness

of the Board on an annual basis.

In its assessment of the Board’s effectiveness, the NC takes into consideration the frequency of the Board meetings, the

rate at which issues raised are adequately dealt with and the reports from the various committees. In the like manner,

the NC is able to assess the contribution of each individual director to the effectiveness of the Board.

The NC has conducted a Board’s performance evaluation as a whole in FP2012, participated by all directors. The

assessment parameters are broadly based on the attendance records at the meetings of the Board and the relevant

board committees, intensity of participation at meetings, sense of independence, quality of contributions and workload

requirements.

1.11 Access to Information

Principle 6: In order to fulfil their responsibilities, Board members should be provided with complete,

adequate and timely information prior to Board meetings and on an ongoing basis.

Directors receive a regular supply of information from management about the Group so that they are equipped to play

as full a part as possible in Board meetings. Detailed Board papers are circulated to all directors prior to the scheduled

meetings so that members may better understand the issues beforehand, allowing for more time at such meetings for

questions that members may have. The Board papers provided include background or explanatory information relating

to matters to be brought before the Board. A presentation is made to the Directors at the Board meeting on budgets,

forecasts and variances from the budget disclosed.

27


ANNUAL REPORT 2012


CorporateGovernance

All directors have separate and independent access to the advice and services of the company secretary. The company

secretary attends the Board and Board Committee meetings and assists the Chairman of the Board and Board

Committee meetings in ensuring that the relevant procedures are followed and that applicable rules and regulations

are complied with as well as ensuring good information flow within the Board and its committees, between senior

management and the non-executive directors, facilitating orientation and assisting with professional development as

required. The appointment and removal of the company secretary is a matter which is approved by the Board.

The Board also has separate and independent access to the Company’s senior management.

Each director has the right, at the Company’s expense, to seek independent legal and other professional advice

concerning any aspect of the Group’s operations or undertakings in order to fulfill their duties and responsibilities as

directors.

2 REMUNERATION MATTERS

2.1 Procedure for developing Remuneration Policies

Principle 7: There should be a formal and transparent procedure for developing policy on executive

remuneration and for fixing the remuneration packages of individual directors. No director should be involved

in deciding his own remuneration.

The Group’s remuneration policy is to provide compensation packages at market rates which reward successful

performance and attract, retain and motivate directors and key management executives.

The RC comprises solely of non-executive directors, the majority of whom, including the Chairman, is independent. At

the date of this report, the RC comprises the following members:–

Mr Gui Kim Yong @ Gui Kim Gan (Chairman and Independent Director)

Dr Tan Eng Liang (Independent Director)

Mr Chee Wai Pong (Independent Director)


The RC meets at least once each year and at other times as required.

The RC is responsible for recommending to the Board a framework of remuneration for the directors and senior

management which is submitted to the whole Board for endorsement. The RC reviews and approves recommendations

on remuneration policies and packages for directors and senior management in the interests of improved corporate

performance.

The RC’s review of remuneration packages covers all aspects of remuneration, including but not limited to directors’

fees, salaries, allowances, bonuses, options, profit sharing (where applicable) and benefits-in-kind.

In setting out the remuneration packages, the RC would take into consideration pay and employment conditions within

the industry and in comparable companies. The remuneration packages should take into account the Company’s relative

performance and the performance of the individual directors/senior management.

28


ANNUAL REPORT 2012


CorporateGovernance

The RC’s recommendations are submitted to the entire Board. Each member of the RC shall abstain from voting on

any resolution concerning his own remuneration.

The Directors’ fees to be paid for any one year are submitted for shareholders’ approval at the AGM.

2.2 Level and Mix of Remuneration

Principle 8: The level of remuneration should be appropriate to attract, retain and motivate the directors

needed to run the company successfully but companies should avoid paying more than is necessary for this

purpose. A significant proportion of executive directors’ remuneration should be structured so as to link

rewards to corporate and individual performance.

The remuneration packages of the Managing Director and Chief Executive Officer and the executive directors are

determined based on the framework recommended by the RC. In doing so, the RC reviews the length of the fixed

appointment period, the notice period for termination and the terms of the compensation package in the event of the

termination of any executive directors’ contracts of service to ensure that the terms of such clauses are not onerous to

the Company. The executive directors’ framework of remuneration includes a fixed element as well as a variable element

in the form of a bonus and a profit sharing incentive which is linked to the Company’s performance.

All non-executive Directors are paid a Director’s fee, with additional fees for serving as the chairman or member of a

Board committee and attendance fees for Board and Board committee meetings. These fees are recommended by the

RC and submitted to the Board for endorsement. The remuneration of non-executive directors should be appropriate to

the level of contribution, taking into account factors such as effort and time spent, and responsibilities of the directors.

Non-executive directors should not be over-compensated to the extent that their independence may be compromised.

An employee share option scheme (“ESOS”) was approved by the shareholders of the Company at the Extraordinary

General Meeting of the Company held on 12 January 2012 as a compensation scheme for selected employees of

the Group who, in the opinion of the appointed committee under the ESOS, have contributed or will contribute to the

success of the Group.

The ESOS is administered by the Remuneration Committee. The ESOS will, subject to the approval of the shareholders,

be renewed at the forthcoming Annual General Meeting of the Company.

No options were granted under the ESOS for the financial period ended 31 December 2012.

2.3 Disclosure on Remuneration

Principle 9: Each company should provide clear disclosure of its remuneration policy, level and mix of

remuneration, and the procedure for setting remuneration in the company’s annual report. It should provide

disclosure in relation to its remuneration policies to enable investors to understand the link between

remuneration paid to directors and key executives, and performance.

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CorporateGovernance

The remuneration of the Directors from the Company for the financial period ended 31 December 2012 is as follows:–

Directors Base Salary BonusDirector

Fees

Allowances

and OthersTOTAL

Goh Kian Sin 290,000 – – 9,450 299,450

Tan Chan Too 464,000 – – 6,975 470,975

Yap Xi Ming – – 65,413 – 65,413

Wong Kean Shyong, Kenn – – 50,000 – 50,000

Dr Tan Eng Liang – – 62,500 – 62,500

Gui Kim Young @ Gui Kim Gan – – 61,250 – 61,250

Chee Wai Pong – – 39,404 – 39,404

The Non-Executive Directors receive directors’ fees in accordance with their contributions, taking into account factors

such as responsibilities, effort and time spent for serving on the Board and the Board Committees. The Non-Executive

Directors’ fees were derived using the fee structure as follows:

S$

Basic fee 40,000

Board chairmanship 8,000

ARC chairmanship 6,000

NC chairmanship 4,000

RC chairmanship 4,000

ARC membership 3,000

NC membership 2,000

RC membership 2,000

2.4 Remuneration of Employees Related to Directors

There is no employee who is related to a Director or the Chief Executive Officer whose remuneration exceeds S$150,000

in the Group’s employment for financial period ended 31 December 2012.

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CorporateGovernance

2.5 Remuneration of Senior Management

A breakdown of the remuneration of Senior Management for financial year ended 31 December 2013 set out below:

Name of Executive Officers Base Salary

%

Bonus

%

Allowances

and Others

%

TOTAL

%

Executive Officers who receive S$100,000

to S$199,999

Ho Vui Soon 92.31 7.69 – 100

Executive Officers who receive S$200,000

to $300,000

George Keipes 91.37 8.63 – 100

Foo Chih Yuen 78.75 11.62 10.13 100

Khong See Yun 75.39 6.46 18.15 100

3 ACCOUNTABILITY AND AUDIT

Principle 10: The Board should present a balanced and understandable assessment of the company’s

performance, position and prospects.

In presenting the annual financial statements and quarterly announcements to shareholders as well as any price sensitive

reports to the public, the Board aims to provide the shareholders with a balanced and understandable assessment of

the Company’s and the Group’s performance, position and prospects.

The Board is provided with an analysis of the management accounts at the quarterly Board meetings which presents

a balanced and understandable assessment of the Company’s performance, position and prospects.

3.1 Audit & Risk Committee

Principle 11: The Board should establish an Audit & Risk Committee with written terms of reference which

clearly set out its authority and duties.

The ARC comprises 4 members, all of whom including the Chairman are non-executive and independent directors.

The ARC’s members are:–

Dr Tan Eng Liang (Chairman, and Independent Director)

Mr Gui Kim Young @ Gui Kim Gan (Independent Director)

Mr Chee Wai Pong (Independent Director)


All 4 members have accounting or related financial management expertise or experience.

The terms of reference of the ARC were revised to include risk management. It was approved and adopted by the ARC

on 2 November 2012 and approved by the Board on 12 November 2012.

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CorporateGovernance

The ARC’s main objective is to assist the Board in fulfilling its fiduciary responsibilities relating to internal controls,

overseeing the external audit process, reviewing the financial information to be disclosed to the public and ensuring that

arrangements are in place for the independent investigation and follow up of reports by staff of improprieties in financial

reporting and other matters. To achieve this, the ARC ensures that its members have the appropriate qualifications to

provide independent, objective and effective oversight.

Specifically, the ARC meets periodically to perform the following functions:

• reviewing the audit plans of the external and internal auditors;

• reviewing the external and internal auditors’ reports;

• reviewing the co-operation given by the Company’s officers to the external and internal auditors;

• reviewing the adequacy of the internal audit function;

• evaluating the effectiveness of the Group’s system of internal controls, including financial, operational and

compliance controls, and risk management, by reviewing written reports from internal auditors and management

letters issued by external auditors (in the course of the statutory audit) and management responses and actions

to correct any deficiencies;

• reviewing the financial statements of the Company and the Group before their submission to the Board;

• reviewing non-audit services provided by the external auditors to satisfy itself that the nature and extent of such

services will not prejudice the independence and objectivity of the external auditors;

• nominating external auditors for appointment or re-appointment and approve the remuneration and terms of

engagement of the external auditor;

• reviewing the Group’s compliance with such functions and duties as may be required under the relevant statutes

or the Listing Manual issued by SGX-ST, and by such amendments made thereto from time to time; and

• reviewing interested person transactions (as defined in Chapter 9 of the Listing Manual issued by SGX-ST) to

ensure that they are on normal commercial terms and arms’ length basis and not prejudicial to the interests of

the Company or its shareholders in any way.

• overseeing the Company’s risk management systems, practices and procedures to ensure effectiveness of risk

identification and management, and compliance with internal guidelines and external requirements by, inter

alia, assessing the Company’s risk management framework for appropriateness and adequacy, and monitoring

Management accountability for risk management processes and compliance with risk policies.

• reviewing and making recommendations to the Board in relation to risk management.

Apart from the duties listed above, the ARC may commission and review the findings of internal investigations into

matters where there is suspected fraud or irregularity, or failure of internal controls or infringement of any Singapore

and other applicable law, rule or regulation which has or is likely to have material impact on the Company’s or Group’s

operating results and/or financial position.

The ARC meets from time to time with the Group’s external and internal auditors and the executive management to

review accounting, auditing and financial reporting matters so as to provide the necessary checks and balances to

ensure that an effective control environment is maintained in the Group. The ARC also studies proposed changes

in accounting policies, examines the internal audit functions and discusses the accounting implications of major

transactions. Furthermore, the ARC advises the Board regarding the adequacy of the Group’s internal controls and the

contents and presentation of its interim and annual reports. Based on the information provided to the ARC, nothing has

come to the ARC’s attention that the system of internal controls and risk management is inadequate.

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CorporateGovernance

The ARC is also authorised to investigate any matter within its terms of reference and has full access to and co-operation

of the management and full discretion to invite any director or executive officer to attend its meetings, and reasonable

resources to enable it to discharge its functions properly. The ARC meets annually with the internal auditors and the

external auditors, without the presence of the Company’s management to review the adequacy of audit arrangements,

with particular emphasis on the scope and quality of their audits, and the independence and objectivity of the internal

and external auditors.

The amount of non-audit fees paid to the external auditors for the financial period ended 31 December 2012 was

S$10,000. The ARC, having reviewed all non-audit services provided by the external auditors to the Group, is satisfied

that the nature and extent of such services would not affect the independence of the external auditors.

The Company is in compliance with Rule 712, Rule 715 and Rule 716 of the Listing Manual.

3.2 Internal Controls

Principle 12: The Board should ensure that the Management maintains a sound system of internal controls

to safeguard the shareholders’ investments and the company’s assets.

The Board recognises that it is responsible for the overall internal control framework, but accepts that no cost effective

internal control system will preclude all errors and irregularities, as the system is designed to manage rather than

eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance

against material misstatement or loss. The ARC will:

• satisfy itself that adequate measures are being made to identify and mitigate any material business risks

associated with the Group;

• ensure that a review of the effectiveness of the Group’s material internal controls, including financial, operating

and compliance controls and risk management, is conducted at least annually. Such review can be carried out

by internal auditors;

• ensure that the internal control recommendations made by internal auditors and management letter

recommendation by external auditors (noted during the course of the statutory audit) have been implemented

by the management; and

• ensure the Board is in a position to comment on the adequacy of the internal controls of the Group.

Based on the internal controls established and maintained by the Group, works performed by the internal and external

auditors and reviews performed, the Board with concurrence of the ARC are of the opinion that the Group’s internal

controls, addressing financial, operational and compliance risks were adequate as at 31 December 2012.

3.3 Whistle-Blowing Policy

The Group has adopted a constructive whistle-blowing policy and guideline in order to detect and deter any fraud or

deliberate error in the preparation, evaluation, review or audit of any financial statement, financial reports and records

of the Company.

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CorporateGovernance

Demonstrating its pledge to good corporate governance, the Group provides an avenue for employees to bring their

complaints responsibly to report any possible improprieties in matters of financial reporting or other matters that they

may encounter to the ARC or any other committees established by the ARC for such purpose without fear of reprisal.

The establishment of the whistle-blowing structure also augments the Group’s ability to detect potential fraud, providing

another level of comfort and assurance to investors.

Under the whistle-blowing policy, all concerns expressed anonymously will be investigated although consideration will be

given to the seriousness of the issue raised, the credibility of the concern and the likelihood of confirming the allegation

from attributable sources. In addition, every effort will be made to protect the complainant’s identity, if so requested,

so long as it is compatible with a proper investigation.

Once a complaint has been made, the action taken will depend on the nature of the concern and initial inquiries will be

made to determine whether an investigation is appropriate, and the form it should take.

The ARC will maintain a record of concerns raised under this policy and the outcomes, and will report as necessary

to the Board.

3.4 Internal Audit

Principle 13: The company should establish an internal audit function that is independent of the activities

it audits.

The Group has outsourced its internal audit function to Deloitte & Touche Enterprise Risk Services Pte Ltd. The aim of the

internal audit function is to promote internal control in the Group and to monitor the performance and effective application

of internal audit procedures. It supports the directors in assessing key internal controls through a structured review

programme. The internal audit function is expected to meet the standard set by internationally recognised professional

bodies including the Standards for the Professional Practice of Internal Auditing set by The Institute of Internal Auditors.

The internal audit function reports functionally to the Chairman of the ARC and administratively to the Chief Executive

Officer. The ARC ensures that the internal audit function has adequate resources and has appropriate standing within

the Group. The ARC, on an annual basis, assesses the effectiveness of the internal auditors by examining:

• the scope of the internal auditors’ work;

• the quality of the reports;

• the relationship with the external auditors; and

• the independence of the areas reviewed.

4 COMMUNICATION WITH OUR SHAREHOLDERS

Principle 14: Companies should engage in regular, effective and fair communication with shareholders.

Principle 15: Companies should encourage greater shareholder participation at AGMs, and allow shareholders

the opportunity to communicate their views on various matters affecting the company.

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ANNUAL REPORT 2012


CorporateGovernance

The Company firmly believes in high standards of transparent corporate disclosure, pursuant to the SGX-ST’s Listing

Rules and the Singapore Companies Act, whereby shareholders are informed of all major developments that affect

the Group. Information is communicated to our shareholders on a timely basis. Where there is inadvertent disclosure

made to a selected group, the Company will make the same disclosure publicly to all others as soon as practicable.

Communication is made through:

• annual reports that are prepared and sent to all shareholders. The Board ensures that the annual report includes

all relevant information about the Company and the Group, including future developments and other disclosures

required by the Singapore Companies Act and Singapore Financial Reporting Standards;

• quarterly announcements containing a summary of the financial information and affairs of the Group for that

period;

• notices of and explanatory memoranda for AGMs and Extraordinary General Meetings;

• press releases on major developments of the Company and the Group;

• disclosure to the SGX-ST; and

• the Company’s website at http://www.hgmetal.com at which our shareholders can access information on the

Group.

Moreover, our shareholders are encouraged to attend the AGM to ensure a high level of accountability and to be updated

on the Company’s strategies and goals. The Company’s Articles allow a shareholder to appoint up to 2 proxies to attend

a shareholder’s meeting on his behalf. The notice of the AGM is sent to our shareholders, together with explanatory

notes, appendices or a circular on items of special business, at least 14 days before the meeting. The Chairmen of

the ARC, NC and RC are normally present and available to address questions relating to the work of their respective

committees at general meetings. Furthermore, the external auditors are present to assist our Board in addressing any

relevant queries by our shareholders.

Each item of special business included in the notice of the meeting is accompanied, where appropriate, by an explanation

for the proposed resolution. Separate resolutions are proposed for substantially separate issues at the meeting.

5 DEALINGS IN SECURITIES

In accordance with Rule 1207(18) of the Listing Manual issued by SGX-ST, the Company notifies all employees that

they are prohibited from trading in the Company’s shares one month prior to the announcement of the Company’s

full year results and 14 days before the announcement of the first three quarters of the Company’s financial results.

The Company has also issued a policy on Insider Trading to all employees which sets out the principles of relevant laws

relating to insider trading which are applicable at all times.

6 INTERESTED PERSON TRANSACTIONS

The Company is required to comply with the requisite rules under Chapter 9 of the Listing Manual issued by SGX-ST

for interested person transactions. To ensure compliance with Chapter 9, the ARC meets quarterly to review if the

Company will be entering into an interested person transaction in order to ensure that the interested person transactions

are carried out on normal commercial terms and will not prejudicial to the interests of the shareholders.

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ANNUAL REPORT 2012


CorporateGovernance

Disclosure according to Rule 907 of the SGX-ST Listing Manual in respect of interested person transactions for financial

period ended 31 December 2012 is stated in the table below:

Name of Interested persons

Aggregate value of all interested

person transactions during the

financial year under review

(excluding transactions less than

$100,000 and transactions

conducted under shareholders’

mandate pursuant to Rule 920)*

Aggregate value of all interested

person transactions conducted

under shareholders’ mandate

pursuant to Rule 920 (excluding

transactions less than $100,000)*

YTD 2012

S$’000

YTD 2011

S$’000

YTD 2012

S$’000

YTD 2011

S$’000

Chye Hin Hardware Pte Ltd

Sales – – 5,031 7,017

Purchases – – 11,907 19,272

Other Charges 390 – 230 508

Oriental Sheet Piling Pte Ltd

Sales – – 5,737 1,873

Purchase – – 3,398 9,000

Other Charges – – 137 –

Oriental Sheet Piling (China)

Purchase 2,425 –


Management fee 236

Other Charges – – 303 303

Oriental SP Sdn Bhd

Purchase – – – 2,662

Plan B Pte Ltd

Purchases – – – 3,143

Other Charges – – – 20

Oriental SP Steelwork Sdn Bhd

Other Charges 189

PT OSP

Sales 1,068 – –

Mr Goh Kian Sin

SICC membership 222

* The above includes all transactions regardless of value.

36


ANNUAL REPORT 2012


CorporateGovernance

7 MATERIAL CONTRACTS

Save as disclosed in the audited financial statements of this Annual Report, there are no material contracts of the

Company or its subsidiaries involving the interest of the Managing Director, CEO, directors or controlling shareholder

subsisting at the end of the financial period ended 31 December 2012 or have been entered into since the end of the

previous financial year.

8 RISK MANAGEMENT

Management regularly reviews the Group’s business and operational activities to identify areas of significant business

risks as well as deliberate on appropriate measures to control and mitigate these risks. Management is accountable to

the Board for ensuring the effectiveness of risk management and adherence to risk appetite limits.

On a day-to-day basis, business units have primary responsibility for risk management. The various business units

provide the senior management with a timely assessment of key risk exposures and the associated management

responses. These units also recommend risk appetite and control limits.

The significant risk management policies are as disclosed in the audited financial statements of this Annual Report.

The financial and operational risk management policies are outlined below:

Fluctuations in steel prices

As a distributor of steel products, the Group purchases a wide range of steel products and maintain substantial

inventories to be in a position to fulfil customers’ orders within a short lead time. The cost of steel products purchased

is the main component of the Group’s cost of sales for its steel distribution business. Prices of steel products are

subject to international price fluctuations of steel. Therefore, the Group is vulnerable to any fluctuations in prices of steel.

The Group, with more than 30 years of knowledge and expertise gained in this line of business, is able to make

appropriate adjustments to its supplier choice, timing of purchase and shipment, contracting arrangement with its

customers to address price fluctuation risk.

Credit risk of its customers

The Group extends credit terms ranging from 30 to 90 days to its customers, depending on their credit worthiness.

From time to time, in the ordinary course of business, certain customers may default on their payment. Such events

may arise due to the inherent risk from its customers’ business, risk pertaining to the political, economic, social and

legal environment of its customers’ jurisdiction and foreign exchange risk. In the event that the Group’s customers

default on their payments, the Group would have to make allowances for doubtful debts or incur write-offs, which will

have an adverse impact on its profitability.

The Group performs credit check and approval before granting credit to customers and imposes a credit limit and credit

term on each customer. All credit accounts are subject to monthly review.

In addition, the Group is not dependant on any single customer or any single country. The Group has more than 1500

customers. Hence, the Group is not exposed to significant credit risk posed by any single customer.

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CorporateGovernance

Foreign exchange exposure

The purchases of the Group are mainly denominated in US$ and its sales are mainly denominated in S$. As a result,

the Group is exposed to fluctuations in foreign exchange rates. For FP2012, approximately 74% of its total purchases

were made in US$, whilst approximately 76% and 24% of its total sales were denominated in S$ and US$ respectively.

Hence, the Group may be exposed to any significant fluctuation of the US$.

The Group monitors the US$ exchange rates closely and will enter into forward contracts on case to case basis to

reduce its exposure.

Inventory Holding Risk

As one of the leading steel distributors aiming to provide “One Stop Solutions” to customers, the Group tends to

maintain a broad range of steel products in various sizes and grades to be capable of fulfilling customers’ needs in a

very short time frame.

Hence, the group is exposed to inventory holding risk. Although maintaining a broad array of steel products enables

the group to capture better market share, Group performance may be affected when demand for steel or steel prices

go down.

With an experienced Sales Team and strong understanding of steel demand in the market, the Group is able to minimise

the adverse impact through a series of initiatives such as continuous assessment of product range on hand and review

of market demand in meeting customers’ needs.

Liquidity Risk

With the objective of maintaining a prudent and healthy liquidity position, the Group has increased its liquid assets to

ensure the Group’s ability to cover its short term debt or obligations without imposing pressure on routine operations

or the Group’s financial position.

The Group is periodically assessing its ability to meet both expected and unexpected cash flows and any collateral

requirements. The table below analyses the Liquidity Risk of the Group through the Liquidity Ratio. A higher ratio value

means higher ability of the Group to cover its short term debt or obligation.

31.12.2012 30.09.2011

Liquidity Ratio 1.10 0.67

Note: Liquidity Ratio: (Current Assets – Inventory)/(Current Liability)

Expansion and Investment Risk

In view of the Group’s plan to expand beyond the Singapore market, the Group is constantly seeking opportunities to

diversify into new areas or expand to regional markets such as Malaysia, Indonesia and other Southeast Asian countries

to pursue sustainable growth. Hence, the Group is exposed to expansion and investment risk from new investments

such as joint ventures, acquisitions or new businesses.

The Group is adopting the practice of conducting due diligence assessments and other business analyses for any

investment proposal in order to minimise any potential risk exposure. All investment proposals are to subject to approval

from the Board before implementation.

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ANNUAL REPORT 2012


40 DIRECTORS’ REPORT

43 STATEMENT BY DIRECTORS

44 INDEPENDENT AUDITOR’S REPORT

46 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

47 BALANCE SHEETS

48 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

51 CONSOLIDATED CASH FLOW STATEMENT

53 NOTES TO THE FINANCIAL STATEMENTS

Financial Contents


Directors Report

The directors present their report to the members together with the audited consolidated financial statements of HG Metal

Manufacturing Limited (the “Company”) and its subsidiaries (collectively the “Group”) and the balance sheet and statement of

changes in equity of the Company for the financial period from 1 October 2011 to 31 December 2012.

Directors

The directors of the Company in office at the date of this report are as follows:

Yap Xi Ming

Goh Kian Sin

Tan Chan Too

Wong Kean Shyong (Kenn)


Tan Eng Liang

Chee Wai Pong (appointed on 12 March 2012)

Arrangements to enable directors to acquire shares or debentures

Except as described below, neither at the end of nor at any time during the financial period was the Company a party to any

arrangement whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefits by

means of the acquisition of shares in or debentures of the Company or any other body corporate.

Directors’ interests in shares or debentures

The following directors, who held office at the end of the financial period, had, according to the register of directors’

shareholdings required to be kept under Section 164 of the Singapore Companies Act, Cap. 50, an interest in shares of the

Company and related corporations (other than wholly-owned subsidiaries) as stated below:

Shareholdings registered in the

name of directors

Shareholdings in which directors

are deemed to have an interest

Balance as at

1 October 2011 or

date of appointment

Balance as at

31 December 2012

Balance as at

1 October 2011 or

date of appointment

Balance as at

31 December 2012

Number of ordinary shares

Company


Tan Chan Too 21,455,187 22,455,187 – –

Yap Xi Ming 5,751,554 5,751,554 82,446,574 86,086,574

Goh Kian Sin – – 240,350,000 284,050,000

There was no change in any of the above-mentioned interests in the Company between the end of the financial period and

21 January 2013.

Except as disclosed in this report, no director who held office at the end of the financial period had interests in shares, share

options, warrants or debentures of the Company, or of related corporations, either at the beginning of the financial period, or

date of appointment if later, or at the end of the financial period.

40


ANNUAL REPORT 2012


Directors Report

Directors’ contractual benefits

Except as disclosed in the financial statements, since the end of the previous financial year, no director of the Company has

received or become entitled to receive a benefit by reason of a contract made by the Company or by a related corporation with

the director, or with a firm of which he is a member, or with a company in which the director has a substantial financial interest.

Options

At an Extraordinary General Meeting held on 10 November 2010, the shareholders approved the issue of 163,850,000 new

ordinary shares at $0.095 per share to Oriental Castle Sdn Bhd (“OCS”). OCS had also been granted a call option to subscribe

for 153,000,000 new ordinary shares at $0.095 per share in the Company or such other number representing 14% of the

enlarged share capital of the Company as at the date of the exercise of the call option.

The call option was exercised by OCS on 19 July 2011. The Company has agreed with OCS that pursuant to the exercise of

the call option, the Company shall:

1. issue and allot the first 50% of the Option Shares (being 76,500,000 shares in the capital of the Company) 7 business

days from the exercise date, against full payment by OCS for such Option Shares; and

2. issue and allot the remaining 50% of the Option Shares (being an additional 76,500,000 shares in the capital of the

Company) 7 months from the exercise date (i.e. 18 February 2012), against full payment being made by OCS for such

Option Shares.

During the financial period, the Company has issued the remaining 50% of the Option Shares upon full payment from OCS for

such Option Shares.

Audit & Risk Committee

The audit & risk committee (ARC) carried out its functions in accordance with section 201B(5) of the Singapore Companies

Act, Cap. 50, including the following:

* Reviews the audit plans of the internal and external auditors of the Company, and reviews the internal auditor’s evaluation

of the adequacy of the Company’s system of internal accounting controls and the assistance given by the Company’s

management to the external and internal auditors

* Reviews the quarterly and annual financial statements and the auditor’s report on the annual financial statements of

the Company before their submission to the board of directors

* Reviews effectiveness of the Company’s material internal controls, including financial, operational and compliance

controls and risk management via reviews carried out by the internal auditors

* Meets with the external auditors, other committees, and management in separate executive sessions to discuss any

matters that these groups believe should be discussed privately with the ARC

* Reviews legal and regulatory matters that may have a material impact on the financial statements, related compliance

policies and programmes and any reports received from regulators

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ANNUAL REPORT 2012


Directors Report

* Reviews the cost effectiveness and the independence and objectivity of the external auditors

* Reviews the nature and extent of non-audit services provided by the external auditors

* Recommends to the board of directors the external auditors to be nominated, approves the compensation of the external

auditors, and reviews the scope and results of the audit

* Reports actions and minutes of the ARC to the board of directors with such recommendations as the ARC considers

appropriate

* Reviews interested person transactions in accordance with the requirements of the Singapore Exchange Securities

Trading Limited’s Listing Manual

The ARC, having reviewed all non-audit services provided by the external auditors to the Group, is satisfied that the nature

and extent of such services would not affect the independence of the external auditors. The ARC has also conducted a review

of interested person transactions.

The ARC convened seven meetings during the financial period. The ARC has also met with internal and external auditors,

without the presence of the Company’s management, at least once a year.

Further details regarding the ARC are disclosed in the Report on Corporate Governance.

Auditor

Ernst & Young LLP have expressed their willingness to accept reappointment as auditor.

On behalf of the Board of Directors,

Goh Kian Sin

Director

Tan Chan Too

Director

Singapore

27 March 2013

42


ANNUAL REPORT 2012


Statement by Directors

We, Goh Kian Sin and Tan Chan Too, being two of the directors of HG Metal Manufacturing Limited, do hereby state that, in

the opinion of the directors:

(a) the accompanying balance sheets, consolidated statement of comprehensive income, statements of changes in equity,

and consolidated cash flow statement together with notes thereto are drawn up so as to give a true and fair view of the

state of affairs of the Group and of the Company as at 31 December 2012 and the results of the business, changes in

equity and cash flows of the Group and the changes in equity of the Company for the financial period from 1 October

2011 to 31 December 2012, and

(b) at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts

as and when they fall due.

On behalf of the Board of Directors,

Goh Kian Sin

Director

Tan Chan Too

Director

Singapore

27 March 2013

43


ANNUAL REPORT 2012


Independent Auditor’s Report to the Members of HG Metal Manufacturing Limited

Report on the financial statements

We have audited the accompanying financial statements of HG Metal Manufacturing Limited (the “Company”) and its subsidiaries

(the “Group”) set out on pages 46 to 121, which comprise the balance sheets of the Group and the Company as at 31 December

2012, the statements of changes in equity of the Group and the Company and the statement of comprehensive income and cash

flow statement of the Group for the financial period from 1 October 2011 to 31 December 2012, and a summary of significant

accounting policies and other explanatory information.

Management’s responsibility for the financial statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the

provisions of the Singapore Companies Act, Chapter 50 (the “Act”) and Singapore Financial Reporting Standards, and for

devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are

safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are

recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain

accountability of assets.

Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in

accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and

plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material

misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.

The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of

the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control

relevant to the entity’s preparation of the financial statements that give a true and fair view in order to design audit procedures

that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s

internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of

accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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ANNUAL REPORT 2012


Independent Auditor’s Report to the Members of HG Metal Manufacturing Limited

Opinion

In our opinion, the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of

the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards

so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2012 and the

results, changes in equity and cash flows of the Group and the changes in equity of the Company for the financial period from

1 October 2011 to 31 December 2012.

Report on other legal and regulatory requirements

In our opinion, the accounting and other records required by the Act to be kept by the Company and by those subsidiaries

incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.

Ernst & Young LLP

Public Accountants and

Certified Public Accountants

Singapore

27 March 2013

45


ANNUAL REPORT 2012


Consolidated Statement of Comprehensive Income for the fi nancial period from 1 October 2011 to 31 December 2012

Note

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

$’000 $’000

Revenue 4 405,360 238,842

Cost of sales (388,135) (212,849)

Gross profit 17,225 25,993

Other operating income 5 10,810 6,572

Selling and distribution costs (3,196) (2,169)

Administrative expenses (15,484) (9,353)

Other operating expenses 7 (7,381) (6,703)

Finance costs 6 (2,697) (1,923)

Share of associate profits 6,217 3,748

Profit before income tax 7 5,494 16,165

Income tax (expense)/credit 8 (158) 107

Profit for the period 5,336 16,272

Other comprehensive income

Foreign currency translation (181) (209)

Share of other comprehensive income of associates (31) (44)

Other comprehensive income for the period, net of tax (212) (253)

Total comprehensive income for the period 5,124 16,019

Profit attributable to:

Equity holders of the Company 5,549 16,116

Non-controlling interests (213) 156

5,336 16,272

Total comprehensive income attributable to:

Equity holders of the Company 5,386 15,927

Non-controlling interests (262) 92

5,124 16,019

Earnings per share:

Basic (cents) 9 0.52 1.72

Diluted (cents) 9 0.52 1.70

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

46


ANNUAL REPORT 2012


Balance Sheets as at 31 December 2012

Group Company

Note 31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Non-current assets

Property, plant and equipment 10 17,637 31,938 9,403 24,812

Intangible assets 11 381 267 361 230

Investment in subsidiaries 12 – – 13,488 12,520

Investment in associates 13 42,853 36,667 713 713

60,871 68,872 23,965 38,275

Current assets

Investment held for trading 16 75 135 – –

Derivative financial instruments 15 22 – 22 –

Inventories 17 86,202 96,732 71,571 86,704

Trade and other receivables 18 96,629 44,879 114,140 50,447

Prepaid expenses 320 30 128 10

Cash and fixed deposits 19 18,522 9,851 5,589 2,773

201,770 151,627 191,450 139,934

Current liabilities

Derivative financial instruments 15 12 329 – 329

Trade and other payables 20 47,377 42,863 42,614 38,004

Finance lease payables 21 183 291 87 204

Bank borrowings 22 55,743 37,840 47,971 32,722

Deferred income 23 1,310 – 1,310 –

Provision for income tax 108 94 – –

104,733 81,417 91,982 71,259

Net current assets 97,037 70,210 99,468 68,675

Non-current liabilities

Finance lease payables 21 195 356 – 108

Bank borrowings 22 8,947 1,915 8,947 791

Deferred tax liabilities 14 187 212 – –

Deferred income 23 8,690 – 8,690 –

Provision for reinstatement costs 24 1,000 1,650 700 1,350

19,019 4,133 18,337 2,249

138,889 134,949 105,096 104,701

Equity attributable to owners

of the Company

Share capital 25 137,314 130,046 137,314 130,046

Treasury shares 25 (1,885) – (1,885) –

Other reserves 26 1,901 2,064 2,527 2,527

Accumulated (losses)/profits (302) 704 (32,860) (27,872)

137,028 132,814 105,096 104,701

Non-controlling interests 1,861 2,135 – –

Total equity 138,889 134,949 105,096 104,701


47


ANNUAL REPORT 2012


Statements of Changes in Equity for the fi nancial period from 1 October 2011 to 31 December 2012

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48


ANNUAL REPORT 2012



Att

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ts.

49


ANNUAL REPORT 2012



Attributable to owners of the Company

Note

Share

capital

Treasury

shares

Capital

reserve

Accumulated

profits/

(losses)

Total

equity

$’000 $’000 $’000 $’000 $’000

Company

Opening balance at 1 October 2011 130,046 – 2,527 (27,872) 104,701

Profit for the period, representing total

comprehensive income for the period – – – 1,567 1,567

Contributions by and distributions to owners

Issuance of ordinary shares 25 7,268 – – – 7,268

Purchase of treasury shares 25 – (1,885) – – (1,885)

Dividend on ordinary shares 30 – – – (6,555) (6,555)

Total contributions by and distribution

to owners 7,268 (1,885) – (6,555) (1,172)

Closing balance at 31 December 2012 137,314 (1,885) 2,527 (32,860) 105,096

Opening balance at 1 October 2010 111,730 – 2,527 (40,527) 73,730

Profit for the period, representing total

comprehensive income for the period – – – 12,655 12,655

Contributions by and distributions to owners

Issuance of ordinary shares 25 18,316 – – – 18,316

Total contributions by and distribution

to owners 18,316 – – – 18,316

Closing balance at 30 September 2011 130,046 – 2,527 (27,872) 104,701


50


ANNUAL REPORT 2012


Consolidated Cash Flow Statement for the fi nancial period from 1 October 2011 to 31 December 2012

Note

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

$’000 $’000

Cash flows from operating activities

Profit before income tax 5,494 16,165

Adjustments for:

Bad debts written off 27 –

Dividend income (5) (15)

Depreciation of property, plant and equipment 3,802 3,317

Amortisation of computer software 227 167

Gain on disposal of property, plant and equipment (7,626) (51)

Write off of property, plant and equipment 31 13

Write down of inventories 150 –

(Write back)/allowance for doubtful debts, net (53) 58

Fair value gain on derivatives (339) (5,236)

Fair value loss on investment held for trading 60 245

Interest expense 2,697 1,923

Interest income (3) (28)

Share of associate results (6,217) (3,748)

Currency realignment (105) (122)

Operating cashflows before working capital changes (1,860) 12,688

Working capital changes:

Inventories 10,380 (34,228)

Trade and other receivables (9,040) (19,242)

Trade and other payables 2,887 11,511

Cash from/(used in) operations 2,367 (29,271)

Interest received 3 28

Interest paid (2,697) (1,923)

Income tax (paid)/refund (169) 97

Net cash used in operating activities (496) (31,069)

Cash flows from investing activities

Dividend income received from quoted investment 5 15

Increase in fixed deposits (39) (49)

Purchase of property, plant and equipment A (14,057) (1,708)

Proceeds from disposal of property, plant and equipment B 175 5,095

Purchase of intangible assets (341) –

Net cash (used in)/generated from investing activities (14,257) 3,353

51


ANNUAL REPORT 2012


Consolidated Cash Flow Statement for the fi nancial period from 1 October 2011 to 31 December 2012


Note

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

$’000 $’000

Cash flows from financing activities

Proceeds from bank borrowings 251,409 118,013

Repayment of bank borrowings (226,325) (108,073)

Purchase of treasury shares (1,885) –

Proceeds from issue of ordinary shares in the Company 25 7,268 22,833

Dividends paid on ordinary shares of the Company (6,555) –

Dividends paid to minority shareholders of a subsidiary (12) –

Repayment of finance lease payables (346) (339)

Net cash generated from financing activities 23,554 32,434

Net increase in cash and cash equivalents 8,801 4,718

Cash and cash equivalents at beginning of financial period 9,066 4,348

Cash and cash equivalents at end of financial period 19 17,867 9,066

Note A. Purchase of property, plant and equipment

During the financial period, the Group acquired property, plant and equipment with an aggregate cost of $14,362,000 (2011:

$3,611,000). The additions were by way of cash payments of $13,363,000 (2011: $1,708,000), assets acquired by means of

finance lease of $77,000 (2011: $359,000), increase in provision for reinstatement cost of Nil (2011: $850,000) and an amount

payable to other creditors of $922,000 (2011: $694,000).

Cash outflow for the period also include payments in respect of purchase property, plant and equipment acquired in the

previous year of $694,000 (2011: Nil).

Note B. Disposal of property, plant and equipment

During the financial period, the Group received proceeds of $149,000 (2011: $511,000) from property plant and equipment

disposed in the current period.

Cash inflow for the period also includes the balance of proceeds of $26,000 (2011: $4,584,000) from property, plant and

equipment disposed in the previous year.

52


ANNUAL REPORT 2012


Notes to the Financial Statements 31 December 2012

1. CORPORATE INFORMATION

HG Metal Manufacturing Limited (“the Company”) is a public limited liability company incorporated in Singapore and is

listed on the Singapore Exchange Securities Trading Limited (“SGX-ST”).

The registered office and principal place of the Company is located at 15 Jurong Port Road, Singapore 619119.

The principal activities of the Company are those of investment holding and the business of trading of steel products.

The principal activities of the subsidiaries are set out in Note 12 to the financial statements.

Change of financial year end

The Group changed its financial year end from 30 September to 31 December during the current financial period.

Consequently, these financial statements are for the period from 1 October 2011 to 31 December 2012 and are not

comparable with the comparatives for the previous financial year from 1 October 2010 to 30 September 2011.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of preparation

The consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the

Company have been prepared in accordance with Singapore Financial Reporting Standards (“FRS”).

The financial statements have been prepared on the historical cost basis except as disclosed in the accounting policies

below.

The financial statements are presented in Singapore Dollars (SGD or $) and all values in the tables are rounded to the

nearest thousand ($’000) as indicated.

2.2 Changes in accounting policies

The accounting policies adopted are consistent with those of the previous financial year except in the current financial

period, the Group has adopted all the new and revised standards and Interpretations of FRS (INT FRS) that are effective

for annual periods beginning on or after 1 October 2011. The adoption of these standards and interpretations did not

have any effect on the financial performance or position of the Group and the Company.

53


ANNUAL REPORT 2012



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

2.3 Standards issued but not yet effective

The Group has not adopted the following standards and interpretations that have been issued but not yet effective:

Description

Effective for annual

periods beginning

on or after

Amendments to FRS 12 Deferred Tax – Recovery of Underlying Assets 1 January 2012

Amendments to FRS 1 Presentation of Items of Other Comprehensive Income 1 July 2012

Revised FRS 19 Employee Benefits 1 January 2013

FRS 113 Fair Value Measurement 1 January 2013

Amendments to FRS107 Disclosures – Offsetting Financial Assets and Financial Liabilities 1 January 2013

Improvements to FRSs 2012 1 January 2013

– Amendment to FRS 1 Presentation of Financial Statements 1 January 2013

– Amendment to FRS 16 Property, Plant and Equipment 1 January 2013

– Amendment to FRS 32 Financial Instruments: Presentation 1 January 2013

Revised FRS 27 Separate Financial Statements 1 January 2014

Revised FRS 28 Investments in Associates and Joint Ventures 1 January 2014

FRS 110 Consolidated Financial Statements 1 January 2014

FRS 111 Joint Arrangements 1 January 2014

FRS 112 Disclosure of Interests in Other Entities 1 January 2014

Amendments to FRS 32 Offsetting Financial Assets and Financial Liabilities 1 January 2014

Except for the Amendments to FRS 1 and FRS 112, the directors expect that the adoption of the other standards and

interpretations above will have no material impact on the financial statements in the period of initial application. The

nature of the impending changes in accounting policy on adoption of the Amendments to FRS 1 and FRS 112 are

described below.

Amendments to FRS 1 Presentation of Items of Other Comprehensive Income

The Amendments to FRS 1 Presentation of Items of Other Comprehensive Income (OCI) are effective for financial periods

beginning on or after 1 July 2012.

The Amendments to FRS 1 will change the grouping of items presented in OCI. Items that could be reclassified to

profit or loss at a future point in time would be presented separately from items which will never be reclassified. As the

Amendments only affect the presentations of items that are already recognised in OCI, the Group does not expect any

impact on its financial position or performance upon adoption of this standard.

54


ANNUAL REPORT 2012




2.3 Standards issued but not yet effective (cont’d)

FRS 112 Disclosure of Interests in Other Entities

FRS 112 is effective for financial periods beginning on or after 1 January 2013.

FRS 112 is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities,

including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. FRS 112

requires an entity to disclose information that helps users of its financial statements to evaluate the nature and risks

associated with its interest in other entities and the effects of those interests on its financial statements. The Group is

currently determining the impact of the disclosure requirements. As this is a disclosure standard, it will have no impact

to the financial position and financial performance of the Group when implemented.

2.4 Basis of consolidation and business combinations

(a) Basis of consolidation

Basis of consolidation from 1 October 2009

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries

as at the end of the reporting period. The financial statements of the subsidiaries used in the preparation of the

consolidated financial statements are prepared for the same reporting date as the Company.

Consistent accounting policies are applied to like transactions and events in similar circumstances.

All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group

transactions and dividends are eliminated in full.

Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control,

and continue to be consolidated until the date that such control ceases.

Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity

transaction. If the Group loses control over a subsidiary, it:

– De-recognises the assets (including goodwill) and liabilities of the subsidiary at their carrying amounts

at the date when controls is lost;

– De-recognises the carrying amount of any non-controlling interest;

– De-recognises the cumulative translation differences recorded in equity;

– Recognises the fair value of the consideration received;

– Recognises the fair value of any investment retained;

55


ANNUAL REPORT 2012




2.4 Basis of consolidation and business combinations (cont’d)

(a) Basis of consolidation (cont’d)

– Recognises any surplus or deficit in profit or loss;

– Re-classifies the Group’s share of components previously recognised in other comprehensive income

to profit or loss or retained earnings, as appropriate.

Basis of consolidation prior to 1 October 2009

Certain of the above-mentioned requirements were applied on a prospective basis. The following differences,

however, are carried forward in certain instances from the previous basis of consolidation:

– Acquisitions of non-controlling interests, prior to 1 October 2009, were accounted for using the parent

entity extension method, whereby, the difference between the consideration and the book value of the

share of the net assets acquired were recognised in goodwill.

– Losses incurred by the Group were attributed to the non-controlling interest until the balance was

reduced to nil. Any further losses were attributed to the Group, unless the non-controlling interest had

a binding obligation to cover these. Losses prior to 1 October 2009 were not reallocated between non-

controlling interest and the owners of the Company.

– Upon loss of control, the Group accounted for the investment retained at its proportionate share of net

asset value at the date control was lost. The carrying value of such investments as at 1 October 2009

has not been restated.

(b) Business combination

Business combinations from 1 October 2009

Business combinations are accounted for by applying the acquisition method. Identifiable assets acquired and

liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

Acquisition-related costs are recognised as expenses in the periods in which the costs are incurred and the

services are received.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate

classification and designation in accordance with the contractual terms, economic circumstances and pertinent

conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts

by the acquiree.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition

date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset

or liability, will be recognised in accordance with FRS 39 either in profit or loss or as a change to other

comprehensive income. If the contingent consideration is classified as equity, it is not remeasured until it is

finally settled within equity.

56


ANNUAL REPORT 2012




2.4 Basis of consolidation and business combinations (cont’d)

(b) Business combination (cont’d)

In business combinations achieved in stages, previously held equity interests in the acquiree are remeasured to

fair value at the acquisition date and any corresponding gain or loss is recognised in profit or loss.

The Group elects for each individual business combination, whether non-controlling interest in the acquiree (if

any) is recognised on the acquisition date at fair value, or at the non-controlling interest’s proportionate share

of the acquiree’s identifiable net assets.

Any excess of the sum of the fair value of the consideration transferred in the business combination, the amount

of non-controlling interest in the acquiree (if any), and the fair value of the Group’s previously held equity interest

in the acquiree (if any), over the net fair value of the acquiree’s identifiable assets and liabilities is recorded as

goodwill. In instances where the latter amount exceeds the former, the excess is recognised as gain on bargain

purchase in profit or loss on the acquisition date.

Business combinations prior to 1 October 2009

In comparison to the above mentioned requirements, the following differences applied:

Business combinations are accounted for by applying the purchase method. Transaction costs directly

attributable to the acquisition formed part of the acquisition costs. The non-controlling interest (formerly known

as minority interest) was measured at the proportionate share of the acquiree’s identifiable net assets.

Business combinations achieved in stages were accounted for as separate steps. Adjustments to those fair

values relating to previously held interests are treated as a revaluation and recognised in equity. Any additional

acquired share of interest did not affect previously recognised goodwill.

When the Group acquired a business, embedded derivatives separated from the host contract by the acquiree

were not reassessed on acquisition unless the business combination resulted in a change in the terms of the

contract that significantly modified the cash flows that otherwise would have been required under the contract.

Contingent consideration was recognised if, and only if, the Group had a present obligation, the economic

outflow was more likely than not and a reliable estimate was determinable. Subsequent adjustments to the

contingent consideration were recognised as part of goodwill.

57


ANNUAL REPORT 2012




2.5 Transactions with non-controlling interests

Non-controlling interest represents the equity in subsidiaries not attributable, directly or indirectly, to owners of the

Company, and are presented separately in the consolidated statement of comprehensive income and within equity in

the consolidated balance sheet, separately from equity attributable to owners of the Company.

Changes in the Company’s ownership interest in a subsidiary that do not result in a loss of control are accounted for

as equity transactions. In such circumstances, the carrying amounts of the controlling and non-controlling interests are

adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which

the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in

equity and attributed to owners of the Company.

2.6 Foreign currency

The Group’s consolidated financial statements are presented in Singapore Dollars, which is also the Company’s

functional currency. Each entity in the Group determines its own functional currency and items included in the financial

statements of each entity are measured using that functional currency.

(a) Transactions and balances

Transactions in foreign currencies are measured in the respective functional currencies of the Company and its

subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating

those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are

translated at the rate of exchange ruling at the balance sheet date. Non-monetary items that are measured

in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the

initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the

exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance

sheet date are recognised in profit or loss except for exchange differences arising on monetary items that form

part of the Group’s net investment in foreign operations, which are recognised initially in other comprehensive

income and accumulated under foreign currency translation reserve in equity. The foreign currency translation

reserve is reclassified from equity to profit or loss of the Group on disposal of the foreign operations.

(b) Consolidated financial statements

For consolidation purposes, the assets and liabilities of foreign operations are translated into SGD at the rate

of exchange ruling at the balance sheet date and their profit or loss are translated at the weighted average

exchange rates for the year. The exchange differences arising on the translation are recognised in other

comprehensive income. On disposal of a foreign operation, the cumulative amount recognised in foreign currency

translation reserve relating to that particular foreign operation is recognised in profit or loss.

In the case of a partial disposal without loss of control of a subsidiary that includes a foreign operation, the

proportionate share of the cumulative amount of the exchange differences are re-attributed to non-controlling

interest and are not recognised in profit or loss. For partial disposals of associates or jointly controlled entities

that are foreign operations, the proportionate share of the accumulated exchange differences is reclassified to

profit or loss.

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2.7 Property, plant and equipment

All items of property, plant and equipment are initially recorded at cost. Subsequent to recognition, plant and equipment

and furniture and fixtures are measured at cost less accumulated depreciation and any accumulated impairment losses.

The cost includes the cost of replacing part of the property, plant and equipment and borrowing costs that are directly

attributable to the acquisition, construction or production of a qualifying property, plant and equipment. The accounting

policy for borrowing costs is set out in Note 2.19. The cost of an item of property, plant and equipment is recognised

as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the Group

and the cost of the item can be measured reliably.

When significant parts of property, plant and equipment are required to be replaced in intervals, the Group recognises

such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspection

is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition

criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred.

Freehold land has unlimited useful life and therefore is not depreciated.

Depreciation of an asset begins when it is available for use and is computed on the straight line basis over the estimated

useful life of the asset as follows:

Buildings – 50 years

Leasehold buildings – 18 to 41 years

Plant and machinery – 4 to 19 years

Furniture and fittings – 4 to 10 years

Office equipment – 3 to 10 years

Renovation – 5 to 10 years

Motor vehicles – 4 to 10 years

Construction in progress included in property, plant and equipment are not depreciated as these assets are not yet

available for use.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in

circumstances indicate that the carrying value may not be recoverable.

The residual value, useful life and depreciation method are reviewed at each financial year-end, and adjusted

prospectively, if appropriate.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are

expected from its use or disposal. Any gain or loss on de-recognition of the asset is included in profit or loss in the

year the asset is derecognised.

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2.8 Intangible assets

Intangible assets acquired separately are measured initially at cost. The cost of intangible assets acquired in a business

combination is their fair value as at the date of acquisition. Following initial acquisition, intangible assets are measured

at cost less any accumulated amortisation and accumulated impairment losses.

The useful lives of intangible assets are assessed as finite or indefinite.

Intangible assets with finite useful lives are amortised over the estimated useful lives and assessed for impairment

whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation

method are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern

of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation

period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on

intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of

the intangible asset.

Intangible assets with indefinite useful lives or not yet available for use are tested for impairment annually, or more

frequently if the events and circumstances indicate that the carrying value may be impaired either individually or at

the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an

indefinite useful life is reviewed annually to determine whether the useful life assessment continues to be supportable.

If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal

proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised.

(i) Computer software

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to

use the specific software. Direct expenditure, which enhances or extends the performance of computer software

beyond its specifications and which can be reliably measured, is recognised as a capital improvement and added

to the original cost of the software. Costs associated with maintaining computer software are recognised as

an expense as incurred.

Computer software licences are stated at cost less accumulated amortisation and impairment in value, if any.

These costs are amortised using the straight line method over their estimated useful lives of 5 years.

(ii) Club membership

Club membership was acquired separately and has an indefinite useful life.

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2.9 Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such

indication exists, or when an annual impairment assessment for an asset is required, the Group makes an estimate of

the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its

value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely

independent of those from other assets or group of assets. Where the carrying amount of an asset or cash-generating

unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows expected to be generated by the asset are discounted to

their present value using a pre-tax discount rate that reflects current market assessments of the time value of money

and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into

account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations

are corroborated by valuation multiples or other available fair value indicators.

The Group bases its impairment calculation on detailed budgets and forecast calculations which are prepared separately

for each of the Group’s cash-generating units to which the individual assets are allocated. These budgets and forecast

calculations are generally covering a period of five years. For longer periods, a long-term growth rate is calculated and

applied to project future cash flows after the fifth year.

Impairment losses of continuing operations are recognised in profit or loss in those expense categories consistent with

the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication

that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the

Group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognised impairment loss is

reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the

last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable

amount. That increase cannot exceed the carrying amount that would have been determined, net of depreciation, had

no impairment loss been recognised previously. Such reversal is recognised in profit or loss.

2.10 Subsidiaries

A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to

obtain benefits from its activities.

In the Company’s separate financial statements, investments in subsidiaries are accounted for at cost less impairment

losses.

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2.11 Associates

An associate is an entity, not being a subsidiary or a joint venture, in which the Group has significant influence. An

associate is equity accounted for from the date the Group obtains significant influence until the date the Group ceases

to have significant influence over the associate.

The Group’s investments in associates are accounted for using the equity method. Under the equity method, the

investment in associates is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of

net assets of the associates. Goodwill relating to associates is included in the carrying amount of the investment and

is neither amortised nor tested individually for impairment. Any excess of the Group’s share of the net fair value of the

associate’s identifiable asset, liabilities and contingent liabilities over the cost of the investment is included as income

in the determination of the Group’s share of results of the associate in the period in which the investment is acquired.

The profit or loss reflects the share of the results of operations of the associates. Where there has been a change

recognised in other comprehensive income by the associates, the Group recognises its share of such changes in other

comprehensive income. Unrealised gains and losses resulting from transactions between the Group and the associate

are eliminated to the extent of the interest in the associates.

The Group’s share of the profit or loss of its associates is the profit attributable to equity holders of the associate and,

therefore is the profit or loss after tax and non-controlling interests in the subsidiaries of associates.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not

recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

After application of the equity method, the Group determines whether it is necessary to recognise an additional

impairment loss on the Group’s investment in its associates. The Group determines at the end of each reporting period

whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group

calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying

value and recognises the amount in profit or loss.

The financial statements of the associates are prepared as of the same reporting date as the Company. Where

necessary, adjustments are made to bring the accounting policies in line with those of the Group.

Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at

its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair

value of the aggregate of the retained investment and proceeds from disposal is recognised in profit or loss.

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2.12 Financial assets

Initial recognition and measurement

Financial assets are recognised when, and only when, the Group becomes a party to the contractual provisions of the

financial instrument. The Group determines the classification of its financial assets at initial recognition.

When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not

at fair value through profit or loss, directly attributable transaction costs.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

(a) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets

designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for

trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes

derivative financial instruments entered into by the Group that are not designated as hedging instruments in

hedge relationships as defined by FRS 39. Derivatives, including separated embedded derivatives are also

classified as held for trading unless they are designated as effective hedging instruments.

Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value.

Any gains or losses arising from changes in fair value of the financial assets are recognised in profit or loss. Net

gains or net losses on financial assets at fair value through profit or loss include exchange differences, interest

and dividend income.

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value

if their economic characteristics and risks are not closely related to those of the host contracts and the host

contracts are not held for trading or designated at fair value through profit or loss. These embedded derivatives

are measured at fair value with changes in fair value recognised in profit or loss. Reassessment only occurs if

there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise

be required.

(b) Loans and receivables

Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are

classified as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at

amortised cost using the effective interest method, less impairment. Gains and losses are recognised in profit

or loss when the loans and receivables are derecognised or impaired, and through the amortisation process.

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2.12 Financial assets (cont’d)

(c) Available-for-sale financial assets

Available-for-sale financial assets include equity and debt securities. Equity investments classified as available-

for sale are those, which are neither classified as held for trading nor designated at fair value through profit or

loss. Debt securities in this category are those which are intended to be held for an indefinite period of time

and which may be sold in response to needs for liquidity or in response to changes in the market conditions.

After initial recognition, available-for-sale financial assets are subsequently measured at fair value. Any gains or

losses from changes in fair value of the financial assets are recognised in other comprehensive income, except

that impairment losses, foreign exchange gains and losses on monetary instruments and interest calculated using

the effective interest method are recognised in profit or loss. The cumulative gain or loss previously recognised

in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment when

the financial asset is de-recognised.

Investments in equity instruments whose fair value cannot be reliably measured are measured at cost less

impairment loss.

De-recognition

A financial asset is derecognised where the contractual right to receive cash flows from the asset has expired. On

de-recognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the

consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is

recognised in profit or loss.

Regular way purchase or sale of a financial asset

All regular way purchases and sales of financial assets are recognised or derecognised on the trade date i.e. the

date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of

financial assets that require delivery of assets within the period generally established by regulation or convention in the

marketplace concerned.

2.13 Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset is impaired.

(a) Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group first assesses whether objective evidence of impairment

exists individually for financial assets that are individually significant, or collectively for financial assets that

are not individually significant. If the Group determines that no objective evidence of impairment exists for an

individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets

with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually

assessed for impairment and for which an impairment loss is, or continues to be recognised are not included

in a collective assessment of impairment.

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2.13 Impairment of financial assets (cont’d)

(a) Financial assets carried at amortised cost (cont’d)

If there is objective evidence that an impairment loss on financial assets carried at amortised cost has been

incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the

present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. If

a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective

interest rate. The carrying amount of the asset is reduced through the use of an allowance account. The

impairment loss is recognised in profit or loss.

When the asset becomes uncollectible, the carrying amount of impaired financial assets is reduced directly or if

an amount was charged to the allowance account, the amounts charged to the allowance account are written

off against the carrying value of the financial asset.

To determine whether there is objective evidence that an impairment loss on financial assets has been incurred,

the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor

and default or significant delay in payments.

If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related

objectively to an event occurring after the impairment was recognised, the previously recognised impairment

loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the

reversal date. The amount of reversal is recognised in profit or loss.

(b) Available-for-sale financial assets

In the case of equity investments classified as available-for-sale, objective evidence of impairment include (i)

significant financial difficulty of the issuer or obligor, (ii) information about significant changes with an adverse

effect that have taken place in the technological, market, economic or legal environment in which the issuer

operates, and indicates that the cost of the investment in equity instrument may not be recovered; and (iii) a

significant or prolonged decline in the fair value of the investment below its costs. ‘Significant’ is to be evaluated

against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been

below its original cost.

If an available-for-sale financial asset is impaired, an amount comprising the difference between its acquisition

cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss

previously recognised in profit or loss is transferred from other comprehensive income and recognised in profit

or loss. Reversals of impairment losses in respect of equity instruments are not recognised in profit or loss;

increase in their fair value after impairment are recognised directly in other comprehensive income.

2.14 Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits, and short-term, highly liquid

investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of

changes in value. These also include bank overdrafts that form an integral part of the Group’s cash management.

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2.15 Inventories

Inventories are stated at the lower of cost and net realisable value. Costs incurred in bringing the inventories to their

present location and condition are accounted for as follows:

– Raw materials: purchase costs on a weighted average cost basis;

– Finished goods and work-in-progress: costs of direct materials and labour and a proportion of manufacturing

overheads based on normal operating capacity. These costs are assigned on a weighted average cost basis.

Where necessary, allowance is provided for damaged, obsolete and slow moving items to adjust the carrying value of

inventories to the lower of cost and net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion

and the estimated costs necessary to make the sale.

2.16 Provisions

General

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it

is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the

amount of the obligation can be estimated reliably.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no

longer probable that an outflow of economic resources will be required to settle the obligation, the provision is reversed.

If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects,

where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the

passage of time is recognised as a finance cost.

Provision for reinstatement costs

Provision for reinstatement cost arose from the estimated cost of dismantling, removing and restoring the leasehold

properties at the end of their lease terms.

The reinstatement costs which are provided at the present value of estimated costs required to settle the obligation are

recognised as part of the cost of that particular asset. The estimated future cost if reinstatement is reviewed annually

and adjusted as appropriate.

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2.17 Financial liabilities

Initial recognition and measurement

Financial liabilities are recognised when, and only when, the Group becomes a party to the contractual provisions of

the financial instrument. The Group determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognised initially at fair value plus in the case of financial liabilities not at fair value through

profit or loss, directly attributable transaction costs.

Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

(a) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial

liabilities designated upon initial recognition at fair value through profit or loss. Financial liabilities are classified

as held for trading if they are acquired for the purpose of selling in the near term. This category includes

derivative financial instruments entered into by the Group that are not designated as hedging instruments in

hedge relationships. Separated embedded derivatives are also classified as held for trading unless they are

designated as effective hedging instruments.

Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value.

Any gains or losses arising from changes in fair value of the financial liabilities are recognised in profit or loss.

(b) Other financial liabilities

After initial recognition, other financial liabilities are subsequently measured at amortised cost using the effective

interest rate method. Gains and losses are recognised in profit or loss when the liabilities are derecognised,

and through the amortisation process.

De-recognition

A financial liability is de-recognised when the obligation under the liability is discharged or cancelled or expires. When

an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms

of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the

original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised

in profit or loss.

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2.18 Financial guarantees

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder

for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt

instrument.

Financial guarantees are recognised initially as a liability at fair value, adjusted for transaction costs that are directly

attributable to the issuance of the guarantee. Subsequent to initial recognition, financial guarantees are recognised as

income in profit or loss over the period of the guarantee. If it is probable that the liability will be higher than the amount

initially recognised less amortisation, the liability is recorded at the higher amount with the difference charged to profit

or loss.

2.19 Borrowing costs

Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly attributable to the acquisition,

construction or production of that asset. Capitalisation of borrowing costs commences when the activities to prepare

the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing

costs are capitalised until the assets are substantially completed for their intended use or sale. All other borrowing

costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs

in connection with the borrowing of funds.

2.20 Employee benefits

Defined contribution plans

The Group participates in the national pension schemes as defined by the laws of the countries in which it has

operations. In particular, the Singapore companies in the Group make contributions to the Central Provident Fund

scheme in Singapore, a defined contribution pension scheme. Contributions to defined contribution pension schemes

are recognised as an expense in the period in which the related service is performed.

Employee leave entitlement

Employee entitlements to annual leave are recognised as a liability when they accrue to the employees. The estimated

liability for leave is recognised for services rendered by employees up to the end of the reporting period.

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2.21 Leases

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement

at inception date: whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the

arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement.

For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2005 in

accordance with the transitional requirements of INT FRS 104.

(a) As lessee

Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of

the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower,

at the present value of the minimum lease payments. Any initial direct costs are also added to the amount

capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so

as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged

to profit or loss. Contingent rents, if any, are charged as expenses in the periods in which they are incurred.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the

lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.

Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease

term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense

over the lease term on a straight-line basis.

(b) As lessor

Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as

operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount

of the leased asset and recognised over the lease term on the same bases as rental income. The accounting

policy for rental income is set out in Note 2.22.

2.22 Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the

revenue can be reliably measured, regardless of when the payment is made. Revenue is measured at the fair value of

consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes

or duty. The Group assesses its revenue arrangements to determine if it is acting as principal or agent. The Group has

concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria

must also be met before revenue is recognised:

Revenue from engineering and sand blasting services is recognised when services are rendered.

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2.22 Revenue recognition (cont’d)

Revenue from sale of goods is recognised upon the transfer of significant risk and rewards of ownership of the goods

to the customer, usually on delivery of goods. Revenue is not recognised to the extent where there are significant

uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.

Rental income under operating leases is recognised in profit or loss on a straight-line basis over the term of the lease.

Dividend income is recognised in profit or loss when the Group’s right to receive payment is established.

Interest income is recognised using the effective interest method.

2.23 Taxes

(a) Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected

to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount

are those that are enacted or substantively enacted at the end of the reporting period, in the countries where

the Group operates and generates taxable income.

Current income taxes are recognised in profit or loss except to the extent that the tax relates to items recognised

outside profit or loss, either in other comprehensive income or directly in equity. Management periodically

evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are

subject to interpretation and establishes provisions where appropriate.

(b) Deferred tax

Deferred tax is provided using the liability method on temporary differences at the end of the reporting period

between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all temporary differences, except:

– Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in

a transaction that is not a business combination and, at the time of the transaction, affects neither the

accounting profit nor taxable profit or loss; and

– In respect of taxable temporary differences associated with investments in subsidiaries, associates and

interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled

and it is probable that the temporary differences will not reverse in the foreseeable future.

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2.23 Taxes (cont’d)

(b) Deferred tax (cont’d)

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits

and unused tax losses, to the extent that it is probable that taxable profit will be available against which the

deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be

utilised except:

– Where the deferred tax asset relating to the deductible temporary difference arises from the initial

recognition of an asset or liability in a transaction that is not a business combination and, at the time

of the transaction, affects neither the accounting profit nor taxable profit or loss; and

– In respect of deductible temporary differences associated with investments in subsidiaries, associates

and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable

that the temporary differences will reverse in the foreseeable future and taxable profit will be available

against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the

extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred

tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period

and are recognised to the extent that it has become probable that future taxable profit will allow the deferred

tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when

the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or

substantively enacted at the end of each reporting period.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred

tax items are recognised in correlation to the underlying transaction either in other comprehensive income or

directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current

income tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity

and the same taxation authority.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition

at that date, would be recognised subsequently if new information about facts and circumstances changed.

The adjustment would either be treated as a reduction to goodwill (as long as it does not exceed goodwill) if it

incurred during the measurement period or in profit or loss.

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2.23 Taxes (cont’d)

(c) Sales tax

Revenues, expenses and assets are recognised net of the amount of sales tax except:

– Where the sales tax incurred in a purchase of assets or services is not recoverable from the taxation

authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as

part of the expense item as applicable; and

– Receivables and payables that are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of

receivables or payables in the balance sheet.

2.24 Segment reporting

For management purposes, the Group is organised into operating segments based on their products and services which

are independently managed by the respective segment managers responsible for the performance of the respective

segments under their charge. The segment managers report directly to the management of the Company who regularly

review the segment results in order to allocate resources to the segments and to assess the segment performance.

Additional disclosures on each of these segments are shown in Note 29, including the factors used to identify the

reportable segments and the measurement basis of segment information.

2.25 Share capital and share issue expenses

Proceeds from issuance of ordinary shares are recognised as share capital in equity. Incremental costs directly

attributable to the issuance of ordinary shares are deducted against share capital.

2.26 Treasury shares

The Group’s own equity instruments, which are reacquired (treasury shares) are recognised at cost and deducted from

equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own

equity instruments. Any difference between the carrying amount of treasury shares and the consideration received,

if reissued, is recognised directly in equity. Voting rights related to treasury shares are nullified for the Group and no

dividends are allocated to them respectively.

72


ANNUAL REPORT 2012




2.27 Contingencies

A contingent liability is:

(a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence

or non-occurrence of one or more uncertain future events not wholly within the control of the Group; or

(b) a present obligation that arises from past events but is not recognised because:

(i) It is not probable that an outflow of resources embodying economic benefits will be required to settle

the obligation; or

(ii) The amount of the obligation cannot be measured with sufficient reliability.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by

the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group.

Contingent liabilities and assets are not recognised on the balance sheet of the Group, except for contingent liabilities

assumed in a business combination that are present obligations and which the fair values can be reliably determined.

2.28 Related parties

A party is defined as follows:

(a) A person or a close member of that person’s family is related to the Group and Company if that person:

(i) has control or joint control over the Company;

(ii) has significant influence over the Company; or

(iii) is a member of the key management personnel of the Group or Company or of a parent of the Company

(b) An entity is related to the Group and the Company if any of the following conditions applies:

(i) the entity and the Company are members of the same group (which means that each parent, subsidiary

and fellow subsidiary is related to the others).

(ii) one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member

of a group of which the other entity is a member).

(iii) both entities are joint ventures of the same third party.

(iv) one entity is joint venture of a third entity and the other entity is an associate of the third entity.

73


ANNUAL REPORT 2012




2.28 Related parties (cont’d)

(v) the entity is a post-employment benefit plan for the benefit of employees of either the Company or an

entity related to the Company. If the Company is itself such a plan, the sponsoring employers are also

related to the Company;

(vi) the entity is controlled or jointly controlled by a person identified in (a);

(iii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management

personnel of the entity (or of a parent of the entity).

3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates

and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of

contingent liabilities at the end of each reporting period. However, uncertainty about these assumptions and estimates

could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in

the future periods.

3.1 Judgments made in applying accounting policies

In the process of applying the Group’s accounting policies, management has made the following judgments, apart from

those involving estimations, which has the most significant effect on the amounts recognised in the financial statements:

(a) Impairment of investment in associates

The directors of the Company follow the guidance of FRS 36 – Impairment of Assets, in determining whether

investment in associates are other than temporary impaired. This requires assumptions made regarding the

duration and extent to which the fair value of an investment is less than its costs and the financial health of

and near-term business outlook for the investment, including factors such as industry and sector performance,

changes in technology and operational and financing cash flow.

Based on the directors’ assessment, there is no requirement to provide for any allowance for impairment in

value of investment in associates. The Group’s carrying amount of investment in associates at the balance sheet

date is disclosed in Note 13 to the financial statements.

(b) Income taxes

The Group has exposure to income taxes in various jurisdictions. Significant judgment is involved in determining

the Group-wide provision for income taxes. There are certain transactions and computations for which the

ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities

for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome

of these matters is different from the amounts that were initially recognised, such differences will impact the

income tax and deferred tax provisions in the period in which such determination is made. The carrying amount

of the Group’s income tax payables and deferred tax liabilities at the balance sheet date was $108,000 (2011:

$94,000) and $187,000 (2011: $212,000) respectively.

74


ANNUAL REPORT 2012



3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES (CONT’D)

3.2 Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of each reporting

period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within

the next financial year are discussed below. The Group based its assumptions and estimates on parameters available

when the financial statements was prepared. Existing circumstances and assumptions about future developments,

however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes

are reflected in the assumptions when they occur.

(a) Depreciation of property, plant and equipment

These assets are depreciated on a straight-line basis over their estimated useful lives. The Group estimates

the useful lives of these assets to be within 3 to 50 years. The carrying amounts of the Group’s property, plant

and equipment at the balance sheet date are disclosed in Note 10 to the financial statements. Changes in the

expected level of usage and technological developments could impact the economic useful lives and the residual

values of these assets, therefore future depreciation charges could be revised.

(b) Impairment of trade and other receivables

The Group establishes allowance for doubtful receivables on a case-by-case basis when they believe that

payment of amounts owed is unlikely to occur. In establishing these allowances, the Group considers its historical

experience and changes to its customers’ financial position. If the financial conditions of receivables were to

deteriorate, additional allowances may be required. The carrying amount of trade and other receivables for the

Group at the balance sheet date is disclosed in Note 18 to the financial statements.

(c) Inventories and related allowance

Inventories are stated at the lower of cost and net realisable value. The Group primarily determines cost of

inventories using the “weighted average” method. The Group estimates the net realisable value of inventories

based on assessment of receipt or committed sales prices and provides for excess and obsolete inventories

based on historical usage, estimated future demand and related pricing. In determining excess quantities, the

Group considers recent sales activities, related margins and market positioning of its products. These estimates

are generally not subject to significant volatility, due to the long life cycles of its products. However, factors

beyond its control, such as demand levels, technological advances and pricing competition, could change from

period to period. If such factors had an adverse effect, the Group might be required to reduce the value of its

inventories, which would adversely affect its results, cash flows and financial position. The carrying amount of

inventories for the Group at the balance sheet date is disclosed in Note 17 to the financial statements.

75


ANNUAL REPORT 2012



4. REVENUE

Revenue of the Group and of the Company represents the invoiced value of goods sold less goods returned and

discounts allowed, net of goods and services tax. Revenue of the Group is in respect of external transactions only.

5. OTHER OPERATING INCOME

Group

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

$’000 $’000

Allowance for doubtful trade receivables no longer required,

now written back 86 39

Claims and compensation received 91 43

Fair value gain on derivatives

– call option (Note 25) – 4,517

– warrants 329 719

– forward currency contracts 22 –

Dividend income 5 15

Gain on disposal of property, plant and equipment 7,626 51

Commission income 188 382

Interest income

– fixed deposits 1 28

– current accounts with banks 2 –

Rental income 1,137 585

Foreign exchange gain 978 –

Other income 345 193

10,810 6,572

6. FINANCE COSTS

Group

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

$’000 $’000

Interest expense

– bank overdrafts 2 3

– bankers’ acceptance 64 28

– bridging loans 54 154

– finance lease 29 35

– term loans 210 154

– trust receipts 2,214 1,210

– late payment 64 301

2,637 1,885

Other finance costs

– invoice financing 60 38

2,697 1,923

76


ANNUAL REPORT 2012



7. PROFIT BEFORE INCOME TAX

Profit before income tax is arrived at after debiting the following:

Group

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

$’000 $’000

Depreciation of property, plant and equipment recognised

as an expense in cost of sales 1,259 897

Inventories recognised as an expense in cost of sales (Note 17) 377,376 206,506

Operating lease expenses recognised as an expense

in cost of sales 783 492

Audit fees paid/payable to:

– Auditors of the Company 180 140

– Other auditors 6 9

Non-audit fees paid/payable to:

– Auditors of the Company 10 33

– Other auditors 90 31

Directors fees 412 193

Staff cost (including directors)

– Salaries, bonuses and allowances 11,011 6,846

– Employer’s contributions to defined contribution plan 1,117 563

– Other staff welfare expenses 248 161

Legal and professional fees 839 564

Consultancy fees 283 –

Included in other operating expenses:

Foreign exchange loss – 1,340

Depreciation of property, plant and equipment 2,543 2,420

Property, plant and equipment written off 31 13

Amortisation of intangible assets 227 167

Write down of inventories to net realisable value 150 –

Allowance made for doubtful trade receivables 33 97

Bad debts written off 27 –

Operating lease expenses 2,023 1,645

Fair value loss on investment held for trading 60 245

Fair value loss on forward currency contracts 12 –

77


ANNUAL REPORT 2012



8. INCOME TAX EXPENSE/(CREDIT)

Major components of income taxes

The major components of income taxes for the years ended 31 December 2012 and 2011 are:

Group

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

$’000 $’000

Current income tax

– Current financial year 112 148

– Under/(over) provision in respect of prior years 71 (170)

183 (22)

Deferred tax

– Current financial year 4 (79)

– Over provision in respect of prior years (29) (6)

(25) (85)

Total income tax expense/(credit) recognised in profit or loss 158 (107)

On 3 October 2007, the Company was awarded the Global Trader Programme (“GTP”) status by International Enterprise

Singapore. Under the GTP, the Company’s qualifying income was taxed at a concessionary rate of 10% for a 4 year

period commencing from 1 August 2007, subject to compliance with Section 43P of the Income Tax Act Cap. 134

and with the regulations prescribed in the International Enterprise Singapore Award Letter. The GTP status incentive

expired on 30 September 2011.

78


ANNUAL REPORT 2012



8. INCOME TAX EXPENSE/(CREDIT) (CONT’D)

The reconciliation between tax expense/(credit) and the product of accounting profit multiplied by the applicable

corporate tax rate for the period ended 31 December 2012 and year ended 30 September 2011 is as follows:

Group

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

$’000 $’000

Profit before income tax 5,494 16,165

Income tax calculated using statutory tax rate of 17%

(2011: 17%) 934 2,748

Tax effect of:

– expenses not deductible for tax purposes 916 675

– income not subject to tax (1,361) (1,032)

Effect of different tax rate in other countries (93) (24)

Under/(over)provision in respect of prior years 42 (176)

Tax exemption (26) (29)

Tax incentive – (152)

Enhanced tax deduction (4) –

Deferred tax assets not recognised 791 61

Tax calculated on share of joint venture and associate profits (1,057) (637)

Benefits from previously recognised tax losses – (1,545)

Others 16 4

158 (107)

79


ANNUAL REPORT 2012



8. INCOME TAX EXPENSE/(CREDIT) (CONT’D)

The tax effect of expenses that are not deductible for income tax purposes include the following:

Group

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

$’000 $’000

Depreciation of property, plant and equipment 298 434

Annual front end bank facility fees 74 36

Interest expense 11 –

The tax effect of income that is not subject to tax include the following:

Group

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

$’000 $’000

Fair value gain on derivatives 60 890

Gain on disposal of property, plant and equipment 1,296 –

80


ANNUAL REPORT 2012



9. EARNINGS PER SHARE

(a) Basic earnings per share

Basic earnings per share is calculated by dividing the Group’s profit, net of tax, attributable to equity holders of

the Company by the weighted average number of ordinary shares in issue during the financial period.

The earnings per share is calculated as follows:

Group

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

$’000 $’000

Net profit attributable to equity

holders of the Company 5,549 16,116

Weighted average number of shares

in issue during the financial period (in’000) 1,063,364 934,978

Basic earnings per share 0.52 cents 1.72 cents

(b) Diluted earnings per share

For the purpose of calculating diluted earnings per share, the Group’s profit, net of tax, attributable to equity

holders of the Company and the weighted average number of ordinary shares outstanding are adjusted for the

effects of all dilutive potential ordinary shares.

Group

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

$’000 $’000

Net profit attributable to equity

holders of the Company 5,549 16,116

Weighted average number of shares in issue during the financial

period for basic earnings per share computation (in ’000) 1,063,364 934,978

Effects of dilution:

– Stock call option – 11,535

1,063,364 946,513

Diluted earnings per share 0.52 cents 1.70 cents

Nil (2011: 60,000,000) warrants have not been included in the calculation of diluted earnings per share because

they are anti-dilutive.

81


ANNUAL REPORT 2012



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82


ANNUAL REPORT 2012



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83


ANNUAL REPORT 2012



10. PROPERTY, PLANT AND EQUIPMENT (CONT’D)

Reinstatement cost of $650,000 (2011: Nil) was reversed against the provision for restatement cost (Note 24) as the

related leasehold buildings was sold and the provision was not utilised.

As at the balance sheet date, the net carrying amount of property, plant and equipment purchased under finance

leases were as follows:

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Plant and machinery 117 153 – –

Motor vehicles 492 725 233 441

609 878 233 441

Lease assets are pledged as security for the related finance lease liability.

The net carrying amount of property, plant and equipment of the Group and the Company that were mortgaged as

security for bank borrowings (Note 22) were as follows:

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Leasehold properties 5,229 25,603 5,229 22,149

Properties under construction in

progress – 692 – 692

5,229 26,295 5,229 22,841

84


ANNUAL REPORT 2012



11. INTANGIBLE ASSETS

Computer

software

Club

membership Total

$’000 $’000 $’000

Group

Cost

At 1 October 2010, 30 September 2011 and

1 October 2011 834 – 834

Additions 111 230 341

At 31 December 2012 945 230 1,175

Accumulated amortisation

At 1 October 2010 400 – 400

Charge for the year 167 – 167

At 30 September 2011 and 1 October 2011 567 – 567

Charge for the period 227 – 227

At 31 December 2012 794 – 794

Net carrying amount

At 31 December 2012 151 230 381

At 30 September 2011 267 – 267

Computer

software

Club

membership Total

$’000 $’000 $’000

Company

Cost

At 1 October 2010, 30 September 2011 and

1 October 2011 768 – 768

Additions 111 230 341

At 31 December 2012 879 230 1,109

Accumulated amortisation

At 1 October 2010 384 – 384

Charge for the year 154 – 154

At 30 September 2011 and 1 October 2011 538 – 538

Charge for the period 210 – 210

At 31 December 2012 748 – 748

Net carrying amount

At 31 December 2012 131 230 361

At 30 September 2011 230 – 230

Computer software

Computer software of the Group and the Company is determined to have finite useful lives and is amortised on a

straight-line basis over 5 years with remaining useful lives of 1 to 5 years (2011: 2 years).

Club membership

The club membership is registered in the name of a director who is holding it in trust for the Company.

85


ANNUAL REPORT 2012



12. INVESTMENT IN SUBSIDIARIES

Company

31.12.2012 30.9.2011

$’000 $’000

Unquoted equity shares, at cost 13,488 12,520

The directors of the Company had assessed for impairment in value of investment in subsidiaries. From the

assessment, no allowance for impairment in value of investment in subsidiaries is required.

Details of the subsidiaries are as follows:

Name of subsidiaries Principal activities

Country of

incorporation/

business

Effective equity

interest held by the Group

2012 2011

% %

Held by the Company

Jin Heng Li Hardware Sdn.

Bhd. (2)

Trading in all types of

hardware

Malaysia 59.23 59.23

Oriental Metals Pte Ltd (1) Trading and manufacturing

of steel products and

provisions of engineering and

sandblasting services

Singapore 99.99 99.99

HG Metal Investments Pte

Ltd (1)

Investment holding Singapore 100.00 100.00

PT HG Metal Distribution

Indonesia (4)

Trading in steel products Indonesia 100.00 –

Held by HG Metal

Investments Pte Ltd

Niho (Singapore) Pte Ltd (1) Wholesalers and distributors

of various types of metals and

fabricated metals


HG Construction Steel Pte Ltd

(f.k.a. Galaxia Pte Ltd) (1)

Supply of steel material to

the construction industry and

rental of metal plates

Singapore 100.00 100.00

HG Metal Manufacturing Sdn

Bhd (2)

Trading and manufacturing of

steel products

Malaysia 100.00 100.00

HG Metal Pte Ltd (1) Investment holding Singapore 100.00 100.00

86


ANNUAL REPORT 2012



12. INVESTMENT IN SUBSIDIARIES (CONT’D)

Name of subsidiaries Principal activities

Country of

incorporation/

business

Effective equity

interest held by the Group

2012 2011

% %

Held by Niho (Singapore)

Pte Ltd

Kunshan Niho Co Ltd (3) Wholesalers and distributors

of various types of metals and

fabricated metals

People’s

Republic of

China

59.03 59.03

Held by HG Metal

Manufacturing Sdn Bhd

HG Metal Distribution Sdn

Bhd (f.k.a. Nusajaya Steel

Sdn Bhd) (2)

Dormant Malaysia 100.00 100.00

(1) Audited by Ernst & Young LLP, Singapore.

(2) Audited by RSM Robert, Teo, Kuan & Co., Malaysia.

(3) Audited by Suzhou Ren Tai Certified Public Accountants Partnership, People’s Republic of China.

(4) PT HG Metal Distribution Indonesia was incorporated on 29 May 2012 with a paid up share capital of US$830,000

(equivalent S$968,000). The company was unaudited and incurred mainly pre-operating and staff expenses for the

financial period ended 31 December 2012. The company commenced operations only in late December 2012.

13. INVESTMENT IN ASSOCIATES

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Shares, at cost 33,518 32,312 713 713

Share of associate results,

net of dividend income 9,600 4,589 – –

Share of changes recognised

directly in associate’s equity (265) (234) – –

42,853 36,667 713 713

Fair value of investment in an

associate for which there is

published price quotation 30,556 23,107 – –

87


ANNUAL REPORT 2012



13. INVESTMENT IN ASSOCIATES (CONT’D)

Name of associates Principal activities

Country of

incorporation/

business

Effective equity interest

held by the Group

and Company

2012 2011

% %

Held by the Company

POS-SEA Pte Ltd (1) Commission agent for

procurement of steel products

and materials


Held by HG Metal Pte Ltd

BRC Asia Limited (2) Prefabrication and trading of

steel reinforcement products

and manufacture and sale of

wire mesh fences


(1) Audited by Lee Seng Chan & Co, Singapore.

(2) Audited by Ernst & Young LLP, Singapore.

The summarised financial information of the associates, not adjusted for the proportion of ownership interest held by

the Group, is as follows:

Group

31.12.2012 30.9.2011

$’000 $’000

Assets and liabilities:

Total assets 248,726 156,715

Total liabilities (120,520) (53,109)

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

$’000 $’000

Results:

Revenue 600,328 349,982

Profit for the period/year 25,186 15,492

Increase of interest in POS-SEA Pte Ltd (“POS”)

During the period, a shareholder of the associate offered to dispose its entire shareholding of 490,000 ordinary shares

in POS at the price of USD1 per share. On 30 August 2012, the shareholders of POS approved the capital reduction

of 490,000 ordinary shares for a cash distribution of USD490,000. Consequently, POS’ issued share capital reduced

to 1,510,000 ordinary shares with the cancellation of 490,000 ordinary shares, and the Company’s equity interest in

the associate increased to 32.45%.

88


ANNUAL REPORT 2012



13. INVESTMENT IN ASSOCIATES (CONT’D)

Increase of interest in BRC Asia Limited (“BRC”)

During the period, the Group participated in BRC’s Scrip Dividend Scheme in respect of qualifying dividends. As

a result, the number of ordinary shares held by the Group increased by 9,801,283 (2011: 16,132,769) shares to

210,727,591 (2011: 200,926,308) ordinary shares and, the shares at cost increased by $1,206,000 (2011: $2,033,000)

to $33,518,000 (2011: $32,312,000). Accordingly, the Group’s equity interest increased to 24.61% (2011: 24.39%).

14. DEFERRED TAX

Deferred income tax relates to the following:

Group

Consolidated

balance sheet

Consolidated statement of

comprehensive income

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Deferred tax liabilities:

Differences in depreciation for

tax purposes 187 212 (25) (85)

187 212

Deferred income tax credit (25) (85)

At the balance sheet date, the Group has tax losses of approximately $77,830,000 (2011: $74,041,000) that are

available for offset against future taxable profits of the companies in which the losses arose, for which no deferred tax

asset is recognised due to uncertainty of its recoverability. The use of these tax losses is subject to the agreement of

the tax authorities and compliance with certain provisions of the tax legislation of the respective countries in which the

companies operate.

Tax consequences of proposed dividends

There are no income tax consequences (2011: nil) attached to the dividends to the shareholders proposed by the

Company but not recognised as a liability in the financial statements (Note 30).

89


ANNUAL REPORT 2012



15. DERIVATIVE FINANCIAL INSTRUMENTS

Contract/

Notional

Amount 31.12.2012

Contract/

Notional

Amount 30.9.2011

$’000 $’000 $’000 $’000

Assets Liabilities Assets Liabilities

Group

Warrants – – – 7,488 – (329)

Forward currency contracts 16,348 22 (12) – – –

Company

Warrants – – – 7,488 – (329)

Forward currency contracts 12,422 22 – – – –

In previous years, the Company issued 60,000,000 warrants to Oversea-Chinese Banking Corporation Limited and United

Overseas Bank Limited (the “lenders”) in conjunction with the $39 million term loan facility provided by the lenders. The

term loan facility had a tenure period of one year from the date of the facility agreement on 21 October 2009 and the

term loan had been repaid in the previous year. The warrants carried the rights to subscribe for shares at an exercise

price of $0.1248 per share for a period of 3 years from 23 November 2009. The warrants expired on 22 November 2012.

Forward currency contracts are used to hedge foreign currency risk arising from the Group’s sales and purchases

denominated in USD for which firm commitments existed at the end of the reporting period, extending to June 2013

(2011: Nil).

16. INVESTMENT HELD FOR TRADING

Group

31.12.2012 30.9.2011

$’000 $’000

Equity instruments (quoted) 75 135

90


ANNUAL REPORT 2012



17. INVENTORIES

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Trading inventories 80,037 89,392 71,571 86,704

Finished goods 1,220 2,694 – –

Work-in-progress 567 970 – –

Raw materials 4,378 3,676 – –

86,202 96,732 71,571 86,704

Group

31.12.2012 30.9.2011

$’000 $’000

Inventories recognised as expense in cost of sales (Note 7) 377,376 206,506

Write-down of inventories to net realisable value recognised

in other operating expenses 150 –

18. TRADE AND OTHER RECEIVABLES

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Trade receivables

Third parties 54,005 43,406 39,325 33,841

Amounts due from subsidiaries – – 9,786 403

Amounts due from related parties 1,504 3,324 1,339 2,257

Amounts due from associates – 12 – 12

Allowance for doubtful receivables (3,524) (3,751) (3,423) (3,595)

51,985 42,991 47,027 32,918

Other receivables

Third parties 43,243 32 43,203 31

Advance to suppliers for purchase

of inventories 756 1,068 215 653

Rental, utilities and other deposits 470 570 339 245

Amounts due from subsidiaries – – 25,133 18,207

Amounts due from related parties 173 217 47 217

Amounts due from associates 2 1 – –

Allowances for doubtful receivables

from subsidiaries – – (1,824) (1,824)

44,644 1,888 67,113 17,529

Total 96,629 44,879 114,140 50,447

91


ANNUAL REPORT 2012



18. TRADE AND OTHER RECEIVABLES (CONT’D)

Other receivables include an amount of $43,000,000 (2011: Nil) receivable from the sale of the Company’s leasehold

buildings, out of which $38,700,000 has been received subsequent to the period end.

Receivables that are past due but not impaired

The Group has trade receivables amounting to $23,887,000 (2011: $17,822,000) that are past due at the balance

sheet date but not impaired. These receivables are unsecured and the analysis of their aging at the balance sheet date

is as follows:

Group

31.12.2012 30.9.2011

$’000 $’000

Trade receivables past due:

– Less than 30 days 14,121 9,553

– 30 – 60 days 6,109 3,592

– 61 – 90 days 1,439 2,396

– 91 – 120 days 530 1,791

– More than 120 days 1,688 490

23,887 17,822

Receivables that are impaired

The Group’s trade receivables that are impaired at the balance sheet date and the movement of the allowance accounts

used to record the impairment are as follows:

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Trade receivables – nominal amounts 3,524 3,751 3,423 3,595

Less: Allowance for impairment (3,524) (3,751) (3,423) (3,595)

– – – –

Movement in allowance accounts:

Balance at 1 October 3,751 3,755 3,595 3,650

Charge for the period 33 97 – 4

Written back (86) (39) (2) (59)

Bad debts written off against

allowance (355) (27) (355) –

Exchange differences 181 (35) 185 –

Balance at 31 December/

30 September 3,524 3,751 3,423 3,595

92


ANNUAL REPORT 2012



18. TRADE AND OTHER RECEIVABLES (CONT’D)

Receivables that are impaired (cont’d)

Trade receivables that are individually determined to be impaired at the balance sheet date relate to debtors that are

in significant financial difficulties and have defaulted on payments. These receivables are not secured by any collateral

or credit enhancements.

Trade receivables are non-interest bearing and are generally on 30 to 120 days credit terms.

Other receivables, including non-trade amounts due from subsidiaries, associates and related parties, are unsecured,

interest-free and repayable on demand.

Trade receivables denominated in foreign currencies at 31 December 2012 and 30 September 2011 are as follows:

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

United States Dollar 4,490 3,761 6,944 1,995

19. CASH AND FIXED DEPOSITS

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Cash and bank balances 16,413 9,215 5,589 2,773

Fixed deposits with banks 2,109 636 – –

Cash and fixed deposits 18,522 9,851 5,589 2,773

Fixed deposits bear weighted average effective interest rate of 3.11% per annum (2011: 2.97% per annum) and for

tenures ranging from 1 to 12 months (2011: 1 to 12 months). Fixed deposits of $655,000 (2011: $636,000) are pledged

to banks for bank borrowings granted to a subsidiary.

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise the following at the

balance sheet date:

Group

31.12.2012 30.9.2011

$’000 $’000

Cash and fixed deposits 18,522 9,851

Fixed deposits pledged with banks (655) (636)

Bank overdrafts (Note 22) – (149)

Cash and cash equivalents 17,867 9,066

93


ANNUAL REPORT 2012



20. TRADE AND OTHER PAYABLES

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Trade payables 32,377 30,141 26,570 26,702

Deposits from customers 2,457 615 1,041 575

Accrued operating expenses 3,991 2,258 3,531 1,929

Other payables 2,620 1,480 2,204 1,309

Amounts due to subsidiaries

– trade – – 1,877 150

– non-trade – – 1,833 515

Amounts due to related parties

– trade 5,403 6,822 5,247 6,677

– non-trade 211 49 90 49

Amounts due to associates

– trade 318 1,498 221 98

Total 47,377 42,863 42,614 38,004

Trade payables including amount due to associates and related parties are non-interest bearing and are normally settled

on 30 to 90 days’ term.

The non-trade amounts, including amounts due to subsidiaries, related parties and advances from shareholders, are

unsecured, interest-free and repayable on demand.

Deposits from customers are trade related, unsecured and settled upon the fulfilment of the contractual obligations.

Accrued operating expenses include $1,399,000 (2011: Nil) for professional fees and rectification work required on the

leasehold buildings pursuant to the sale and leaseback of 15 Jurong Port Road.

Trade payables denominated in foreign currencies at 31 December 2012 and 30 September 2011 are as follows:

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

United States Dollar 18,679 29,688 17,454 27,281

94


ANNUAL REPORT 2012



21. FINANCE LEASE PAYABLES

As at balance sheet date, the Group and Company have obligations under finance leases that are repayable as follows:

Minimum lease

payments

Future finance

charges

Present value of

lease payments

$’000 $’000 $’000

Group

31.12.2012

Within one financial year 202 (19) 183

After one financial year but less than

five financial years 210 (15) 195

412 (34) 378

30.9.2011




701 (54) 647

Minimum lease

payments

Future finance

charges

Present value of

lease payments

$’000 $’000 $’000

Company

31.12.2012



five financial years – – –

90 (3) 87

30.9.2011




322 (10) 312

Lease terms range from one to five years (2011: one to five years) with options to purchase at the end of the lease term.

Interest is payable at average effective interest rates ranging from 1.88% to 5.77% (2011:1.88% to 5.93%) per annum.

95


ANNUAL REPORT 2012



22. BANK BORROWINGS

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Current

Secured

– Term loans SGD 2,293 – 2,293 –

– Construction loans SGD 4,044 – 4,044 –

– Trust receipts SGD 37,144 9,588 37,144 9,588

– Trust receipts USD 1,036 21,828 1,036 21,828

– Bankers acceptance MYR 1,713 908 – –

– Bank overdrafts MYR – 149 – –

– Money market loan SGD 3,000 – 3,000 –

49,230 32,473 47,517 31,416

Unsecured

– Trust receipts SGD 722 – – –

– Trust receipts USD 4,434 1,972 – –

– Invoice financing USD 359 798 – –

– Bridging loans SGD 454 2,597 454 1,306

– Foreign currency trade loan USD 544 – – –

6,513 5,367 454 1,306

Total current borrowings 55,743 37,840 47,971 32,722

Non-current liabilities

Secured

– Term loans SGD 8,947 – 8,947 –

8,947 – 8,947 –

Unsecured

– Bridging loans SGD – 1,915 – 791

Total non-current borrowings 8,947 1,915 8,947 791

Secured

The secured portions of the bank borrowings of the Group and the Company are secured by way of:

(i) legal mortgage over leasehold properties and construction in progress (Note 10) of the Group and of the

Company with net carrying amount of $5,229,000 (2011: $26,295,000) and $5,229,000 (2011: $22,841,000)

respectively as at 31 December 2012;

(ii) pledge over the Group’s interest in Nil (2011: 200,926,308) shares of BRC Asia Limited and fixed deposits of

the Group’s Malaysian subsidiary, Jin Heng Li Hardware Sdn Bhd (Note 19); and

(iii) fixed and floating charge over all assets of the Company and two subsidiaries, HG Metal Investment Pte Ltd

and HG Metal Construction Steel Pte Ltd.

The secured bank borrowings of the Company are also supported by corporate guarantees given by a subsidiary,

Oriental Metals Pte Ltd.

96


ANNUAL REPORT 2012



22. BANK BORROWINGS (CONT’D)

Unsecured

Group

As at the balance sheet date, unsecured bank borrowings amounting to $5,515,000 (2011: $5,185,000) of certain

subsidiaries are supported by corporate guarantees given by the Company.

The Group’s bank borrowings have the following maturity dates and interest at floating rates:

Interest rates per annum

Maturity 31.12.2012 30.9.2011

Term loans 2016 2.13% –

Construction loans 2013 2.12% –

Bankers acceptance 2013 3.51% 3.42%

Trust receipts 2013 2.40% – 2.90% 3.11% – 3.70%

Bridging loans 2014 5% 5%

Bank overdrafts – – 8.35%

Foreign currency trade loan 2013 2.4% – 2.5% –

Money market loan 2014 2.13% –

The loans include the following financial covenants:

– the Group to maintain a Tangible Net Worth exceeding $110 million.

– the Group to maintain a current ratio exceeding 1 time.

– the Company to maintain a ratio of total liabilities to tangible net worth not exceeding 2 times.

– the Company to maintain a ratio of total bank borrowings to total tangible net worth not exceeding 1.5 times.

23. DEFERRED INCOME

Deferred income represents the excess of sale price over the estimated fair value of the leasehold property at 15

Jurong Port Road arising from the sale and leaseback of the property. The fair value of the leasehold property was

determined by an external valuation using a Direct Sale Comparison Approach valuation method. The deferred income

of $10 million will be amortised to profit or loss over the seven year lease period commencing February 2013. Deferred

income is classified as follows:

Group and Company

31.12.2012 30.9.2011

$’000 $’000

Current 1,310 –

Non-current 8,690 –

10,000 –

97


ANNUAL REPORT 2012



24. PROVISION FOR REINSTATEMENT COSTS

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Provision for reinstatement costs 1,000 1,650 700 1,350

The movement in provision for reinstatement costs is as follows:

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

At 1 October 1,650 800 1,350 500

Additions – 850 – 850

Reversal (Note 10) (650) – (650) –

At 31 December and 30 September 1,000 1,650 700 1,350

Provision for reinstatement costs is made in respect of the Group and Company’s leasehold properties to fulfil the

obligations under the lease agreements. Outflows are expected only at the end of the lease tenure of the leasehold

properties in the years’ ranging from 2019 to 2024 (2011: 2019 to 2035).

25. SHARE CAPITAL AND TREASURY SHARES

(a) Share capital

Group and Company

31.12.2012 30.9.2011

No. of shares No. of shares

’000 $’000 ’000 $’000

Issued and fully-paid:

Ordinary shares

At beginning of the period 1,016,022 130,046 775,672 111,730

Issue from shares placement – – 163,850 11,049

Issue from exercise of call option 76,500 7,268 76,500 7,267

At end of the period 1,092,522 137,314 1,016,022 130,046

98


ANNUAL REPORT 2012



25. SHARE CAPITAL AND TREASURY SHARES (CONT’D)

(a) Share capital (cont’d)

The holders of ordinary shares (except treasury shares) are entitled to receive dividends as and when declared

by the Company. All ordinary shares carry one vote per share without restrictions. The ordinary shares have

no par value.

At an Extraordinary General Meeting held on 10 November 2010, the shareholders approved the issue of

163,850,000 new ordinary shares at $0.095 per share to Oriental Castle Sdn Bhd (“OCS”). OCS had also been

granted a call option to subscribe for 153,000,000 new ordinary shares at $0.095 per share in the Company

or such other number representing 14% of the enlarged share capital of the Company as at the date of the

exercise of the call option.

Accordingly, the Company received cash proceeds of $15,566,000 upon the issue of 163,850,000 new

ordinary shares at $0.095 per share with attached call option, and correspondingly recognised share capital of

$11,049,000 and a derivative on the call option of $4,517,000 in prior year.

The call option was exercised by OCS on 19 July 2011. The Company has agreed with OCS that pursuant to

the exercise of the call option, the Company shall:

(1) issue and allot the first 50% of the Option Shares (being 76,500,000 shares in the capital of the

Company) 7 business days from the exercise date, against full payment by OCS for such Option Shares;

and

(2) issue and allot the remaining 50% of the Option Shares (being an additional 76,500,000 shares in the

capital of the Company) 7 months from the exercise date (i.e. 18 February 2012), against full payment

being made by OCS for such Option Shares.

On 25 July 2011, the Company allotted 76,500,000 new ordinary shares at $0.095 per share to OCS. The

Company received cash proceeds of $7,267,000 and recognised share capital of the same amount. With the

exercise of the call option, the derivative of $4,517,000 was recognised in profit or loss as a fair value gain on

derivative in prior year.

On 22 February 2012, the Company allotted 76,500,000 new ordinary shares at $0.095 per share to OCS. The

Company received cash proceeds of $7,268,000 and recognised share capital of the same amount.

Warrants

The Company issued 60,000,000 warrants to Oversea-Chinese Banking Corporation Limited and United

Overseas Bank Limited (the “lenders”) in conjunction with the facility agreement entered into with the lenders

on 21 October 2009. These warrants carry the rights to subscribe for shares at an exercise price of $0.1248

per share for a period of 3 years from 23 November 2009. The warrants have not been exercised and lapsed

on 22 November 2012.

99


ANNUAL REPORT 2012



25. SHARE CAPITAL AND TREASURY SHARES (CONT’D)

(b) Treasury shares

Group and Company

31.12.2012 30.9.2011

No. of shares No. of shares

’000 $’000 ’000 $’000

Issued and fully-paid:

Ordinary shares

At beginning of the period – – – –

Acquired during the financial period 23,268 1,885 – –

At end of the period 23,268 1,885 – –

Treasury shares relate to ordinary shares of the Company that is held by the Company.

The Company acquired 23,268,000 (2011: nil) shares in the Company through purchases on the Singapore

Exchange during the financial period. The total amount paid to acquire the shares was $1,885,000 (2011: nil)

and this was presented as a component within shareholders’ equity.

26. OTHER RESERVES

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Capital reserve (a) 2,527 2,527 2,527 2,527

Foreign currency translation reserve (b) (622) (454) – –

Fair value reserve (c) (4) (9) – –

1,901 2,064 2,527 2,527

100


ANNUAL REPORT 2012



26. OTHER RESERVES (CONT’D)

(a) Capital reserve

In 2005, the Company entered into a $10,000,000 convertible loan agreement (2005 Convertible Loan

Agreement) with Oversea-Chinese Banking Corporation Limited (“OCBC”) for the purpose of expansion and/or

to be applied to general working capital requirements. On 15 August 2006, the Company and OCBC entered

into a revised Convertible Loan Agreement for refinancing the 2005 Convertible Loan Agreement which granted

OCBC the right to convert the loan amount into new ordinary shares of the Company at any time until maturity

date on 5 July 2008.

The net proceeds received from the issue of the convertible loan were split into the liability element and equity

component, representing the fair value of the embedded option to convert the liability into equity of the Group

and the Company. Accordingly, $101,000 was credited to capital reserve in the financial year ended 30

September 2006.

OCBC exercised its option to convert the entire convertible loan of $10 million into 31,171,147 new ordinary

shares of the Company during the financial year 30 September 2007. In accordance with the terms of the revised

convertible loan agreement, the Company was entitled to a certain percentage of share of profits earned by

OCBC from the sale of these conversion shares, net of certain expenses.

Subsequently OCBC sold the shares and a sum of $2,426,000 was received by the Company as its share

from the net profit earned by OCBC on the disposal of the conversion shares. The Company has recorded the

consideration received as capital reserve.

(b) Foreign currency translation reserve

The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of

the financial statements of foreign operations whose functional currencies are different from that of the Group’s

presentation currency. Movement in this account is set out in the consolidated statement of changes in equity.

(c) Fair value reserve

Fair value reserve represents the cumulative fair value changes, net of tax, of available for sale financial assets

until they are disposed of or impaired.

101


ANNUAL REPORT 2012



27. SIGNIFICANT TRANSACTIONS WITH RELATED COMPANIES AND RELATED PARTIES

In addition to the information disclosed elsewhere in the financial statements, the following were significant transactions

between the Company and its related companies and related parties on rates and terms agreed between the parties

during the financial period:

Group Company

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

$’000 $’000 $’000 $’000

With subsidiaries

Sales – – 12,774 2,856

Purchases – – 5,866 665

Rental income – – 206 103

Management fee income – – 21 48

Other income (commission income) – – 9 2

Dividend income – – 18 19

Rental expense – – 39 –

Other expense – – 52 242

Purchase of plant and equipment – – 1,452 –

With associates

Sales 48 192 48 46

Purchases 2,924 6,732 2,924 2,918

Rental income – 27 – –

Other income 1 5 1 –

With companies related to a

director of the Company

Sales 11,836 8,890 9,962 7,465

Purchases 17,730 25,077 17,647 24,525

Management fee 236 – 236 –

Other charges 1,471 840 1,448 840

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27. SIGNIFICANT TRANSACTIONS WITH RELATED COMPANIES AND RELATED PARTIES (CONT’D)

Compensation of key management personnel

The remuneration of Directors and other members of key management of the Group and of the Company during the

financial period are as follows:

Group

31.12.2012 30.9.2011

$’000 $’000

Directors of the Company

Salaries and other short-term employee benefits 754 1,767

Employer’s contributions to defined contribution plan 16 11

Key management personnel

Salaries and other short-term employee benefits 1,153 773

Employer’s contributions to defined contribution plan 47 46

1,970 2,597

28. COMMITMENTS AND CONTINGENT LIABILITIES

Operating lease commitments

The Group and the Company as lessee

As at the balance sheet date, the Group and the Company have operating lease commitments for rental payable in

subsequent accounting periods as follows:

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Future minimum lease payments

Within one financial year 4,613 1,573 4,114 1,207

After one financial year but within five

financial years 19,063 6,058 17,473 4,754

After five financial years 23,882 17,315 23,343 16,401

47,558 24,946 44,930 22,362

The above operating lease commitments are based on existing rates. The lease agreements provide for a periodic

revision of such rates in the future.

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28. COMMITMENTS AND CONTINGENT LIABILITIES (CONT’D)

The Group and the Company as lessor

As at the balance sheet date, the Group and the Company have contracted with their tenants for the following future

minimum lease payments:

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Within one financial year 1,765 564 1,256 387

After one financial year but within

five financial years 1,322 252 630 214

3,087 816 1,886 601

Capital commitments

As at the balance sheet date, the Group and the Company had the following capital commitments contracted but not

provided for in the financial statements:

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Construction of new warehouse – 9,071 – 9,071

Plant and machinery 316 – 130 –

Contingent liabilities

Guarantees

Intra-group financial guarantees comprise corporate guarantees granted by the Company to banks in respect of banking

facilities amounting to $26,654,000 (2011: $23,685,000) to secure banking facilities provided to certain subsidiaries.

The financial guarantees will expire when the loans have been paid and discharged and/or when the banking facilities

are no longer available to the subsidiaries.

The principal risk to which the Company is exposed is credit risk in connection with the guarantee contracts it has

issued. The credit risk represents the loss that would be recognised upon a default by the subsidiaries for which, the

guarantees were given on behalf of.

There are no terms and conditions attached to the guarantee contracts that would have a material effect on the amount,

timing and uncertainty of the Company’s future cash flows.

The amount of credit facilities utilised by the subsidiary companies as at the balance sheet date amounted to

$10,349,000 (2011: $3,165,000).

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28. COMMITMENTS AND CONTINGENT LIABILITIES (CONT’D)

Contingent liabilities (cont’d)

In the opinion of the directors, no loss is anticipated from these guarantees.

The fair values of the financial guarantee contracts have not been recognised on the balance sheet at 31 December

2012 of the Group as the Group is of the view that the fair values of the corporate guarantees are not significant and

that no material losses will arise in respect of the guarantees provided at the date of these financial statements.

Legal claim

On 5 December 2011, a vendor lodged an adjudication application claiming the sum of $780,000 against the Company

in respect of construction works in connection with the proposed erection of a single-user industrial development at

Jurong Port Road (“JPR project”). The Company has made provision in the financial statements for financial year ended

30 September 2011.

On 9 December 2011, the same vendor served a writ of summons claiming the sum of $484,000 for consultancy

services rendered to the Company under a consultancy agreement for the JPR project. On the same day, a related

company of the vendor served a writ of summons claiming the sum of $697,000 for consultancy services rendered

under a consultancy agreement for a proposed factory/warehouse development in Johor, Malaysia.

On 4 April 2012, the Company announced that the related company of the vendor obtained summary judgment for a

portion of the claim for the sum of $272,000, inclusive of interest at 8% per annum payable from 8 December 2011 to

2 April 2012, plus cost of proceedings.

On 3 May 2012, the Company further announced that it had reached full and final settlement of $1,389,000 with the

vendor and its related company in respect of the above claims.

The above legal cases were settled during the financial period.

29. SEGMENT INFORMATION

For management purposes, the Group is organised into business units based on their products and services, and has

two reportable operating segments as follows:

(i) The trading segment is a supplier of steel products and includes the holding of investments in subsidiaries.

(ii) The manufacturing segment produces steel products and provides related engineering and sandblasting services.

Except as indicated above, no operating segments have been aggregated to form the above reportable operating

segments.

Management monitors the operating results of its business units separately for the purpose of making decisions about

resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss.

Transactions between operating segments are generally based on terms determined on commercial basis.

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29. SEGMENT INFORMATION (CONT’D)

Trading

Manu-

facturing

Adjustment/

elimination Group

$’000 $’000 $’000 $’000

Financial period ended

31 December 2012

REVENUE

Sales to external customers 359,584 45,776 – 405,360

Inter-segment sales (Note A) 14,544 6,386 (20,930) –

Total 374,128 52,162 (20,930) 405,360

RESULTS

Profit from operations 4,124 (807) (1,346) 1,971

Interest expense (2,346) (351) – (2,697)

Interest income 2 1 – 3

Share of associate results 178 6,039 – 6,217

Segment profit 1,958 4,882 (1,346) 5,494

Income tax expense (158)

Profit for the period 5,336

OTHER INFORMATION

Debit/(Credit):

Investment in associates 928 41,925 – 42,853

Additions to non-current assets

(Note B) 13,365 3,229 (1,891) 14,703

Depreciation and amortisation 2,646 1,431 (48) 4,029

Write down of inventories – 150 – 150

Reversal of provision for

reinstatement costs (650) – – (650)

Fair value gain/(loss) from derivatives (351) 12 – (339)

ASSETS AND LIABILITIES

Segment assets (Note A) 276,209 39,757 (53,325) 262,641

Total assets 262,641

Segment liabilities (Note A) 157,312 21,727 (55,582) 123,457

Tax payable 108

Deferred tax liabilities 187

Total liabilities 123,752

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Trading

Manu–

facturing

Adjustment/

elimination Group

$’000 $’000 $’000 $’000

Financial year ended

30 September 2011

REVENUE

Sales to external customers 214,340 24,502 – 238,842

Inter-segment sales (Note A) 2,856 1,394 (4,250) –

Total 217,196 25,896 (4,250) 238,842

RESULTS

Profit from operations 14,868 142 (698) 14,312

Interest expense (1,673) (250) – (1,923)

Interest income 28 – – 28

Share of associate results 74 3,674 – 3,748

Segment profit 13,297 3,566 (698) 16,165

Income tax credit 107

Profit for the year 16,272

OTHER INFORMATION

Debit/(Credit):

Investment in associates 751 35,917 – 36,667

Additions to non-current assets

(Note B) 3,286 325 – 3,611

Depreciation and amortisation 2,435 1,058 (9) 3,484

Fair value gain from derivatives (5,236) – – (5,236)

ASSETS AND LIABILITIES

Segment assets (Note A) 227,051 28,477 (35,029) 220,499

Total assets 220,499

Segment liabilities (Note A) 109,971 9,973 (34,700) 85,244

Tax payable 94

Deferred tax liabilities 212

Total liabilities 85,550

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Notes:

(A) Segment assets and liabilities include balances with companies in the Group. Inter-segment sales, assets and

liabilities are eliminated on consolidation.

(B) Additions to non-current assets consist of additions to property, plant and equipment and intangible assets

Geographical information

Revenue and non-current assets information based on geographical location of customers and assets respectively are

as follows:

External sales Non-current assets

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

Singapore 254,838 152,151 15,838 31,275

Malaysia 52,099 31,061 2,122 930

Indonesia 68,187 45,365 58 –

Others 30,236 10,265 – –

405,360 238,842 18,018 32,205

Non-current assets information presented above consist of property, plant and equipment and intangible assets as

presented in the consolidated balance sheet.

Information about a major customer

Revenue from one major customer amount to $27,092,000 (2011: $15,034,000), arising from sales of the trading

segment.

30. DIVIDENDS

Group and Company

Period from

1.10.2011 to

31.12.2012

Year ended

30.9.2011

$’000 $’000

Dividends paid during the period:

– Interim exempt (one-tier) dividend for 2011: 0.60 cents

(2011: Nil) per share 6,555 –

Proposed but not recognised as a liability as at

31 December 2012/30 September 2011:

– Interim exempt (one-tier) dividend for 2011: 0.30 cents

(2011: 0.60 cents) per share 3,278 6,096

The Company has proposed an interim dividend subsequent to period end and the dividend is not recognised as a

liability as at 31 December 2012.

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31. FINANCIAL INSTRUMENTS

Classification of financial instruments

Fair value

through profit

and loss

Loans and

Receivables

Liabilities at

amortised cost

$’000 $’000 $’000

Group

31.12.2012

Assets

Derivative financial instruments 22 – –

Investment held for trading 75 – –

Trade and other receivables – 96,629 –

Cash and fixed deposits – 18,522 –

Total 97 115,151 –

Liabilities


Trade and other payables – – 47,377

Finance lease payables – – 378

Bank borrowings – – 64,690

Total 12 – 112,445

30.9.2011

Assets

Investment held for trading 135 – –


Cash and fixed deposits – 9,851 –

Total 135 54,730 –

Liabilities





Total 329 – 83,265

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31. FINANCIAL INSTRUMENTS (CONT’D)

Fair value

through profit

and loss

Loans and

Receivables

Liabilities at

amortised cost

$’000 $’000 $’000

Company

31.12.2012

Assets



Cash and bank balances – 5,589 –

Total 22 119,729 –

Liabilities




Total – – 99,619

30.9.2011

Assets


Cash and bank balances – 2,773 –

Total – 53,220 –

Liabilities





Total 329 – 71,829

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ANNUAL REPORT 2012




Fair values

The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between

knowledgeable and willing parties in an arm’s length transaction, other than in a forced or liquidation sale.

Fair value of financial instruments that are carried at fair value

The following table shows an analysis of financial instruments carried at fair value by level of fair value hierarchy:

Quoted prices in

active markets

for identical

instruments

Significant

observable

inputs other than

quoted prices Total

(Level 1) (Level 2)

$’000 $’000 $’000

Group

31.12.2012

Financial assets:

Investment held for trading

– Equity instruments (quoted) 75 – 75

Derivative financial instruments

– Forward currency contracts – 22 22

At 31 December 2012 75 22 97

Financial liabilities:


– Forward currency contracts – (12) (12)

At 31 December 2012 – (12) (12)

30.9.2011

Financial assets:

Investment held for trading

– Equity instruments (quoted) 135 – 135

At 30 September 2011 135 – 135



– Warrants – (329) (329)

At 30 September 2011 – (329) (329)

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ANNUAL REPORT 2012




Quoted prices in

active markets

for identical

instruments

Significant

observable

inputs other than

quoted prices Total

(Level 1) (Level 2)

$’000 $’000 $’000

Company

31.12.2012

Financial assets:


– Forward currency contracts – 22 22

At 31 December 2012 – 22 22

30.9.2011



– Warrants – (329) (329)

At 30 September 2011 – (329) (329)

Fair value hierarchy

The Group classifies fair value measurement using a fair value hierarchy that reflects the significance of the inputs used

in making the measurements. The fair value hierarchy has the following levels:

• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities

• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,

either directly (i.e., as prices) or indirectly (i.e., derived from prices), and

There were no transfers between level 1 and level 2 fair value measurements during the financial period ended

31 December 2012 and financial year ended 30 September 2011.

Determination of fair value

Quoted equity instruments: Fair value is determined by direct reference to their bid price quotations in an active market

at the end of the reporting period.

Derivative financial instruments: The warrants are valued using a valuation model. The inputs to the model include

assumptions regarding dividend yield and volatility of share price. The fair values of forward currency contracts are

determined based on the quoted market price for equivalent instruments at the balance sheet date.

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Financial instruments whose carrying amount approximates fair value

Management has determined that the carrying amounts of derivative financial instruments, investment held for trading,

trade and other receivables, cash and bank balances, trade and other payables, and bank borrowings reasonably

approximate their fair values either due to their short term nature or that they are floating rate instruments that are re-

priced to market interest rates on or near the balance sheet date.

32. FINANCIAL RISK MANAGEMENT

The Group and the Company are exposed to financial risks arising from its operations and the use of financial

instruments. The key financial risks include credit risk, liquidity risk, interest rate risk, foreign currency risk and market

price risk. The Board of directors reviews and agrees policies and procedures for the management of these risks, which

are executed by the Chief Financial Officer.

The following sections provide details regarding the Group’s and Company’s exposure to the above-mentioned financial

risks and the objectives, policies and processes for the management of these risks.

(a) Credit risk

Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default

on its obligations. The Group’s and Company’s credit risk arises primarily from trade and other receivables.

For other financial assets (including derivatives financial instruments, investment held for trading and cash and

fixed deposits), the Group and the Company minimise credit risks by dealing exclusively with high credit rating

counterparties.

The Group and Company have a credit policy in place and the exposure to credit risk is monitored on an on-

going basis. Credit review, which takes into account qualitative and quantitative factors like business performance

and profile of the customers, is performed and approved by the management before credit is granted. The

customer’s payment profile and credit exposures are monitored on an on-going basis by the Credit controller.

Excessive risk concentration

Concentration risk arises when a number of counterparties are engaged in similar business activities, or activities

in the same geographical region, or have economic features that would cause their ability to meet contractual

obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate

the relative sensitivity of the Group’s performance to developments affecting a particular industry.

In order to avoid excessive concentrations of risk, the Group’s policies and procedures include specific

guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled

and managed accordingly.

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32. FINANCIAL RISK MANAGEMENT (CONT’D)

(a) Credit risk (cont’d)

Exposure to credit risk

At the balance sheet date, the Group’s and the Company’s maximum exposure to credit risk is represented by:

– the carrying amount of each class of financial assets recognised in the balance sheets.

– a nominal amount of $26,654,000 (2011: $23,685,000) relating to corporate guarantees provided by

the Company to banks on its subsidiaries’ borrowings and other banking facilities.

Credit risk concentration profile

The Group’s and the Company’s trade receivables concentration profiles by geographical areas and industry

sectors as at balance sheet date are as follows:

Group Company

31.12.2012 30.9.2011 31.12.2012 30.9.2011

$’000 $’000 $’000 $’000

By country:

– Singapore 33,069 29,517 30,818 23,344

– Malaysia 12,000 6,346 7,992 3,289

– Indonesia 6,366 6,257 7,908 5,698

– Others 550 871 309 587

51,985 42,991 47,027 32,918

By industry sectors:

– Trading 32,201 19,619 30,436 14,412

– Construction 6,735 9,984 7,316 7,846

– Shipping 7,616 8,720 7,155 8,599

– Others 5,433 4,668 2,120 2,061

51,985 42,991 47,027 32,918

At the end of the reporting period, approximately:

– 9% (2011: 9%) of the Group’s trade receivables were due from 5 (2011: 5) major customers who are

located in Singapore and Indonesia.

– 2% (2011: 8%) of the Group’s trade and other receivables were due from related parties.

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(a) Credit risk (cont’d)

Financial assets that are neither past due nor impaired

Cash and fixed deposits that are neither past due nor impaired are placed with or entered into with reputable

financial institutions with high credit ratings and have no history of default. Trade and other receivables that

are neither past due nor impaired are with creditworthy debtors with good payment record with the Group.

Financial assets that are either past due or impaired

Information regarding financial assets that are either past due or impaired is disclosed in Note 18 (Trade and

other receivables)

(b) Liquidity risk

Liquidity risk is the risk that the Group or the Company will encounter difficulty in meeting financial obligations due

to shortage of funds. The Group’s and Company’s exposure to liquidity risks arises primarily from mismatches

of the maturities of financial assets and liabilities.

The Group and the Company manages its liquidity risk by ensuring the availability of funding through an adequate

amount of committed credit facilities from financial institutions. In addition, the Group and Company also maintain

surplus cash for future investment opportunities.

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(b) Liquidity risk (cont’d)

The following are the contractual maturities of financial assets and liabilities of the Group and Company at

balance sheet date based on contractual undiscounted payments:

Within

one year

Two to

five years Total

$’000 $’000 $’000

Group

As at 31 December 2012

Financial assets:

Derivatives 22 – 22

Investment held for trading 75 – 75

Trade and other receivables 96,629 – 96,629

Cash and fixed deposits 18,522 – 18,522

Total undiscounted financial assets 115,248 – 115,248



Trade and other payables 47,377 – 47,377

Finance lease payables 202 210 412

Bank borrowings 56,539 9,058 65,597

Total undiscounted financial liabilities 104,130 9,268 113,398

Total net undiscounted financial assets/(liabilities) 11,118 (9,268) 1,850

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Within

one year

Two to

five years Total

$’000 $’000 $’000

Group

As at 30 September 2011

Financial assets:

Investment held for trading 135 – 135


Cash and fixed deposits 9,851 – 9,851








Total net undiscounted financial liabilities (27,019) (2,370) (29,389)

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Within

one year

Two to

five years Total

$’000 $’000 $’000

Company


Financial assets:



Cash and bank balances 5,589 – 5,589




Finance lease payables 90 – 90



Total net undiscounted financial assets/(liabilities) 28,438 (9,058) 19,380

As at 30 September 2011

Financial assets:


Cash and bank balances 2,773 – 2,773






Bank borrowings 33,089 814 33,903

Total undiscounted financial liabilities 71,632 926 72,558

Total net undiscounted financial liabilities (18,412) (926) (19,338)

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(c) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial

instruments will fluctuate because of changes in market interest rates. The Group’s and the Company’s exposure

to interest rate risk arises primarily from finance lease payables and bank borrowings. All of the Group’s and the

Company’s financial assets and liabilities at floating rates are contractually re-priced at intervals of less than 3

months (2011: less than 3 months) from the balance sheet date.

The Group’s and Company’s exposure to interest rate risk relate primarily to interest-bearing fixed deposits and

debt obligations with financial institutions.

Sensitivity analysis for interest rate risk

At the balance sheet date, if interest rates had been 8 (2011: 8) basis points lower/higher with all other variables

held constant, the Group’s income and equity would have been approximately $50,000 (2011: $28,000) higher/

lower, arising mainly as a result of lower/higher interest expense on debt obligations with financial institutions.

A similar change in interest rates would have increased/decreased the Company’s income and equity by

approximately $45,000 (2011: $25,000).

(d) Foreign currency risk

The Group has transactional currency exposures arising from sales or purchases that are denominated in a

currency other than the respective functional currencies of the Group entities, primarily the Singapore Dollar

and Malaysian Ringgit. The foreign currency in which these transactions are denominated is mainly the US

Dollar (“USD”).

The Group and the Company also hold cash and bank balances denominated in foreign currencies for working

capital purposes. At the balance sheet date, such foreign currency balances (mainly in USD) amounted to

$1,200,000 (2011: $1,592,000) and $463,000 (2011: $964,000) for the Group and Company respectively.

The Group is exposed to currency translation risk arising from its net investments in foreign operations, including

Malaysia and People’s Republic of China (PRC). The Group’s net investments in Malaysia and PRC are not

hedged as currency positions in Ringgit and RMB are considered to be long-term in nature.

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(d) Foreign currency risk (cont’d)

Sensitivity analysis for foreign currency risk

The following table demonstrates the sensitivity of the Group’s profit before tax to a reasonably possible

change in the USD exchange rate against the respective functional currencies of the Group entities, with all

other variables held constant.

Increase/(decrease)

Profit before tax

31.12.2012 30.9.2011

$’000 $’000

Group

USD/SGD – strengthened 2% (2011: 2%) (336) (882)

– weakened 2% (2011: 2%) 336 882

Profit before of tax

31.12.2012 30.9.2011

$’000 $’000

Company

USD/SGD – strengthened 2% (2011: 2%) (242) (837)

– weakened 2% (2011: 2%) 242 837

(e) Market price risk

Market price risk is the risk that fair value or future cash flows of the Group’s financial instruments will fluctuate

because of changes in market prices (other than interest or exchange rates). The Group is exposed to equity

price risk arising from its investment in quoted equity instruments. These instruments are quoted on the SGX-ST

in Singapore and are classified as held for trading.

Sensitivity analysis for equity price risk

At the balance sheet date, if the STI had been 2% (2011: 2%) higher/lower with all other variables held constant,

this would have given rise to higher/lower fair value gains in held for trading equity instruments and the Group’s

profit before tax would have been $1,500 higher/lower (2011: $2,700).

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33. CAPITAL MANAGEMENT

Capital includes debt and equity items as disclosed in the table below.

The primary objective of the Group’s capital management is to ensure that it maintains strong credit worthiness and

healthy capital ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To

maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to

shareholders or issue new shares. No changes were made in the objectives, policies or processes during the period

ended 31 December 2012 and year ended 30 September 2011.

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group’s

policy is to keep the gearing ratio below 70%. The Group includes within net debt, loans and borrowings and finance

lease payables less cash and fixed deposits. Capital includes equity attributable to the equity holders of the parent.

31.12.2012 30.9.2011

$’000 $’000

Finance lease payables 378 647

Bank borrowings 64,690 39,755

Less:

Cash and fixed deposits (18,522) (9,851)

Net debt 46,546 30,551

Equity attributable to equity holders of the Company 137,028 132,814

Capital and net debt 183,574 163,365

Gearing ratio 25% 19%

34. COMPARATIVE FIGURES

Certain comparative figures in the Statement of Comprehensive Income for the financial year ended 30 September

2011 have been restated to conform to the current period’s classification to better reflect the nature of the items.

The reclassification has no effect on the results as reported for the previous financial year. Costs incurred as carriage

outwards that were previously included in other operating expenses are reclassified as distribution costs.

As previously

reported As reclassified

$’000 $’000

YTD (12 months)

Distribution expenses 1,776 2,169

Other operating expenses 7,096 6,703

35. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 27 March 2013.

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Appendix

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ANNUAL REPORT 2012

1. INTRODUCTION

1.1 The Directors wish to seek Shareholders’ approval for the following:

(a) a proposed renewal of the mandate for interested person transactions (the “IPT Mandate”); and

(b) a proposed renewal of the share purchase mandate (the “Share Purchase Mandate”).

1.4 The purpose of this Appendix, to be circulated to Shareholders together with the Company’s 2012 Annual Report, is

to provide Shareholders with information relating to, and to explain the rationale for, the proposed renewal of the IPT

Mandate and the proposed renewal of the Share Purchase Mandate to be tabled at the annual general meeting of

the Company to be held on 11 April 2013 (the “AGM”). Details of the IPT Mandate and the Share Purchase Mandate,

including the rationale for and the benefits to the Company, are set out respectively in paragraphs 3 and 5 below.

2. CONFIRMATION BY AUDIT COMMITTEE

The Audit Committee confirms that:

(a) the methods and procedures for determining the transaction prices under the IPT Mandate have not changed

since the last Shareholders’ approval at the Annual General Meeting of the Company held on 12 January 2012;

and

(b) the methods and procedures referred to in sub-paragraph (a) above are sufficient to ensure that the transactions

will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and

its minority Shareholders.

3. THE IPT MANDATE

3.1 The Existing IPT Mandate

Shareholders had approved the general mandate pursuant to Chapter 9 of the Listing Manual permitting members in

the HG Group (as defined below), or any of them, to enter into certain types of transactions of a recurrent nature with

specified classes of the Company’s interested persons at the Extraordinary General Meeting of HG Metal Manufacturing

Limited (the “Company”) held on 4 March 2011. Particulars of the IPT Mandate were set out in the circular to

Shareholders dated 17 February 2011.

The IPT Mandate was renewed at the Annual General Meeting of the Company held on 12 January 2012 and was

expressed to take effect until the conclusion of the next Annual General Meeting of the Company, being the annual

general meeting of the Company to be held on 11 April 2013. Accordingly, the Directors propose that the IPT Mandate

be renewed at the AGM, to take effect until the next Annual General Meeting of the Company. The transactions under

the IPT Mandate which is sought to be renewed remain unchanged.


Appendix

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ANNUAL REPORT 2012

3.2 Chapter 9 of the Listing Manual

Chapter 9 of the Listing Manual governs transactions by a listed company, as well as transactions by its subsidiaries

and associated companies that are considered to be at risk, with the listed company’s interested persons.

When Chapter 9 of the Listing Manual applies to a transaction with an interested person (except for any transaction

which is below $100,000 in value and certain transactions which, by reason of the nature of such transactions, are not

considered to put the listed company at risk to its interested person and are hence excluded from the ambit of Chapter

9 of the Listing Manual) and the value of that transaction alone or on aggregation with other transactions conducted

with the interested person during the financial year reaches (or exceeds) certain materiality thresholds (which are based

on the listed group’s latest audited consolidated net tangible assets (“NTA”)), the listed company is required to make

an immediate announcement, or to make an immediate announcement and seek its shareholders’ approval for that

transaction.

An immediate announcement is required where:

(a) the value of a transaction with an interested person is equal to, or more than, 3% of the listed group’s latest

audited consolidated NTA; or

(b) the aggregate value of all transactions entered into with the same interested person (as such term is construed

under Chapter 9 of the Listing Manual) during the same financial year, amounts to 3% or more of the listed

group’s latest audited consolidated NTA.

In addition, shareholders’ approval is required for an interested person transaction of a value equal to, or exceeding:

(i) 5% of the listed group’s latest audited consolidated NTA; or

(ii) 5% of the listed group’s latest audited consolidated NTA, when aggregated with other transactions entered

into with the same interested person (as such term is construed under Chapter 9 of the Listing Manual) during

the same financial year. However, a transaction which has been approved by shareholders, or is the subject

of aggregation with another transaction that has been approved by shareholders, need not be included in any

subsequent aggregation.

For illustration purposes, based on the audited accounts of the HG Group for the financial period ended 31 December

2012, the consolidated NTA of the HG Group was $136,647,000. Accordingly, in relation to the Company, and for the

purposes of Chapter 9 of the Listing Manual, 5% of the latest audited consolidated NTA of the HG Group would be

$6,832,350. Based on the above figures, Shareholders’ approval would be required for any transaction with a value

equal to or above $6,832,350 or any transaction, when aggregated with other transactions entered into with the same

interested person during the same financial year, with a value equal to or above $6,832,350 (unless such transaction has

been approved by the Shareholders or is the subject of aggregation with another transaction that has been approved

by the Shareholders).

Chapter 9 of the Listing Manual permits a listed company to seek a general mandate from its shareholders for recurrent

transactions of a revenue or trading nature or those necessary for its day-to-day operations such as the purchase and

sale of supplies and materials (but not in respect of the purchase or sale of assets, undertakings or businesses) that

may be carried out with the listed company’s interested persons. A general mandate is subject to annual renewal.

The definitions of certain terms which are used in Chapter 9 of the Listing Manual (such as “entity at risk”, “interested

person” and “associate”), are set out in Schedule I of this Appendix.


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3.3 Rationale for the Renewal of the IPT Mandate

It is envisaged that in the ordinary course of their businesses, transactions between companies in the HG Group (as

defined below) and the Company’s Interested Persons (as defined below) are likely to occur from time to time. Such

transactions would include, but are not limited to, the sale and purchase of steel products in the ordinary course of

business of the HG Group to (or from) the Company’s Interested Persons and the purchases of steel products in the

ordinary course of business by the HG Group jointly with the Company’s Interested Persons.

In view of the time-sensitive nature of commercial transactions, the obtaining of the IPT Mandate pursuant to Chapter

9 of the Listing Manual will enable:

(a) the Company;

(b) subsidiaries of the Company that are not listed on the Singapore Exchange Securities Trading Limited

(“SGX-ST”) or an approved exchange; and

(c) associated companies of the Company that are not listed on the SGX-ST or an approved exchange, provided

that the HG Group, or the HG Group and the Interested Person(s), has or have control over the associated

companies,

(together, the “HG Group”) or any of them, in the ordinary course of their businesses, to enter into the categories of

transactions (the “Interested Person Transactions”) set out in paragraph 3.6 below with the specified class of the

Company’s interested persons (the “Interested Persons”) set out in paragraph 3.5 below without being separately

subject to the obligations in Rules 905 and 906 of the Listing Manual, provided such Interested Person Transactions

are made on normal commercial terms and will not be prejudicial to the interests of the Company and its minority

Shareholders.

3.4 Scope of the IPT Mandate

The IPT Mandate will cover (a) the purchase of steel products in the ordinary course of business of the HG Group from

Chye Hin Hardware Pte. Ltd. (“Chye Hin”) and/or the OCS Group (defined below), (b) the sale of steel products in the

ordinary course of business of the HG Group to Chye Hin and/or the OCS Group (c) (i) the joint purchases of goods

with Chye Hin pursuant to the terms of a master sales agreement between the HG Group and Chye Hin, and (ii) the joint

purchases of goods with the OCS Group pursuant to the terms of a master sales agreement between the HG Group

and OCS, (d) the provision of short term loans by Chye Hin and/or the OCS Group to the entities of the HG Group, and

(e) the provision of management and support services by the OCS Group to the HG Group.

The IPT Mandate will not cover any transaction by a company in the HG Group with an Interested Person that is below

S$100,000 in value as the threshold and aggregation requirements of Chapter 9 of the Listing Manual would not apply

to such transactions.

Transactions with interested persons (including the Interested Persons) that do not fall within the ambit of the IPT

Mandate will be subject to the relevant provisions of Chapter 9 of the Listing Manual and/or other applicable provisions

of the Listing Manual.


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The OCS Group comprises Oriental Castle Sdn Bhd (“OCS”) and the following subsidiaries and associated companies

of OCS:

(a) Oriental Sheet Piling Sdn Bhd;

(b) Oriental Sheet Piling Pte. Ltd.;

(c) Oriental Steel Pipe Sdn Bhd;

(d) Oriental Steel Pipe Pte. Ltd.;

(e) Arcelor International Steel Trading (Shanghai) Co. Ltd.; and

(f) Plan B Pte. Ltd..

3.5 Classes of Interested Persons

The IPT Mandate will apply to the Interested Person Transactions (as described in paragraph 3.6 below) that are carried

out between (i) any member of the HG Group, with (ii) Chye Hin and/or any member of the OCS Group, as the case

may be.

(a) Chye Hin

Chye Hin is a private limited company incorporated in Singapore and presently carries on the business of

importing and exporting structural and mild steel products. As at 8 March 2013, being the latest practicable

date prior to the printing of this Appendix (the “Latest Practicable Date”), Chye Hin holds 86,086,574 shares

in the capital of the Company (“Shares”) and is a Substantial Shareholder of the Company. Mr. Yap Xi Ming, a

Director of the Company, has an interest of approximately 33.33% in Chye Hin.

As such, Chye Hin (being an associate of Mr. Yap Xi Ming) is an Interested Person in the Company pursuant to

Chapter 9 of the Listing Manual and any transactions entered into between the HG Group and Chye Hin would

constitute Interested Person Transactions.

(b) The OCS Group

OCS is a private limited company incorporated in Malaysia and the entities of the OCS Group presently carry

on the business of trading in construction materials as well as investment holding companies. As at the Latest

Practicable Date, OCS holds 240,350,000 Shares and is deemed interested in 43,700,000 Shares and is

a Substantial Shareholder of the Company. Mr. Goh Kian Sin, a director and controlling shareholder of the

Company, has an interest of approximately 80% in OCS. Mr. Hew Yuen Hin, a controlling shareholder of the

Company, has an interest of approximately 20% in OCS.

Appendix II of this Circular contains a chart setting out the shareholding structure of the OCS Group.

Each member of the OCS Group (being an associate of Mr. Goh Kian Sin, Mr. Hew Yuen Hin and/or OCS) is an

Interested Person in the Company pursuant to Chapter 9 of the Listing Manual and any transactions entered into

between the HG Group and any member of the OCS Group would constitute Interested Person Transactions.


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3.6 Categories of Interested Person Transactions

The Interested Person Transactions with the Interested Persons (as described in paragraph 3.5 above) that will be

covered by the IPT Mandate are set out below.

(a) Purchase of steel products in the ordinary course of business of the HG Group from Chye Hin and/or the OCS

Group

The HG Group purchases steel products from Chye Hin and/or the OCS Group, for the purpose of on-selling

such products to the HG Group’s customers. This enables the HG Group to complement and supplement its

existing range of products without the need for additional working capital requirements whilst at the same time

providing better service to the existing customers of the HG Group.

(b) Sale of steel products in the ordinary course of business of the HG Group to Chye Hin and/or the OCS Group

The products of entities in the HG Group are sold to Chye Hin and/or the OCS Group. Such sales enable the

HG Group to tap on Chye Hin’s and the OCS Group’s respective client networks, thus bringing additional

revenue and profit to the HG Group.

(c) (i) Joint purchases of goods with Chye Hin pursuant to the terms of a master sales agreement between the HG

Group and Chye Hin, and (ii) joint purchases of goods with the OCS Group pursuant to the terms of a master

sales agreement between the HG Group and OCS

The Company has entered into a master sales agreement with each of Chye Hin and the OCS Group for common

purchases from third party suppliers of goods required for the day-to-day operations of the Company.

The said arrangement enables the HG Group to tap on Chye Hin’s and the OCS Group’s respective networks of

suppliers, so as to take advantage of the existing goodwill enjoyed by Chye Hin and/or the OCS Group, as the

case may be, as well as any preferential rates, rebates or discounts accorded for bulk purchases by Chye Hin

and/or the OCS Group, and vice versa. The HG Group stands to benefit from the mutual advantages enjoyed

by both parties to the master sales agreement, so as to be able to translate the cost-savings thereunder into

more competitive pricing for the products of the HG Group.

Pursuant to the respective master sales agreement with each of Chye Hin and the OCS Group (i) Chye Hin

and/or the OCS Group, as the case may be, and (ii) the Company, will make such purchases on behalf of the

other party where it would be more cost effective for them to do so. The costs of such purchases will be initially

borne by the purchasing party, and will be allocated to the other party at the cost price paid by the purchasing

party for the goods (after taking into account all expenses incurred in respect of the purchase) with no mark-up.

The other party will thereafter reimburse the purchasing party at cost with no mark-up for its allocated portion

of such costs.


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(d) Provision of short term loans by Chye Hin and/or the OCS Group to the entities of the HG Group

It is intended that, in the event that the HG Group has fully utilised all its existing credit facilities with financial

institutions, the entities of the HG Group may from time to time take out short term loans (i.e. with repayment

periods of up to six (6) months) from Chye Hin and/or the entities of the OCS Group, on an ad hoc basis, for

the purpose of bridging short term cash requirements of the HG Group. It is estimated that the aggregate

principal amount outstanding from the HG Group under all such loans at any given time will not exceed $10

million in aggregate.

The HG Group can benefit from competitive rates or quotes offered by Chye Hin and the OCS Group, as well

as by leveraging on the financial strength and credit standing of Chye Hin and the OCS Group in an expeditious

manner.

(e) Provision of management and support services by the OCS Group to the HG Group

The OCS Group provides management and support services to the HG Group on an ad-hoc basis.

By having access to such services, the HG Group derives operational and financial leverage through savings in

terms of reduced overheads and greater economies of scale.

3.7 Benefits to Shareholders

The IPT Mandate for the Interested Person Transactions with the Interested Persons as highlighted in paragraph 3.6

above, if approved at the AGM, will enhance the ability of entities in the HG Group to pursue business opportunities

which are time-sensitive in nature and will eliminate the need for the Company to announce, or to announce and convene

separate general meetings on each occasion to seek Shareholders’ prior approval for the entry by the relevant entity

in the HG Group into such Interested Person Transactions. As such Interested Person Transactions are also carried

out by the HG Group in its ordinary course of business and/or which are necessary for its day-to-day operations (but

not in respect of the purchase or sale of assets, undertakings or businesses), the IPT Mandate will substantially reduce

the expenses associated with the convening of general meetings on an ad hoc basis, improve administrative efficiency

considerably, and allow manpower resources and time to be channeled towards attaining other corporate objectives

without compromising existing corporate objectives and adversely affecting the business opportunities available to the

Company owing to the time-sensitive nature of commercial transactions.

The IPT Mandate is intended to facilitate the Interested Person Transactions in the day-to-day operations of the HG

Group that may be transacted from time to time with the specified classes of Interested Persons, provided that they

are carried out on normal commercial terms, and are not prejudicial to the interests of the Company and its minority

Shareholders. The HG Group will benefit from having access to competitive quotes from, or transactions with, its

Interested Persons in addition to obtaining quotes from, or transactions with non-Interested Persons, as well as having

more business opportunities through the cross-selling of products. The IPT Mandate will also enhance the ability of

the HG Group to utilise the resources owned by its Interested Persons which will improve operational efficiency in a

cost-effective manner to the HG Group.


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3.8 Guidelines and Review Procedures for Interested Person Transactions

3.8.1 Review Procedures

The Company has internal control systems in place to ensure that transactions with its interested persons (including

the Interested Persons) are made on normal commercial terms, and are consistent with the Company’s usual business

practices and policies. The Audit Committee will also review and approve the transactions where applicable, as further

described below.

The internal control systems will also include the following guidelines and procedures to ensure that the Interested

Person Transactions are undertaken with the Interested Persons on normal commercial terms:

(a) Purchase of steel products from Chye Hin and/or the OCS Group

The purchase of steel products from Chye Hin and/or the OCS Group will be carried out on terms which are

no more favourable to Chye Hin or the OCS Group, as the case may be, than those offered by unrelated third

party suppliers to the HG Group.

In this regard, prior to the entry of the transaction with Chye Hin and/or the OCS Group, as the case may be,

contemporaneous quotes obtained (wherever possible or available) from at least two other unrelated third party

suppliers for similar products and/or quantities, from similar geographical locations, will be used as comparison,

taking into account all pertinent factors such as but not limited to delivery schedules, quality of products/

materials and track record of counter-parties and where applicable, preferential rates, rebates or discounts

accorded for bulk purchases.

In the event where it is impracticable or impossible to obtain comparable prices of contemporaneous purchase

transactions of similar products due to the nature of the product to be purchased, the transaction price and

terms extended will be determined in accordance with the HG Group’s usual business practices and pricing

policies or in accordance with industry norms (as the case may be), taking into account factors such as,

but not limited to, the nature of the product, delivery schedules, order quantity, customer requirements and

specifications, duration of contract, preferential rates, discounts or rebates for bulk purchases or sales and

cost for freight.

(b) Sale of steel products to Chye Hin and/or the OCS Group

The sale of steel products to Chye Hin and/or the OCS Group will be carried out on terms which are no more

favourable to Chye Hin or the OCS Group, as the case may be, than those extended by the HG Group to its

unrelated third party customers. In this regard, the terms of at least two other contemporaneous transactions

involving sales of steel products to unrelated third party customers for similar products or services, will be used

as comparison, wherever possible, taking into account all pertinent factors such as but not limited to, delivery

schedules, quality of products and track record of counter-parties and where applicable, preferential rates,

rebates or discounts accorded for bulk purchases.


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In the event where it is impracticable or impossible to obtain comparable prices of contemporaneous sale

transactions of similar products due to the nature of the product to be sold, the transaction price and terms

extended or offered will be determined in accordance with the HG Group’s usual business practices and

pricing policies, including the HG Group’s profit margin which will not be lower than the profit margin for a

similar transaction to unrelated third parties, or in accordance with industry norms (as the case may be), taking

into account factors such as, but not limited to, the nature of the product, delivery schedules, order quantity,

customer requirements and specifications, duration of contract, preferential rates, discounts or rebates for bulk

purchases or sales and cost for freight.

(c) Entry into a master sales agreement for joint purchases with Chye Hin and/or the OCS Group

In the event that Chye Hin or the OCS Group takes the lead on such joint purchases from third party suppliers,

the purchase of such goods from Chye Hin and/or the OCS Group will be carried out at the cost price paid to

third party suppliers for the goods, after taking into account all expenses incurred by Chye Hin and/or the OCS

Group in respect of the purchase. In this regard, Chye Hin or the purchasing OCS Group entity, as the case

may be, will provide the Company with documentary evidence of the cost of the goods purchased by it on

behalf of the Company, as well as a break-down of the expenses incurred by it in connection with the purchase,

at rates which are to be mutually agreed between (i) the Company and Chye Hin and/or (ii) the Company and

the purchasing OCS Group entity, as the case may be. The Company and Chye Hin or the purchasing OCS

Group entity, as the case may be, will enter into specific sale contracts in respect of each such joint purchase

arrangement, in accordance with the terms of the master sales agreement, so as to avoid unexpected and

unforeseeable fluctuations in the prices of the goods to be purchased.

In the event that the HG Group takes the lead on such joint purchases from third party suppliers, the sales of

such goods to Chye Hin and/or the OCS Group, as the case may be, will be transacted in the same manner

as described above.

(d) Provision of short term loans by Chye Hin and/or the OCS Group

In relation to the intended borrowings by the HG Group from Chye Hin and/or the OCS Group, the Company

will require that quotations shall be obtained from such Interested Person and at least two banks for rates for

loans of the funds to be borrowed. The borrowing HG Group entity will only borrow funds from such Interested

Person if the terms quoted are no less favourable than those quoted by the banks.

(e) Provision of management and support services by the OCS Group to the HG Group

In relation to the management and support services to be provided by the OCS Group to the HG Group, the

Company will reimburse and pay OCS the management and support services fees on a “cost recovery basis”,

that is, the costs incurred by the OCS Group in the provision of such management and support services.

The Audit Committee will review, on a quarterly basis upon the provision of such management and support

services by the OCS Group to the HG Group, whether the fee payable to OCS is fair and reasonable and

commensurate with the amount of resources incurred by the OCS Group in their provision of such management

and support services to the HG Group.


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3.8.2 Approval Thresholds

In addition to the review procedures, the HG Group will monitor all Interested Person Transactions, and will categorise

the transactions as follows:

(a) Category 1 Interested Person Transactions

These are Interested Person Transactions where the value thereof is below three per cent. (3%) of the audited

NTA (based on the latest audited consolidated accounts) of the HG Group.

Category 1 Interested Person Transactions below S$100,000 shall be reviewed and approved by the relevant

head of the department handling the transaction, who shall not have an interest in the transaction. Category 1

Interested Person Transactions in excess of S$100,000 shall be approved by the chief executive officer of the

Company (the “CEO”). If the CEO has an interest in the transaction, the approval shall be given by any Director

who does not have an interest in the transaction. Category 1 Interested Person Transactions do not require

the prior approval of the Audit Committee but shall be reviewed on a quarterly basis by the Audit Committee

to ensure that they are carried out on an arm’s length basis and on normal commercial terms, in accordance

with the guidelines and procedures outlined above.

(b) Category 2 Interested Person Transactions

These are Interested Person Transactions where the value thereof is equal to or above three per cent. (3%) of

the audited NTA (based on the latest audited consolidated accounts) of the HG Group.

All Category 2 Interested Person Transactions shall be reviewed and approved by the Audit Committee prior

to the HG Group’s entry into such transactions. If a member of the Audit Committee has an interest in the

transaction to be reviewed by the Audit Committee, he will abstain from any decision-making by the Audit

Committee in respect of that transaction and the review and approval of the transaction will be undertaken by

the remaining members of the Audit Committee.

In addition to and without prejudice to the above, where the aggregate value of all Category 1 and Category 2 Interested

Person Transactions with the same Interested Person (as defined in Rule 908 of the Listing Manual) in the current

financial year is equal to or exceeds ten per cent. (10%) of the latest audited NTA of the HG Group, the latest and all

future Interested Person Transactions (whether Category 1 or Category 2 Interested Person Transactions) with that

same Interested Person (so defined) will be approved by the Audit Committee prior to the HG Group’s entry into such

transactions.

The threshold limits set out above are adopted by the Company taking into account, inter alia, the nature, volume,

recurrent frequency and size of the transactions as well as the Group’s day-to-day operations, administration and

businesses. The threshold limits were arrived at after taking into consideration the need to strike a balance between

(i) maximising the operational efficiency of the day-to-day operations of the HG Group, and (ii) maintaining adequate

internal controls and governance in relation to the Interested Person Transactions. The threshold limits are intended to

act as an additional safeguard to supplement the review procedures which will be implemented by the Company for

Interested Person Transactions.


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3.8.3 IPT Register

The Company maintains a register to record all Interested Person Transactions (with details of the nature of the

transaction, the amount of and the basis for the fees and charges including the quotations, purchase invoices, sales

invoices and credit terms, if any, and where relevant, obtained to support such basis on which they are entered into)

which are entered into pursuant to the IPT Mandate. The IPT Register is prepared, maintained and monitored by one

or more senior management executives of the Company who are not Interested Persons.

The Company’s internal auditors shall review the IPT Register no less than once annually to ascertain that the guidelines

and procedures established to monitor Interested Person Transactions have been complied with. The scope of the

review by the Company’s internal auditors is limited to transactions above S$100,000 only.

3.8.4 Reviews by Audit Committee

Notwithstanding paragraph 3.8.2(a) above, the Company shall, on a quarterly basis, report to the Audit Committee all

Interested Person Transactions which are in excess of S$100,000 per transaction, and the basis of such transactions,

entered into with Interested Persons during the preceding quarter. The Audit Committee shall review such Interested

Person Transactions at its quarterly meetings except where such Interested Person Transactions are required under

the review procedures to be approved by the Audit Committee prior to the entry thereof.

The Audit Committee has the overall responsibility for determining the review procedures with the authority to delegate to

individuals within the Company as it deems appropriate. In its review and/or approval of Interested Person Transactions

under paragraph 3.8.2(b) and under this paragraph 3.8.4, the Audit Committee will generally only approve an Interested

Person Transaction if the terms of the transaction are no less favourable to the HG Group than the terms offered by

unrelated third parties, or in accordance with published or prevailing rates/prices or otherwise in accordance with

prevailing industry norms. The members of the Audit Committee may, as they deem fit, request for additional information

pertaining to the transaction under review from independent sources or advisers, including the obtaining of valuations

from independent professional valuers.

In addition to the Audit Committee’s participation in the review and/or approval processes described above, the Audit

Committee will also:

(a) carry out periodic reviews (at least once a year) to ascertain that the established guidelines and procedures for

Interested Person Transactions have been complied with; and

(b) consider at least once a year whether the established guidelines and procedures for transactions with Interested

Persons have become inappropriate or are unable to ensure that the transactions will be carried out on normal

commercial terms, and are not prejudicial to the interests of Shareholders.

If, during a review by the Audit Committee, the Audit Committee is of the view that the established review procedures are

not sufficient or have become inappropriate, in view of changes to the nature of, or the manner in which, the business

activities of the HG Group are conducted, it will take such actions as it deems appropriate and/or institute additional

procedures as necessary to ensure that future transactions of a similar nature are on normal commercial terms and will

not be prejudicial to the interests of the Company and its minority Shareholders, and the Company will revert to the

Shareholders for a fresh mandate based on new review procedures for transactions with Interested Persons.

For the purpose of the review process, if a member of the Audit Committee has an interest in the transaction to be reviewed

by the Audit Committee, he will abstain from any decision-making by the Audit Committee in respect of that transaction

and the review and approval of the transaction will be undertaken by the remaining members of the Audit Committee.


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3.9 Validity Period of the IPT Mandate

If approved by Shareholders at the AGM, the renewal of the IPT Mandate will take effect from the passing of the ordinary

resolution relating thereto at the AGM, and will (unless revoked or varied by the Company in a general meeting) continue

in force until the next Annual General Meeting. Approval from Shareholders will be sought for the renewal of the IPT

Mandate at the next Annual General Meeting and at each subsequent Annual General Meeting of the Company, subject

to satisfactory review by the Audit Committee of its continued application to the transactions with the Interested Persons.

3.10 Disclosure in Annual Report

In accordance with the requirements of Chapter 9 of the Listing Manual, the Company will disclose the IPT Mandate

and the aggregate value of the Interested Person Transactions conducted pursuant to the IPT Mandate in the annual

report of the Company for the current financial year, and in the annual reports of the Company for the subsequent

financial years during which the IPT Mandate is in force. Such disclosures shall be in the form set out in Rule 907 of

the Listing Manual.

In addition, the Company will announce the aggregate value of the Interested Person Transactions conducted pursuant

to the IPT Mandate for the financial periods which it is required to report on (pursuant to Rule 705 of the Listing Manual)

within the time required for the announcement of such report.

4. AUDIT COMMITTEE’S STATEMENT

The Audit Committee has reviewed the terms of the IPT Mandate, and is satisfied that the review procedures for

Interested Person Transactions, as well as the reviews to be made periodically by the Audit Committee (with internal

audit assistance) in relation thereto, are sufficient to ensure that Interested Person Transactions will be made with the

relevant class of Interested Persons in accordance with HG Group’s normal commercial terms, and are hence not

prejudicial to the Company and its minority Shareholders.

If, on its review of the internal audit reports, the Audit Committee is of the view that the established guidelines and

procedures are not sufficient to ensure that the Interested Person Transactions will be on the HG Group’s normal

commercial terms and will not be prejudicial to the interests of the Company and its minority Shareholders, the Company

will seek a fresh mandate based on new guidelines and procedures for transactions with Interested Persons.

5. THE PROPOSED SHARE PURCHASE MANDATE

5.1 The Existing Share Purchase Mandate

Shareholders had approved the Share Purchase Mandate to enable all the Directors to exercise all powers of the

Company to purchase or otherwise acquire its issued Shares on the terms of the Share Purchase Mandate at the

Extraordinary General Meeting of the Company held on 12 January 2012. Particulars of the Share Purchase Mandate

were set out in the circular to Shareholders dated 21 December 2011.

The Share Purchase Mandate was expressed to take effect until the conclusion of the next Annual General Meeting of

the Company, being the annual general meeting of the Company to be held on 11 April 2013. Accordingly, the Directors

propose that the Share Purchase Mandate be renewed at the AGM, to take effect until the next Annual General Meeting

of the Company. The terms of the Share Purchase Mandate which is sought to be renewed remain unchanged.


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5.2 Rationale for Share Purchase Mandate

The approval of the Share Purchase Mandate authorising the Company to purchase or acquire its Shares would give

the Company the flexibility to undertake share purchases or acquisitions up to the three per cent. (3%) limit described

in paragraph 5.4.1 below at any time, during the period when the Share Purchase Mandate is in force.

The rationale for the Company to undertake the purchase or acquisition of its issued Shares is as follows:

(a) In managing the business of the Group, the management team strives to increase Shareholders’ value by

improving, inter alia, the return on equity of the Group. In addition to growth and expansion of business, share

purchase is one of the ways through which the return on equity of the Group may be enhanced.

(b) The Share Purchase Mandate is an expedient, effective and cost-efficient way for the Company to return surplus

cash/funds over and above its ordinary capital requirements, if any, which is in excess of the financial and

investment needs of the Company to its Shareholders. In addition, the Share Purchase Mandate will allow the

Company to have greater flexibility over, inter alia, the Company’s share capital structure, cash reserves and

its dividend policy.

(c) The Share Purchase Mandate will provide the Company the flexibility to undertake share purchases at any time,

subject to market conditions, during the period when the Share Purchase Mandate is in force.

(d) The Share Purchase Mandate will help buffer short-tern share price volatility and offset the effects of short-term

share price speculation, thereby boosting Shareholders’ confidence.

While the Share Purchase Mandate would authorise a purchase or acquisition of Shares up to the said three per

cent. (3%) limit during the duration referred to in paragraph 5.4.2 below, Shareholders should note that purchases or

acquisitions of Shares pursuant to the Share Purchase Mandate may not be carried out to the full three per cent. (3%)

limit as authorised and the purchases or acquisitions of Shares pursuant to the Share Purchase Mandate would be

made only as and when the Directors consider it to be in the best interests of the Company and/or Shareholders and in

circumstances which they believe will not result in any material adverse effect to the financial position of the Company

or the Group, or result in the Company being delisted from the SGX-ST. The Directors will use their best efforts to

ensure that after a purchase or acquisition of Shares pursuant to the Share Purchase Mandate, the number of Shares

remaining in the hands of the public will not fall to such a level as to cause market illiquidity or adversely affect the

orderly trading and listing status of the Shares on the SGX-ST.

5.3 Option Shares under Subscription Agreement.

As announced by the Company on 20 July 2011 and 25 July 2011, pursuant to a subscription agreement dated 19

July 2010 entered into by the Company and OCS (the “Subscription Agreement”), the Company granted OCS an

option (the “Call Option”), at any time during the one (1) year period commencing from the date of the Subscription

Agreement, to require the Company to allot and issue 153,000,000 Shares (the “Option Shares”) to OCS on the terms

and subject to the conditions of the Subscription Agreement. By mutual agreement, the Company allotted and issued

the first half of the Option Shares (being 76,500,000 Shares) to OCS on 25 July 2011 against full payment by OCS for

such Option Shares, with the remaining half of the Option Shares (the “Remaining Option Shares”) to be allotted and

issued by the Company to OCS within seven (7) months from the date of exercise of the Call Option, i.e. by 18 February

2012, against full payment for such Remaining Option Shares being made by OCS. As announced by the Company

on 22 February 2012, the Remaining Option Shares were allotted and issued to OCS, and the total number of issued

Shares of the Company (including treasury shares) as at the Latest Practicable Date increased to 1,092,521,962 Shares.

As at the Latest Practicable Date, the total number of issued Shares of the Company (excluding treasury shares) is

1,069,253,962 Shares.


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5.4 Authority and Limits on the Share Purchase Mandate

The authority and limits placed on share purchases or acquisitions of Shares by the Company under the proposed

Share Purchase Mandate are summarised below:

5.4.1 Maximum Number of Shares

Only Shares which are issued and fully paid-up may be purchased or acquired by the Company. The total

number of Shares which may be purchased or acquired pursuant to the Share Purchase Mandate is limited to

that number of Shares representing not more than three per cent. (3%) of the total number of issued Shares

(excluding treasury shares) (ascertained as at the date of the AGM), unless the Company has, at any time during

the Relevant Period, reduced its share capital in accordance with the applicable provisions of the Companies

Act, in which event the total number of issued Shares (excluding treasury shares) shall be taken to be the total

number of issued Shares (excluding treasury shares) as altered. Any Shares which are held as treasury shares

will be disregarded for purposes of computing the three per cent. (3%) limit.

For illustrative purposes only, on the basis of 1,069,253,962 Shares in issue (excluding treasury shares)

assuming that (a) no further Shares are issued on or prior to the AGM, and (b) the Company does not reduce

its share capital, not more than 32,077,618 Shares (representing three per cent. (3%) of the total number of

issued Shares (excluding treasury shares)) as at that date may be purchased by the Company pursuant to the

proposed Share Purchase Mandate during the duration referred to in paragraph 5.4.2 below.

Rationale for limit

The Directors consider that this three per cent. (3%) limit is appropriate and shall be sufficient for the present

purposes of the Company, taking into consideration the take-over implications for certain of its Shareholders

arising from any purchase or acquisition by the Company of its Shares under the Share Purchase Mandate.

Please see paragraph 5.10.4 for further details, in particular, details of the said Shareholders. It is envisaged that

the Company may seek shareholder approval for a new share purchase mandate at a higher percentage limit, if,

at such future point in time, the Directors consider a higher limit to be in the best interests of the Company or if

the take-over implications for the said Shareholders, as more particularly described in paragraph 5.10.4, should

be no longer applicable and/or the obligations of such Shareholders to make a take-over offer are exempted

by the Securities Industry Council (“SIC”).

5.4.2 Duration of Authority

Purchases or acquisitions of Shares pursuant to the proposed Share Purchase Mandate may be made, at any

time and from time to time, on and from the date of the Extraordinary General Meeting of the Company held

on 12 January 2012, at which the Share Purchase Mandate is approved, up to:

(a) the date on which the next Annual General Meeting is held or required by law to be held;

(b) the date on which the purchases or acquisitions of Shares pursuant to the proposed Share Purchase

Mandate are carried out to the full extent mandated; or


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(c) the date on which the authority conferred by the Share Purchase Mandate is revoked or varied by the

Shareholders in a general meeting,

whichever is the earliest.

The authority conferred on the Directors by the Share Purchase Mandate to purchase Shares may be renewed

at the next Annual General Meeting or any other general meeting of the Company. When seeking the approval

of the Shareholders for the renewal of the Share Purchase Mandate, the Company is required to disclose details

pertaining to purchases or acquisitions of Shares pursuant to the proposed Share Purchase Mandate made

during the previous twelve (12) months, including the total number of Shares purchased, the purchase price

per Share or the highest and lowest prices paid for such purchases of Shares, where relevant, and the total

consideration paid for such purchases.

5.4.3 Manner of Purchases or Acquisitions of Shares

Purchases or acquisitions of Shares may be made by way of:

(a) on-market purchases (“Market Purchase”), transacted on the SGX-ST through the ready market, and

which may be transacted through one or more duly licensed stock brokers appointed by the Company

for the purpose; and/or

(b) off-market purchases (“Off-Market Purchase”) effected pursuant to an equal access scheme in

accordance with Section 76C of the Companies Act.

The Directors may impose such terms and conditions which are not inconsistent with the Share Purchase

Mandate, the Listing Rules and the Companies Act, as they consider fit in the interests of the Company in

connection with or in relation to any equal access scheme or schemes. An Off-Market Purchase must, however,

satisfy all of the following conditions:

(i) offers for the purchase or acquisition of Shares shall be made to every person who holds Shares to

purchase or acquire the same percentage of their Shares;

(ii) all of the abovementioned persons shall be given a reasonable opportunity to accept the offers made;

and

(iii) the terms of all the offers shall be the same, except that there shall be disregarded (1) differences in

consideration attributable to the fact that offers may relate to Shares with different accrued dividend

entitlements, (2) differences in consideration attributable to the fact that offers relate to Shares with

different amounts remaining unpaid (if applicable) and (3) differences in the offers introduced solely to

ensure that each person is left with a whole number of Shares.


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Pursuant to the Listing Rules, if the Company wishes to make an Off-Market Purchase in accordance with

an equal access scheme, it will issue an offer document to all Shareholders containing at least the following

information:

(a) the terms and conditions of the offer;

(b) the period and procedures for acceptances;

(c) the reasons for the proposed purchase or acquisition of Shares;

(d) the consequences, if any, of the purchases or acquisitions of Shares by the Company that will arise

under the Take-over Code or other applicable take-over rules;

(e) whether the purchases or acquisitions of Shares, if made, would have any effect on the listing of the

Shares on the SGX-ST; and

(f) details of any purchases or acquisitions of Shares made by the Company in the previous 12 months

(whether Market Purchases or Off-Market Purchases), giving the total number of Shares purchased,

the purchase price per Share or the highest and lowest prices paid for the purchases of Shares, where

relevant, and the total consideration paid for the purchases.

5.4.4 Maximum Purchase Price

The purchase price (excluding brokerage, stamp duties, commission, applicable goods and services tax and

other related expenses) (“related expenses”) to be paid for a Share will be determined by the Directors or a

committee of Directors that may be constituted for the purposes of effecting purchases or acquisitions of Shares

by the Company under the Share Purchase Mandate. However, the purchase price to be paid for the Shares

pursuant to the purchases or acquisitions of the Shares must not exceed:

(a) in the case of a Market Purchase, one hundred and five per cent. (105%) of the Average Closing Price

(as defined hereinafter); and

(b) in the case of an Off-Market Purchase pursuant to an equal access scheme, one hundred and twenty

per cent. (120%) of the Average Closing Price (as defined hereinafter),

(the “Maximum Price”) in either case, excluding related expenses of the purchase or acquisition.

For the above purposes:

“Average Closing Price” means the average of the closing market prices of a Share over the last five (5)

Market Days, on which transactions in the Shares were recorded, before the day on which the purchase or

acquisition of Shares was made, and is deemed to be adjusted for any corporate action that occurs after the

relevant five (5) Market Days.


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5.5 Status of Purchased Shares

A Share purchased or acquired by the Company is deemed cancelled immediately on purchase or acquisition (and all

rights and privileges attached to the Share will expire on such cancellation) unless such Share is held by the Company as

a treasury share. Accordingly, the total number of issued Shares will be diminished by the number of Shares purchased

or acquired by the Company and which are not held as treasury shares. At the time of each purchase of Shares by

the Company, the Directors will decide whether the Shares purchased will be cancelled or kept as treasury shares, or

partly cancelled and partly kept as treasury shares, depending on the needs of the Company at that time.

5.6 Treasury Shares

Under the Companies Act, as amended by the Companies Amendment Act 2005, Shares purchased or acquired by the

Company may be held or dealt with as treasury shares. Some of the provisions on treasury shares under the Companies

Act, as amended by the Companies Amendment Act 2005, are summarised below:

5.6.1 Maximum Holdings

The number of Shares held as treasury shares cannot at any time exceed ten per cent. (10%) of the total

number of issued Shares.

5.6.2 Voting and Other Rights

The Company cannot exercise any right in respect of treasury shares. In particular, the Company cannot exercise

any right to attend or vote at meetings and for the purposes of the Companies Act, the Company shall be treated

as having no right to vote and the treasury shares shall be treated as having no voting rights.

In addition, no dividend may be paid, and no other distribution of the Company’s assets may be made, to the

Company in respect of treasury shares. However, the allotment of shares as fully paid bonus shares in respect

of treasury shares is allowed. Also, a subdivision or consolidation of any treasury share into treasury shares of a

smaller amount is allowed so long as the total value of the treasury shares after the subdivision or consolidation

is the same as before.

5.6.3 Disposal and Cancellation

Where Shares are held as treasury shares, the Company may at any time:

(a) sell the treasury shares for cash;

(b) transfer the treasury shares for the purposes of or pursuant to an employees’ share scheme;

(c) transfer the treasury shares as consideration for the acquisition of shares in or assets of another company

or assets of a person;

(d) cancel the treasury shares; or

(e) sell, transfer or otherwise use the treasury shares for such other purposes as may be prescribed by the

Minister for Finance.


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5.7 Reporting Requirements

Within 30 days of the passing of a Shareholders’ resolution to approve the purchases of Shares by the Company, the

Company shall lodge a copy of such resolution with the Registrar.

The Company shall notify the Registrar within 30 days of a purchase of Shares by the Company on the SGX-ST or

otherwise. Such notification shall include details of the purchases including the date of the purchases, the total number of

Shares purchased by the Company, the number of Shares cancelled and the number of Shares held as treasury shares,

the Company’s issued ordinary share capital as at the date of the Shareholders’ resolution approving the purchase of

the Shares and after the purchase of Shares, the amount of consideration paid by the Company for the purchases and

such other information as required by the Companies Act.

The Listing Rules specify that a listed company shall notify the SGX-ST of all purchases or acquisitions of its Shares

not later than 9.00 a.m.:

(a) in the case of a Market Purchase, on the Market Day following the day on which the Market Purchase was

made; and

(b) in the case of an Off-Market Purchase under an equal access scheme, on the second Market Day after the

closing of acceptances of the offer for the Off-Market Purchase.

The notification of such purchases or acquisitions of Shares to the SGX-ST shall include details of the total number

of Shares authorised for purchase, the date of purchase, prices paid for the total number of Shares purchased, the

purchase price per Share or the highest and lowest purchase price per Share and the number of issued Shares excluding

treasury shares after purchase, in the form prescribed under the Listing Rules. The Company shall make arrangements

with its stockbrokers to ensure that they provide the Company in a timely fashion the necessary information which will

enable the Company to make the notifications to the SGX-ST.

The Company, upon undertaking any sale, transfer, cancellation and/or use of treasury shares, will comply with Rule

704(28) of the Listing Manual, which provides that an issuer must make an immediate announcement thereof, stating

the following:

(i) date of the sale, transfer, cancellation and/or use;

(ii) purpose of such sale, transfer, cancellation and/or use;

(iii) number of treasury shares sold, transferred, cancelled and/or used;

(iv) number of treasury shares before and after such sale, transfer, cancellation and/or use;

(v) percentage of the number of treasury shares against the total number of Shares outstanding before and after

such sale, transfer, cancellation and/or use; and

(vi) value of the treasury shares if they are used for a sale or transfer, or cancelled.


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5.8 Source of Funds

The Company may only apply funds for the purchase or acquisition of the Shares as provided in the Articles and in

accordance with the applicable laws in Singapore. The Company may not purchase its Shares for a consideration

other than in cash or, in the case of a Market Purchase, for settlement otherwise than in accordance with the trading

rules of the SGX-ST.

The Company intends to use internal sources of funds or external borrowings or a combination of both to finance the

Company’s purchase or acquisition of the Shares pursuant to the Share Purchase Mandate.

5.9 Financial Effects

It is not possible for the Company to realistically calculate or quantify the impact of purchases or acquisitions of Shares

that may be made pursuant to the Share Purchase Mandate on the NTA and EPS as the resultant effect would depend

on, inter alia, the aggregate number of Shares purchased or acquired, whether the purchase or acquisition is made out

of capital or profits, the purchase prices paid for such Shares and the amount (if any) borrowed by the Company to fund

the purchases or acquisitions and whether the Shares purchased or acquired are cancelled or held as treasury shares.

The Company’s total issued share capital will be diminished by the total number of the Shares purchased by the

Company and which are cancelled. The NTA of the Group will be reduced by the aggregate purchase price paid by

the Company for the Shares.

Under the Companies Act, as amended by the Companies Amendment Act 2005, purchases or acquisitions of Shares

by the Company may be made out of the Company’s capital or profits so long as the Company is solvent. Where the

consideration paid by the Company for the purchase or acquisition of Shares is made out of profits, such consideration

(excluding related expenses) will correspondingly reduce the amount available for the distribution of cash dividends

by the Company. Where the consideration paid by the Company for the purchase or acquisition of Shares is made

out of capital, the amount available for the distribution of cash dividends by the Company will not be reduced. For the

purposes of the Share Purchase Mandate, it is intended that purchases or acquisitions of the Shares by the Company,

if any, will be made out of the Company’s capital and the foregoing has been assumed in the preparation of the financial

effects illustrated below.

The Directors do not propose to exercise the Share Purchase Mandate to such an extent that it would have a material

adverse effect on the working capital requirements of the Group. The purchase or acquisition of the Shares will only be

effected after considering relevant factors such as the working capital requirement, availability of financial resources,

the expansion and investment plans of the Group and the prevailing market conditions. The proposed Share Purchase

Mandate will be exercised with a view to enhance the earnings and/or the NTA value per Share of the Group.


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For illustrative purposes only, the financial effects of the Share Purchase Mandate on the Company and the Group,

based on the unaudited financial statements of the Group for the financial period ended 31 December 2012 are based

on the assumptions set out below:

(a) based on 1,069,253,962 Shares in issue (excluding treasury shares) and assuming that (i) no further Shares are

issued, and (ii) no Shares are held by the Company as treasury shares on or prior to the AGM, not more than

32,077,618 Shares (representing three per cent. (3%) of the total number of issued Shares (excluding treasury

shares) as at that date) may be purchased by the Company pursuant to the proposed Share Purchase Mandate;

(b) in the case of Market Purchases by the Company and assuming that the Company purchases or acquires

the 32,077,618 Shares at the Maximum Price of S$0.107 for one (1) Share (being the price equivalent to five

per cent. (5%) above the Average Closing Price of the Shares for the last five (5) consecutive Market Days on

which the Shares were traded on the SGX-ST immediately preceding the Latest Practicable Date), the maximum

amount of funds required for the purchase or acquisition of the 32,077,618 Shares (excluding related expenses)

is approximately S$3,400,000; and

(c) in the case of Off-Market Purchases by the Company and assuming that the Company purchases or acquires

the 32,077,618 Shares at the Maximum Price of S$0.122 for one (1) Share (being the price equivalent to twenty

per cent. (20%) above the Average Closing Price of the Shares on the five (5) consecutive Market Days on

which the Shares were traded on the SGX-ST immediately preceding the Latest Practicable Date), the maximum

amount of funds required for the purchase or acquisition of the 32,077,618 Shares (excluding related expenses)

is approximately S$3,900,000.

For illustrative purposes only, and based on the assumptions set out in sub-paragraphs (a), (b) and (c) above

and assuming that (i) the purchase or acquisition of Shares is financed by internal sources of funds and/or external

borrowings, (ii) the Share Purchase Mandate had been effective on 1 January 2013, and (iii) the Company had purchased

or acquired the 32,077,618 Shares (representing three per cent. (3%) of its issued ordinary share capital at the Latest

Practicable Date, the financial effects of the purchase or acquisition of the 32,077,618 Shares by the Company pursuant

to the Share Purchase Mandate:

(i) by way of purchases made entirely out of capital and held as treasury shares; and

(ii) by way of purchases made entirely out of capital and cancelled,

or as summarised for ease of reference in the following table:

Scenario

Purchased

out of: Type of purchase

Held as Treasury

Shares or Cancelled

Maximum Price

per Share (S$)

1(A) Capital Market Purchase Held as treasury shares 0.107

1(B) Capital Off-Market Purchase Held as treasury shares 0.122

2(A) Capital Market Purchase Cancelled 0.107

3(B) Capital Off-Market Purchase Cancelled 0.122


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on the unaudited financial statements of the Group for the financial period ended 31 December 2012, are set out below:

(1) Purchases made entirely out of capital and held as treasury shares

(A) Market Purchases

Group

Before Share

Purchase

Group

After Share

Purchase

Company

Before Share

Purchase

Company

After Share

Purchase

S$’000 S$’000 S$’000 S$’000


Share capital 137,314 137,314 137,314 137,314

Capital and other reserves 1,901 1,901 2,527 2,527

Retained earnings (302) (302) (32,860) (32,860)

138,913 138,913 106,981 106,981

Treasury shares (1,885) (5,317) (1,885) (5,317)

Shareholders’ funds 137,028 133,597 105,096 101,664

Net tangible assets 136,647 133,215 104,735 101,303

Minority interests 1,861 1,861 – –

Current assets 201,770 198,338 191,450 188,018

Current liabilities 104,733 104,733 91,982 91,982

Working capital 97,037 93,605 99,468 96,036

Number of issued Shares 1,069,253,962 1,037,176,344 1,069,253,962 1,037,176,344

Weighted average number of Shares 1,063,363,829 1,031,286,211 1,063,363,829 1,031,286,211

Financial ratios

Net tangible assets/Share (S$) 0.13 0.13 0.10 0.10

Current ratio (times) 1.93 1.89 2.08 2.04

Earnings per Share (cents) 0.52 0.54 0.15 0.15


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(B) Off-Market Purchases

Group

Before Share

Purchase

Group

After Share

Purchase

Company

Before Share

Purchase

Company

After Share

Purchase

S$’000 S$’000 S$’000 S$’000


Share capital 137,314 137,314 137,314 137,314



138,913 138,913 106,981 106,981

Treasury shares (1,885) (5,798) (1,885) (5,798)




Current assets 201,770 197,857 191,450 187,537


Working capital 97,037 93,124 99,468 95,555



Financial ratios





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(2) Purchases made entirely out of capital and cancelled

(A) Market Purchases

Group

Before Share

Purchase

Group

After Share

Purchase

Company

Before Share

Purchase

Company

After Share

Purchase

S$’000 S$’000 S$’000 S$’000


Share capital 135,429 131,997 135,429 131,997






Current assets 201,770 198,338 191,450 188,018


Working capital 97,037 93,605 99,468 96,036



Financial ratios





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(B) Off-Market Purchases

Group

Before Share

Purchase

Group

After Share

Purchase

Company

Before Share

Purchase

Company

After Share

Purchase

S$’000 S$’000 S$’000 S$’000


Share capital 135,429 131,516 135,429 131,516






Current assets 201,770 197,857 191,450 187,537


Working capital 97,037 93,142 99,468 95,555



Financial ratios




Shareholders should note that the financial effects set out above are purely for illustrative purposes

only based on the abovementioned assumptions. Although the proposed Share Purchase Mandate

would authorise the Company to purchase or acquire up to three per cent. (3%) of the total number

of issued Shares (excluding treasury shares) as determined in accordance with the applicable

provisions of the Companies Act, the Company may not necessarily purchase or be able to purchase

the entire three per cent. (3%) of the total number of its issued Shares (excluding treasury shares).

In addition, the Company may cancel all or part of the Shares purchased or hold all or part of the

Shares purchased in treasury.

Shareholders who are in doubt as to their tax positions or any tax implications in their respective

jurisdictions should consult their own professional advisers.


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5.10 Take-over Implications.

Appendix 2 of the Take-over Code contains the Share Buy-Back Guidance Note applicable as at the Latest Practicable

Date. The take-over implications arising from any purchase or acquisition by the Company of its Shares are set out

below.

5.10.1 Obligation to make a Take-over Offer

If, as a result of any purchase or acquisition by the Company of the Shares, the proportionate interest in the

voting capital of the Company of a Shareholder and persons acting in concert with him increases, such increase

will be treated as an acquisition for the purposes of Rule 14 of the Take-over Code. Consequently, a Shareholder

or a group of Shareholders acting in concert with a Director could obtain or consolidate effective control of the

Company and become obliged to make an offer under Rule 14 of the Take-over Code.

5.10.2 Persons Acting in Concert

Under the Take-over Code, persons acting in concert comprise individuals or companies who, pursuant to an

agreement or understanding (whether formal or informal), co-operate, through the acquisition by any of them

of shares in a company to obtain or consolidate effective control of the company.

Unless the contrary is established, the following persons, inter alia, will be presumed to be acting in concert,

namely:

(a) a company with its parent company, subsidiaries, its fellow subsidiaries, any associated companies of

the above companies, any company whose associated companies include any of the above companies

and any person who has provided financial assistance (other than a bank in the ordinary course of

business) to any of the above companies for the purchase of voting rights;

(b) a company with any of its directors, together with their close relatives, related trusts and any companies

controlled by any of the directors, their close relatives and related trusts;

(c) a company with any of its pension funds and employee share schemes;

(d) a person with any investment company, unit trust or other fund whose investment such person manages

on a discretionary basis, but only in respect of the investment account which such person manages;

(e) a financial or other professional adviser, including a stockbroker, with its client in respect of the

shareholdings of the adviser and the persons controlling, controlled by or under the same control as the

adviser and all the funds which the adviser manages on a discretionary basis, where the shareholdings

of the adviser and any of those funds in the client total ten per cent. (10%) or more of the client’s equity

share capital;


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(f) directors of a company, together with their close relatives, related trusts and companies controlled by

any of them, which is subject to an offer or where they have reason to believe a bona fide offer for their

company may be imminent;

(g) partners; and

(h) an individual, his close relatives, his related trusts, and any person who is accustomed to act according

to his instructions, companies controlled by any of the above persons and any person who has provided

financial assistance (other than a bank in the ordinary course of business) to any of the above companies

for the purchase of voting rights.

For this purpose, ownership or control of at least twenty per cent. (20%) but not more than fifty per cent. (50%)

of the voting rights of a company will be regarded as the test of associated company status.

The circumstances under which Shareholders, including Directors and persons acting in concert with them

respectively, will incur an obligation to make a take-over offer under Rule 14 of the Take-over Code after a

purchase or acquisition of Shares by the Company are set out in Appendix 2 of the Take-over Code.

5.10.3 Effect of Rule 14 and Appendix 2

In general terms, the effect of Rule 14 and Appendix 2 of the Take-over Code is that, unless exempted, Directors

and persons acting in concert with them will incur an obligation to make a take-over offer under Rule 14 if, as

a result of the Company purchasing or acquiring Shares:

(a) the voting rights of such Directors and their concert parties would increase to thirty per cent. (30%) or

more; or

(b) in the event that such Directors and their concert parties hold between thirty per cent. and fifty per cent.

(50%) of the Company’s voting rights, if the voting rights of such Directors and their concert parties

would increase by more than one per cent. (1%) in any period of six (6) months.

Under Appendix 2 of the Take-over Code, a Shareholder not acting in concert with the Directors will not be

required to make a take-over offer under Rule 14 if, as a result of the Company purchasing or acquiring its

Shares:

(i) the voting rights of such Shareholder would increase to thirty per cent. (30%) or more; or

(ii) if such Shareholder holds between thirty per cent. (30%) and fifty per cent. (50%) of the Company’s

voting rights, the voting rights of such Shareholder would increase by more than one per cent. (1%) in

any period of six (6) months.

Such Shareholder need not abstain from voting in respect of the resolution authorising the Share Purchase

Mandate.


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5.10.4 As at the Latest Practicable Date, the Company’s issued share capital (excluding treasury shares) comprises

1,069,253,962 Shares. OCS has a direct interest in 240,350,000 Shares and a deemed interest in 43,700,000

Shares, representing approximately 26.57% of the total voting rights of the Company. Mr Goh Kian Sin, a

Director of the Company, holds 80% of the share capital of OCS and Mr Hew Yuen Hin holds the remaining

20% of the share capital of OCS. As Mr Goh Kian Sin and Mr Hew Yuen Hin are both directors and controlling

shareholders of OCS, Mr Hew Yuen Hin and OCS are deemed to be acting in concert with Mr Goh Kian Sin

under the Take-over Code (collectively, Mr Goh Kian Sin, Mr Hew Yuen Hin and OCS shall hereinafter be the

“OCS Concert Parties”).

For illustrative purposes only, as at the Latest Practicable Date, the Company’s issued share capital

(excluding treasury shares) would comprise 1,069,253,962 Shares, of which 284,050,000 Shares representing

approximately 26.57% of the total voting rights of the Company would be held by OCS. Mr Goh Kian Sin and

Mr Hew Yuen Hin would be deemed interested in the 284,050,000 Shares OCS has direct and deemed interest

in by virtue of their 80% and 20% interest in the share capital of OCS respectively. Therefore, in the event

that the Company undertakes share purchases up to the maximum of the three per cent. (3%) limit, the OCS

Concert Parties would have an aggregate interest (both direct and deemed) of approximately 27.39% of the

total voting rights of the Company.

OCS and Hanwa Co., Ltd, a company incorporated in Japan (“Hanwa”) entered into an agreement dated

30 January 2012 pursuant to which OCS sold to Hanwa 32,800,000 ordinary shares in the Company (the

“Agreement”). Upon completion under the Agreement, OCS granted to Hanwa a conditional put option, which

upon exercise from Hanwa, would require OCS to purchase from Hanwa 32,800,000 shares. The put option

is exercisable for the period commencing 31 January 2014 and ending on 6 February 2014, 5.00 p.m (both

dates inclusive).

Based on the aggregate shareholding of the OCS Concert Parties, assuming Hanwa exercises the put option,

if the Company undertakes share purchases of up to three per cent. (3%) of the issued share capital of the

Company as permitted by the Share Purchase Mandate, the total shareholding interest (direct and deemed) of

the Company held by OCS Concert Parties may increase from approximately 27.39%1 to 30.55%2 solely as a

result of such share purchases.

The total shareholding interest and voting rights of the OCS Concert parties in the Company would be increased

to 30% or more as a result of the aforesaid share purchases undertaken by the Company and the OCS Concert

Parties would as a consequence by required to make a general offer to the other Shareholders under Rule 14

of the Take-over Code.

1 As a percentage of the issued share capital of the Company (excluding treasury shares) comprising 1,069,253,962

Shares.

2 As a percentage of the issued share capital of the Company (excluding treasury shares) comprising 1,037,176,343

Shares (assuming that Hanwa has exercised the conditional put option on the 32,800,000 shares and assuming that

the Company purchases the maximum of 32,077,618 Shares under the Share Purchase Mandate).


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ANNUAL REPORT 2012

However, under Appendix 2 of the Share Buy-back Guidance Note of the Take-over Code, the OCS Concert

Parties and any other such persons presumed to be parties acting in concert with them are exempted from

having to make an offer under Rule 14 of the Take-over Code for the Shares by reason only of an increase in

their voting rights as a result of the Company purchasing or acquiring up to the maximum of three per cent.

(3%) of the issued share capital of the Company pursuant to the Share Purchase Mandate, subject to the

following conditions:

(a) this Appendix contains advice to the effect that by voting for the renewal of the Share Purchase Mandate,

the Shareholders are waiving their rights to a general offer at the required price from OCS Concert

Parties and any other such persons presumed to be parties acting in concert with them. The Appendix

should also contain: (i) the names of OCS, Mr Goh Kian Sin, Mr Hew Yuen Hin and any other such

persons presumed to be parties acting in concert with them; and (ii) their voting rights as at the time of

the resolutions and after the share purchases;

(b) the resolution to renew the Share Purchase Mandate is approved by a majority of the Shareholders

present and voting at the AGM on a poll who would not become obliged to make an offer as a result

of the share purchases;

(c) OCS, Mr Goh Kian Sin, Mr Hew Yuen Hin and any such other persons presumed to be parties acting

in concert with them, abstain from voting for, and recommending Shareholders to vote in favour of, the

resolution on the renewal of the Share Purchase Mandate;

(d) within 7 days of the passing of the resolution approving the renewal of the Share Purchase Mandate,

Mr Goh Kian Sin to submit to the SIC a duly signed form as prescribed by the SIC;

(e) OCS, Mr Goh Kian Sin, Mr Hew Yuen Hin and any other such persons presumed to be parties acting

in concert with them, have not acquired and will not acquire any Shares between the date on which

they know that the announcement of the renewal of the Share Purchase Mandate is imminent and the

earlier of:

(i) the date on which the authority of the renewal of the Share Purchase Mandate expires; and

(ii) the date the Company announces it have brought back such number of Shares as authorised

by the Share Purchase Mandate or it has decided to cease buying back its Shares, as the case

may be,

if such acquisitions, taken together with the share purchases, would cause their aggregate voting rights

in the Company to increase to 30% or more.

If the Company ceases to buy back its Shares and the aggregate voting rights of OCS, Mr Goh Kian Sin, Mr

Hew Yuen Hin and any such persons presumed to be parties acting in concert with them is less than 30%,

Mr Goh Kian Sin, Mr Hew Yuen Hin and any such persons presumed to be parties acting in concert with them

may acquire further voting rights in the Company. However, any increase in their percentage of voting rights

in the Company as a result of the share purchases will be taken into account together with any voting rights

acquired by Mr Goh Kian Sin, Mr Hew Yuen Hin and any such persons presumed to be parties acting in concert

with them (by whatever means), in determining whether they have increased their aggregate voting rights in the

Company by more than 30%.


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ANNUAL REPORT 2012

Other than as disclosed above, the Directors are not aware of any facts or factors which suggest or imply that

any particular person(s) and/or Shareholder(s) is/are, or may be regarded as, parties acting in concert such that

their respective interests in voting shares in the capital of the Company should or ought to be consolidated,

and that the consequences under the Take-over Code would ensue as a result of a purchase of Shares by the

Company pursuant to the Share Purchase Mandate.

In view of the foregoing, it should be noted that approving the renewal of the Share Purchase Mandate

will constitute a waiver by the Shareholders in respect of their right to a general offer by Mr Goh Kian

Sin, Mr Hew Yuen Hin and any such persons presumed to be parties acting in concert with them, at

the required price, if a share buy back by the Company results in the aggregate shareholding of Mr

Goh Kian Sin, Mr Hew Yuen Hin and any such persons presumed to be parties acting in concert with

them to increase to 30% or more. The voting rights of Mr Goh Kian Sin, Mr Hew Yuen Hin and any

such persons presumed to be parties acting in concert with them, as at the Latest Practicable Date

and in the event of share purchases up to the maximum of three per cent. (3%) of the issued share

capital of the Company (excluding treasury shares) as permitted by the Share Purchase Mandate are

set out above in this Appendix.

Shareholders who are in doubt as to their obligations, if any, to make a mandatory takeover offer

under the Take-over Code as a result of any purchase or acquisition of Shares by the Company should

consult the SIC and/or their professional advisers at the earliest opportunity.

5.11 Taxation

Pursuant to Section 10J of the Income Tax Act, a company which purchases its own shares using its distributable

profits is deemed as having paid a dividend to the shareholders from whom the shares are purchased or acquired.

Under the one-tier corporate tax system, resident companies pay a final tax on their corporate profits and with effect

from 1 January 2008, all companies can only pay tax-exempt (1-tier) dividends which will be exempt in the hands of

shareholders. Accordingly, dividends arising from a share purchase using distributable profits will be deemed to be

1-tier tax-exempt dividends.

In relation to a Market Purchase, in the case of the Company (since it is listed on the SGX-ST), the Company may apply

to the SGX-ST for a special trading counter for the purposes of effecting the Market Purchase, subject to approval

being obtained from Shareholders for the approval of the Share Purchase Mandate at the AGM. Proceeds received by

Shareholders who sell their Shares to the Company in a Market Purchases through the special trading counter set up on

the SGXST will, subject to the fulfilment of certain conditions by the Shareholders, be treated for income tax purposes

as the receipt of a dividend. This treatment will apply if the payment for such share purchases by the Company is not

from its contributed capital.

Proceeds received by Shareholders who sell their Shares to the Company in Market Purchases through the normal ready

counters will be treated for income tax purposes like any other disposal of shares and not as a dividend. Whether or

not such proceeds are taxable in the hands of such Shareholders will depend on whether such proceeds are receipts

of an income or a capital nature.

Proceeds received by Shareholders who sell their Shares to the Company in an Off-Market Purchase, where the share

purchase is made otherwise than on the SGX-ST, and such Shareholders are not transferees to whom Section 10N of

the Income Tax Act applies, being proceeds made pursuant to an equal access scheme authorised by the Company in

advance at the AGM, such proceeds will be treated for income tax purposes as the receipt of a dividend.


Appendix

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ANNUAL REPORT 2012

The above statements are general in nature and are based on certain aspects of current tax laws in Singapore which

are in force as of the date of this Circular and are subject to any changes in such laws, or in the interpretation of these

laws occurring after the date of this Circular, which changes could be made on a retroactive basis. These statements

should not be regarded as a comprehensive description of all the tax considerations that may be relevant to a decision

to vote in favour of or against the Share Purchase Mandate.

Shareholders should note that the foregoing statements are not to be regarded as advice on the tax position of any

Shareholder or on any tax implications arising from the Share Purchase Mandate. Shareholders who are in doubt as

to their respective tax positions or any such tax implications or who may be subject to tax in a jurisdiction other than

Singapore should consult their own professional advisers.

5.12 Listing Rules

While the Listing Rules do not expressly prohibit purchase of shares by a listed company during any particular time

or times, the listed company would be considered an “insider” in relation to any proposed purchase or acquisition of

its issued shares. In this regard, the Company will not purchase any Shares pursuant to the Share Purchase Mandate

after a price-sensitive development has occurred or has been the subject of a consideration and/or a decision of the

Board until such time the price-sensitive information has been publicly announced. In particular, the Company will not

purchase or acquire any Shares through Market Purchases during the period of:

(a) one (1) month immediately preceding the announcement of the Company’s annual results; and

(b) two (2) weeks immediately preceding the announcement of the Company’s quarterly results.

The Company is required under Rule 723 of the Listing Manual to ensure that at least ten per cent. (10%) of its Shares

are in the hands of the public. The “public”, as defined under the Listing Manual, are persons other than the directors,

chief executive officer, Substantial Shareholders or Controlling Shareholders of the Company or its subsidiaries, as well

as the associates of such persons.

Based on the Register of Directors’ Shareholdings and the Register of Substantial Shareholders maintained by the

Company as at the Latest Practicable Date, approximately 358,995,415 Shares, representing 33.57 per cent. (33.57%) of

the issued Shares (excluding treasury shares), are in the hands of the public. Assuming that the Company purchases its

Shares through Market Purchases up to the full three per cent. (3%) limit pursuant to the Share Purchase Mandate, the

number of Shares in the hands of the public not taking into account treasury shares would be reduced to 326,917,797

Shares, representing per cent. (31.52%) of the reduced total number of issued Shares (excluding treasury shares).

Accordingly, the Company is of the view that there is a sufficient number of issued Shares held in the hands of the

public which would permit the Company to undertake purchases or acquisitions of its issued Shares up to the full

three per cent. (3%) limit pursuant to the proposed Share Purchase Mandate without affecting the listing status of the

Shares on the SGX-ST, and that the number of Shares remaining in the hands of the public will not fall to such a level

as to cause market illiquidity.

In undertaking any purchases or acquisitions of Shares through Market Purchases, the Directors will use their best

efforts to ensure that, notwithstanding such purchases, a sufficient float in the hands of the public will be maintained so

that the purchases or acquisitions of the Shares will not adversely affect the listing status of the Shares on the SGX-ST,

cause market illiquidity or adversely affect the orderly trading of the Shares.


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ANNUAL REPORT 2012

5.13 Previous Share Purchases

The following are details of purchases or acquisitions of Shares made by the Company in the 12 months immediately

preceding the Latest Practicable Date, pursuant to the Share Purchase Mandate approved by the Shareholders at the

Extraordinary General Meeting held on 12 January 2012:

Date of Purchase

or acquisition

Total number

of shares

purchased or

Highest price

paid per

share

Lowest price

paid per

share

Total consideration paid

(including brokerage, clearing

fees and other charges)

18 May 2012 123,000 0.083 0.081 S$10,146.22

21 May 2012 421,000 0.084 0.082 S$34,782.27

22 May 2012 59,000 0.085 0.085 S$5,060.35

23 May 2012 284,000 0.0830 0.0800 S$23,235.76

24 May 2012 280,000 0.0800 0.0790 S$22,398.16

25 May 2012 100,000 0.0800 0.0800 S$8,046.86

28 May 2012 65,000 0.0800 0.0800 S$5,245.45

29 May 2012 100,000 0.079 0.079 S$7,946.82

30 May 2012 100,000 0.079 0.079 S$7,946.82

5 June 2012 321,000 0.08 0.078 S$25,619.27

6 June 2012 300,000 0.08 0.08 S$24,063.56

7 June 2012 150,000 0.08 0.0790 S$12,003.87

8 June 2012 400,000 0.079 0.078 S$31,483.17

11 June 2012 313,000 0.08 0.079 S$24,980.78

14 June 2012 391,000 0.079 0.079 S$30,970.79

20 June 2012 579,000 0.082 0.081 S$47,487.63

22 June 2012 180,000 0.083 0.082 S$14,810.30

25 June 2012 160,000 0.082 0.082 S$13,169.47

29 June 2012 171,000 0.082 0.081 S$14,003.49

2 July 2012 6,000 0.082 0.082 S$535.04

3 July 2012 200,000 0.083 0.083 S$16,651.24

4 July 2012 354,000 0.084 0.083 S$29,566.31

6 July 2012 300,000 0.083 0.083 S$24,965.95

10 July 2012 250,000 0.084 0.084 S$21,055.62

11 July 2012 2,000,000 0.084 0.083 S$167,442.27

23 July 2012 1,071,000 0.083 0.082 S$89,021.03

25 July 2012 20,000 0.082 0.082 S$1,683.64

14 August 2012 850,000 0.082 0.08 S$68,861.89

15 August 2012 200,000 0.08 0.08 S$16,050.93


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ANNUAL REPORT 2012

Date of Purchase

or acquisition

Total number

of shares

purchased or

Highest price

paid per

share

Lowest price

paid per

share

Total consideration paid

(including brokerage, clearing

fees and other charges)

16 August 2012 1,200,000 0.08 0.08 S$96,254.23

17 August 2012 1,191,000 0.08 0.08 S$95,532.33

22 August 2012 1,300,000 0.08 0.08 S$104,275.42

27 August 2012 500,000 0.08 0.08 S$40,105.93

28 August 2012 265,000 0.08 0.08 S$21,256.14

10 September 2012 433,000 0.083 0.083 S$36,034.18

3 October 2012 1,047,000 0.081 0.081 S$85,031.58

4 October 2012 1,944,000 0.081 0.081 S$157,881.01

11 October 2012 120,000 0.08 0.08 S$9,647.68

12 October 2012 1,000,000 0.08 0.08 S$80,211.86

24 October 2012 567,000 0.081 0.081 S$46,048.63

25 October 2012 1,910,000 0.081 0.08 S$154,162.20

10 December 2012 1,410,000 0.08 0.08 S$113,098.72

12 December 2012 306,000 0.08 0.08 S$24,544.84

13 December 2012 327,000 0.081 0.08 S$26,557.14

The total number of Shares purchased or acquired by the Company in the 12 months immediately

preceding the Latest Practicable Date is 23,268,000, and the total consideration paid for all purchases was

S$1,889,876.85.

6. DIRECTORS AND SUBSTANTIAL SHAREHOLDERS’ INTERESTS

Based on information in the Register of Directors maintained by the Company pursuant to Section 173(1) of the

Companies Act, Chapter 50 of Singapore, as at the Latest Practicable Date, the number of Shares in which the Directors

have an interest are as follows:

Direct Interest Deemed Interest

Number of

Shares (%)(1)

Number of

Shares (%)(1)

Yap Xi Ming 5,751,554 0.54 86,086,574(2) 8.05

Goh Kian Sin – – 284,050,000(3) 26.57

Tan Chan Too 22,455,187 2.10 – –

Wong Kean Shyong, Kenn – – – –

Tan Eng Liang – – – –

Gui Kim Young @ Gui Kim Gan – – – –

Chee Wai Pong – – – –


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ANNUAL REPORT 2012

Notes:

(1) Based on total issued and paid-up ordinary share capital (excluding treasury shares) comprising 1,069,253,962 Shares as at

the Latest Practicable Date.

(2) Yap Xi Ming holds approximately 33.33% in the share capital of Chye Hin and is therefore deemed interested in the Shares

held by Chye Hin.

(3) Goh Kian Sin holds 80% in the share capital of OCS and is therefore deemed interested in the Shares held by OCS.

Based on information in the Register of Substantial Shareholders maintained by the Company pursuant to Section 88

of the Companies Act, Chapter 50 of Singapore, as at the Latest Practicable Date, the Substantial Shareholders and

the number of Shares in which they have an interest are as follows:

Direct Interest Deemed Interest Total Interest

Number of

Shares (%)(1)

Number of

Shares (%)(1)

Number of

Shares (%)(1)

Chye Hin Hardware

Pte. Ltd. 86,086,574 8.05 – – 86,086,574 8.05

Yap Xi Ming 5,751,554 0.54 86,086,574 (2) 8.05 91,838,128 8.59

Tan Kim Seng 4,000,088 0.37 86,086,574 (3) 8.05 90,086,662 8.43

Oriental Castle

Sdn Bhd 240,350,000 22.48 43,700,000 4.09 284,050,000 26.57

Goh Kian Sin – – 284,050,000 (4) 26.57 284,050,000 26.57

Hew Yuen Hin – – 284,050,000 (5) 26.57 316,850,000 26.57

Notes:

(1) Based on total issued and paid-up ordinary share capital (excluding treasury shares) comprising 1,069,253,962 Shares as at

the Latest Practicable Date.

(2) Yap Xi Ming holds approximately 33.33% in the share capital of Chye Hin and is therefore deemed interested in the Shares

held by Chye Hin.

(3) Tan Kim Seng holds approximately 25% in the share capital of Chye Hin and is therefore deemed interested in the Shares held

by Chye Hin.


(5) Hew Yuen Hin holds 20% in the share capital of OCS and is therefore deemed interested in the Shares held by OCS.


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ANNUAL REPORT 2012

7. INDEPENDENT DIRECTORS’ RECOMMENDATION AND ABSTENTION FROM VOTING

7.1 Proposed Renewal of the IPT Mandate

Each of OCS and Chye Hin, being an Interested Person in relation to the IPT Mandate, will abstain, and has undertaken

to ensure that its associates (as defined in the Listing Manual) will abstain, from voting on the ordinary resolution relating

to the IPT Mandate at the forthcoming AGM and will also decline to accept appointment as proxy for any Shareholder

to vote in respect of the ordinary resolution relating to the IPT Mandate, unless the Shareholder concerned shall have

given instructions in the Proxy Form as to the manner in which his votes are to be cast in respect of the ordinary

resolution relating to the IPT Mandate.

As (i) Mr. Yap Xi Ming is a major shareholder of Chye Hin, and (ii) Mr. Goh Kian Sin is a major shareholder of OCS, each

of Mr. Yap and Mr. Goh abstains from making any recommendations to Shareholders to vote in favour of the ordinary

resolution relating to the IPT Mandate at the AGM. Accordingly, the Directors who are deemed to be independent for

the purposes of making a recommendation to Shareholders in respect of the IPT Mandate are Mr. Wong Kean Shyong,

Kenn, Mr. Tan Chan Too, Dr. Tan Eng Liang, Mr. Gui Kim Young @ Gui Kim Gan and Mr. Chee Wai Pong.

For the reasons set out in paragraphs 3.2 and 3.6 above, the Directors who are deemed to be independent for the

purposes of making a recommendation to Shareholders in respect of the IPT Mandate are of the unanimous view that

it would be beneficial to and in the interests of the entities in the HG Group to have the flexibility to enter into the types

of Interested Person Transactions described above in their ordinary course of business with the specified classes of

Interested Persons provided that such transactions are carried out on normal commercial terms and will not be prejudicial

to the interests of the Company and its minority Shareholders. Accordingly, they recommend that Shareholders vote

in favour of the ordinary resolution relating to the IPT Mandate at the AGM.

7.2 Proposed Renewal of the Share Purchase Mandate

Mr Goh Kian Sin is a member of the OCS Concert Parties and has accordingly abstained from making any

recommendation to Shareholders in favour of the proposed renewal of the Share Purchase Mandate. The Directors

(other than Mr Goh Kian Sin) are of the opinion that the proposed renewal of the Share Purchase Mandate is in the

best interests of the Company. Accordingly, the Directors (other than Mr Goh Kian Sin) recommend that Shareholders

vote in favour of the ordinary resolution relating to the renewal of the Share Purchase Mandate.

The members of the OCS Concert Parties shall abstain from voting on the ordinary resolution relating to the renewal of

the Share Purchase Mandate. Mr Goh Kian Sin shall also decline to accept any appointment as proxy for any Shareholder

to vote in respect of the ordinary resolution unless the Shareholder concerned has given instructions in his Proxy Form

as to the manner in which his votes are to be cast in respect of the ordinary resolution.

The renewal of the Share Purchase Mandate must be approved by a majority of those Shareholders present and voting

at the meeting on a poll who could not become obliged to make a take-over offer as a result of the share purchases.


Appendix

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ANNUAL REPORT 2012

8. ACTION TO BE TAKEN BY SHAREHOLDERS

If a Shareholder is unable to attend the AGM and wishes to appoint a proxy to attend and vote on his behalf, he should

complete, sign and return the attached Proxy Form in accordance with the instructions printed thereon as soon as

possible and, in any event, so as to reach the registered office of the Company at 15 Jurong Port Road, Singapore

619119 not later than 10.00 a.m. on 9 April 2013. Completion and return of the Proxy Form by a Shareholder will not

prevent him from attending and voting at the AGM if he so wishes.

9. RESPONSIBILITY STATEMENT

The Directors collectively and individually accept full responsibility for the accuracy of the information given in this

Appendix and confirm after making all reasonable enquiries that, to the best of their knowledge and belief, this Appendix

constitutes full and true disclosure of all material facts about the proposed renewal of the IPT Mandate, the proposed

renewal of the Share Purchase Mandate, the issuer and its subsidiaries, and the Directors are not aware of any facts

the omission of which would make any statement in this Appendix misleading. Where information in the Appendix

has been extracted from published or otherwise publicly available sources or obtained from a named source, the sole

responsibility of the Directors has been to ensure that such information has been accurately and correctly extracted

from those sources and/or reproduced in the circular in its proper form and context.

10. DOCUMENTS AVAILABLE FOR INSPECTION

The following documents are available for inspection at the registered office of the Company at 15 Jurong Port Road,

Singapore 619119 during normal business hours from the date of this Appendix up to the date of the forthcoming AGM:

(a) the Annual Report of the Company for the financial period ended 31 December 2012;

(b) the Memorandum and Articles of Association of the Company.

Yours faithfully

For and on behalf of

the Board of Directors of


Goh Kian Sin

Managing Director and Chief Executive Officer

Singapore


Schedule I General Information Relating to Chapter 9 of the Listing Manual

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ANNUAL REPORT 2012

1. INTRODUCTION

Chapter 9 of the Listing Manual (“Chapter 9”) applies to transactions between a party that is an entity at risk and a

counter party that is an interested person. The objective of Chapter 9 (as stated in Rule 901 of the Listing Manual) is to

guard against the risk that interested persons could influence a listed company, its subsidiaries or associated companies

to enter into transactions with interested persons that may adversely affect the interests of the listed company or its

shareholders. The aforementioned terms “entity at risk”, “interested person” and “associated companies” as well as

other terms used are defined below.

2. MAIN TERMS USED IN CHAPTER 9 OF THE LISTING MANUAL

(a) An “approved exchange” means a stock exchange that has rules which safeguard the interests of shareholders

against interested person transactions according to similar principles to Chapter 9.

(b) An “associate” in relation to an interested person who is a director, chief executive officer or controlling

shareholder of the listed company (being an individual) means an immediate family member (that is, the

spouse, child, adopted child, step-child, sibling or parent) of such director, chief executive officer or controlling

shareholder; the trustees of any trust of which the director and/or his immediate family, or the chief executive

officer and/or his immediate family or the controlling shareholder and/or his immediate family is a beneficiary or,

in the case of a discretionary trust, is a discretionary object; and any company in which the director and/or his

immediate family, or the chief executive officer and/or his immediate family or the controlling shareholder and/

or his immediate family has or have an aggregate interest (directly or indirectly) of 30 per cent. or more; and,

where a controlling shareholder of the listed company is a corporation, its “associate” means its subsidiary or

holding company or fellow subsidiary or a company in which it and/or such other companies taken together

have (directly or indirectly) an interest of 30 per cent. or more.

(c) An “associated company” of a listed company means a company in which at least 20 per cent. but not more

than 50 per cent. of its shares are held by the listed company or the listed group.

(d) A “chief executive officer” of a listed company means the most senior executive officer who is responsible

under the immediate authority of the board of directors for the conduct of the business of the listed company.

(e) A “controlling shareholder” of a listed company means a person who (i) holds directly or indirectly 15 per

cent. or more of the voting rights in the listed company. The SGX-ST may determine that a person who satisfies

this paragraph is not a controlling shareholder; or (ii) a person who in fact exercises control over a company.

(f) An “entity at risk” means:

(i) the listed company;

(ii) a subsidiary of the listed company that is not listed on the SGX-ST or an approved exchange; or

(iii) an associated company of the listed company that is not listed on the SGX-ST or an approved exchange,

provided that the listed company and/or its subsidiaries (the “listed group”), or the listed group and

its interested person(s), has or have control over the associated company.

(g) An “interested person” means a director, chief executive officer or controlling shareholder of the listed company

or an associate of such director, chief executive officer or controlling shareholder.

(h) An “interested person transaction” means a transaction between an entity at risk and an interested person.


Schedule I General Information Relating to Chapter 9 of the Listing Manual

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ANNUAL REPORT 2012

3. MATERIALITY THRESHOLDS, DISCLOSURE REQUIREMENTS AND SHAREHOLDERS’ APPROVAL

Except for certain transactions which, by reason of the nature of such transactions, are not considered to put the listed

company at risk to its interested persons and are hence excluded from the ambit of Chapter 9, immediate announcement

and shareholders’ approval would be required in respect of transactions with interested persons if certain financial

thresholds (which are based on the value of the transaction as compared with the listed company’s latest audited

consolidated NTA) are reached or exceeded.

Immediate Announcement

An immediate announcement is required where the interested person transaction is of a value equal to, or more than,

3% of the listed group’s latest audited NTA. Where the aggregate value of all the transactions entered into with the

same interested person during the same financial year amounts to 3% or more of the listed group’s latest audited NTA,

the issuer must make an immediate announcement of the latest transaction and all future transactions entered into with

the same interested person during that financial year.

Shareholders’ Approval

Shareholders’ approval is required where the interested person transaction is of a value equal to, or more than:

(a) 5% of the listed group’s latest audited NTA; or

(b) 5% of the listed group’s latest audited NTA, when aggregated with other transactions entered into with the

same interested person during the same financial year.

However, a transaction which has been approved by shareholders, or is the subject of aggregation with another

transaction that has been approved by shareholders, need not be included in any subsequent aggregation.

The above requirements for immediate announcement and for shareholders’ approval do not apply to any transaction

below S$100,000.

4. GENERAL MANDATE

Chapter 9 permits a listed company to seek a general mandate from its shareholders for recurrent transactions with

interested persons of a revenue or trading nature or those necessary for its day-to-day operations, but not in respect

of the purchase or sale of assets, undertakings or businesses. A general mandate is subject to annual renewal.


Schedule II Shareholding Structure of the OCS Group

158


ANNUAL REPORT 2012

Mr. Goh Kian Sin Mr. Hew Yuen Hin


Oriental Sheet Piling

Sdn Bhd

Oriental Steel Pipe

Sdn Bhd

Plan B Pte. Ltd.


Pte Ltd


(China) Co. Ltd.

Oriental Steel Pipe

Pte. Ltd.

Arcelor International Steel

Trading (Shanghai) Co. Ltd.

80% 20%

40%

100% 100% 100%

100%

85% 85%


Shareholdings Statistics as at 8 March 2013

Class of Shares – Ordinary Shares

Voting Rights – On a show of hands: 1 vote

– On a poll: 1 vote for each ordinary share

ANALYSIS OF SHAREHOLDINGS

Range of Shareholdings

Number of

Shareholders %

Number of

Shares %

1 – 999 416 6.94 197,229 0.02

1,000 – 10,000 923 15.40 6,307,866 0.58

10,001 – 1,000,000 4,586 76.52 371,843,634 34.03

1,000,001 and above 68 1.14 714,173,233 65.37

5,993 100.00 1,092,521,962 100.00

Shareholding Held in Hands of Public

As at 8 March 2013, the percentage of shareholdings held in the hands of the public was approximately 33.57% and Rule 723

of the Listing Manual is complied with.

TOP 20 SHAREHOLDERS LIST

S/No Name of Shareholder Number of Shares %*

1 DMG & Partners Securities Pte Ltd 164,564,278 15.39

2 Daiwa Capital Markets Singapore Ltd 153,000,000 14.31

3 Chye Hin Hardware Pte Ltd 86,086,574 8.05

4 Bank of Singapore Nominees Pte Ltd 24,100,630 2.25

5 Maybank Kim Eng Securities Pte Ltd 21,237,079 1.99

6 Tan Ah Bee or Tan Lay Choon 19,553,954 1.83

7 Sia Ling Sing 19,107,333 1.79

8 OCBC Securities Private Ltd 18,770,244 1.76

9 UOB Kay Hian Pte Ltd 11,606,346 1.09

10 Nomura Securities Singapore Pte Ltd 10,925,000 1.02

11 Estate of Tian Chye Heng, Deceased 9,916,509 0.93

12 DBS Nominees Pte Ltd 9,210,144 0.86

13 HSBC (Singapore) Nominees Pte Ltd 8,256,666 0.77

14 Yee Hang @ See Fann 6,840,000 0.64

15 CIMB Securities (S) Pte Ltd 6,739,219 0.63

16 Tan Wai See 6,550,000 0.61

17 United Overseas Bank Nominees Pte Ltd 6,541,160 0.61

18 Phillip Securities Pte Ltd 6,065,541 0.57

19 Yap Xi Ming 5,710,000 0.53

20 Tan Lay Choon 4,581,000 0.43

599,361,677 56.06

* The percentage of shareholdings was computed based on the issued share capital of the Company as at 8 March

2013 of 1,069,253,962 shares (which excludes 23,268,000 shares which are held as treasury shares representing

approximately 2.13% of the total number of issued shares excluding treasury shares).

159


ANNUAL REPORT 2012


Statistics of Substantial Shareholders as at 8 March 2013

Number of Shares: – 1,069,253,962 (excluding treasury shares)

Class of Shares: – Ordinary Shares

Voting Rights: – On show of hands: 1 vote

– On a poll: 1 vote for each ordinary share

Direct Interest Deemed Interest

Number of Shares (%)(1) Number of Shares (%)(1)

Chye Hin Hardware Pte. Ltd. 86,086,574 8.05 – –

Yap Xi Ming 5,751,554 0.54 86,086,574(2) 8.05

Tan Kim Seng 4,000,088 0.37 86,086,574(3) 8.05

Oriental Castle Sdn Bhd 240,350,000 22.48 43,700,000 4.09

Goh Kian Sin – – 284,050,000(4) 26.57

Hew Yuen Hin – – 284,050,000(5) 26.57

Notes:

(1) Based on total issued and paid–up ordinary share capital (excluding treasury shares) comprising 1,069,253,962 Shares

as at the Latest Practicable Date.

(2) Yap Xi Ming holds approximately 33.33% in the share capital of Chye Hin and is therefore deemed interested in the

Shares held by Chye Hin.

(3) Tan Kim Seng holds approximately 25% in the share capital of Chye Hin and is therefore deemed interested in the

Shares held by Chye Hin.


(5) Hew Yuen Hin holds 20% in the share capital of OCS and is therefore deemed interested in the Shares held by OCS.

PERCENTAGE OF SHAREHOLDING HELD IN THE HANDS OF THE PUBLIC

As at 8 March 2013, the percentage of shareholding in the Company held in the hands of the public is approximately 33.57%.

At least 10% of the Company’s equity securities are held by the public at all times and the Company is in compliance with Rule

723 of the SGX– ST Listing Manual.

160


ANNUAL REPORT 2012


161


ANNUAL REPORT 2012

Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN that the Annual General Meeting of HG Metal Manufacturing Limited ("the Company") will be held

at Orchid Room, 15 Jurong Port Road, Singapore 619119 on Thursday, 11 April 2013 at 10.00 a.m. for the following purposes:

AS ORDINARY BUSINESS

1. To receive and adopt the Directors' Report and the Audited Accounts of the Company and the

Group for the financial period ended 31 December 2012 together with the Auditors' Report thereon.

(Resolution 1)

2. To re-elect the following Director of the Company retiring pursuant to Article 88 of the Articles of

Association of the Company:

Mr Chee Wai Pong (Retiring under Article 88) (Resolution 2)

[See Explanatory Note (i)]

3. To re-elect the following Director of the Company retiring pursuant to Article 89 of the Articles of

Association of the Company:

Mr Tan Chan Too (Retiring under Article 89) (Resolution 3)

[See Explanatory Note (ii)]

4. To re-appoint the following directors of the Company retiring under Section 153(6) of the Companies

Act, Chapter. 50, to hold office from the date of this Annual General Meeting until the next Annual

General Meeting of the Company.

Dr Tan Eng Liang (Resolution 4)

Mr Gui Kim Young (Resolution 5)

[See Explanatory Note (iii)]

5. To approve the payment of Directors' fees of S$278,567 for the financial period ended

31 December 2012 (previous financial year: S$238,000).

(Resolution 6)

6. To re-appoint Ernst & Young LLP as the Auditors of the Company and to authorise the Directors of

the Company to fix their remuneration.

(Resolution 7)

7. To transact any other ordinary business which may properly be transacted at an Annual General

Meeting.

AS SPECIAL BUSINESS

To consider and if thought fit, to pass the following resolutions as Ordinary Resolutions, with or without

any modifications:

8. Authority to issue shares in the capital of the Company pursuant to Section 161 of the

Companies Act, Cap. 50 and Rule 806 of the Listing Manual of the Singapore Exchange

Securities Trading Limited ("SGX-ST")

That pursuant to Section 161 of the Companies Act, Cap. 50 and Rule 806 of the Listing Manual

of the Singapore Exchange Securities Trading Limited, the Directors of the Company be authorised

and empowered to:

(a) (i) issue shares in the Company ("shares") whether by way of rights, bonus or

otherwise; and/or

(ii) make or grant offers, agreements or options (collectively, "Instruments") that

might or would require shares to be issued, including but not limited to the creation

and issue of (as well as adjustments to) options, warrants, debentures or other

instruments convertible into shares,

at any time and upon such terms and conditions and for such purposes and to such persons

as the Directors of the Company may in their absolute discretion deem fit; and


162


ANNUAL REPORT 2012


(b) (notwithstanding the authority conferred by this Resolution may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors of the Company while this Resolution was in force,

(the "Share Issue Mandate")

provided that:

(1) the aggregate number of shares (including shares to be issued in pursuance of the Instruments, made or granted pursuant to this Resolution) and Instruments to be issued pursuant to this Resolution shall not exceed fifty per centum (50%) of the total number of issued shares (excluding treasury shares) in the capital of the Company (as calculated in accordance with sub-paragraph (2) below), of which the aggregate number of shares and Instruments to be issued other than on a pro rata basis to existing shareholders of the Company shall not exceed twenty per centum (20%) of the total number of issued shares (excluding treasury shares) in the capital of the Company (as calculated in accordance with sub-paragraph (2) below);

(2) (subject to such calculation as may be prescribed by the SGX-ST for the purpose of determining the aggregate number of shares and Instruments that may be issued under sub-paragraphs (1) above, the percentage of issued shares and Instruments shall be based on the number of issued shares (excluding treasury shares) in the capital of the Company at the time of the passing of this Resolution, after adjusting for:

(a) new shares arising from the conversion or exercise of the Instruments or any convertible securities;

(b) new shares arising from exercising share options or vesting of share awards outstanding and subsisting at the time of the passing of this Resolution; and

(c) any subsequent consolidation or subdivision of shares;

(3) in exercising the Share Issue Mandate conferred by this Resolution, the Company shall comply with the provisions of the Listing Manual of the SGX-ST for the time being in force (unless such compliance has been waived by the SGX-ST) and the Articles of Association of the Company; and

(4) unless revoked or varied by the Company in a general meeting, the Share Issue Mandate shall continue in force (i) until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is earlier or (ii) in the case of shares to be issued in pursuance of the Instruments, made or granted pursuant to this Resolution, until the issuance of such shares in accordance with the terms of the Instruments.

[See Explanatory Note (iv)] (Resolution 8)

9. Renewal of the Mandate for Interested Person Transactions

That for the purposes of Chapter 9 of the Listing Manual ("Chapter 9") of the Singapore Exchange Securities Trading Limited:

(a) approval be and is hereby given for the Company, its subsidiaries and associated companies that are entities at risk (as defined in Chapter 9) or any of them to enter into any of the transactions falling within the types of Interested Person Transactions, particulars of which are set out in the Appendix to the 2012 Annual Report of the Company, with the Interested Persons, provided that such transactions are made on normal commercial terms, will not be prejudicial to the interests of the Company and its minority Shareholders and are in accordance with the review procedures for Interested Person Transactions as set out in the Appendix (the "IPT Mandate");

(b) the IPT Mandate shall, unless revoked or varied by the Company in a General Meeting, continue in force until the next Annual General Meeting of the Company; and

(c) the Directors of the Company be and are hereby authorised to complete and do all such acts and things (including without limitation, executing all such documents as may be required) as they may consider expedient or necessary or in the interests of the Company to give effect to the IPT Mandate and/or this Resolution.

[See Explanatory Note (v)] (Resolution 9)


163


ANNUAL REPORT 2012


10. Renewal of the Share Purchase Mandate

That:

(a) for the purposes of the Companies Act (Chapter 50 of Singapore) (the "Companies Act"),

the exercise by the Directors of the Company of all the powers of the Company to purchase

or otherwise acquire issued ordinary shares fully paid in the capital of the Company (the

"Shares") not exceeding in aggregate the Maximum Limit (as hereafter defined), at such

price(s) as may be determined by the Directors of the Company from time to time up to the

Maximum Price (as hereafter defined), whether by way of:

(i) market purchase(s) (each a "Market Purchase") on the Singapore Exchange

Securities Trading Limited ("SGX-ST"); and/or

(ii) off-market purchase(s) (each an "Off-Market Purchase") in accordance with any

equal access scheme(s) as may be determined or formulated by the Directors as

they consider fit, which scheme(s) shall satisfy all the conditions prescribed by the

Companies Act;

and otherwise in accordance with all other laws and regulations, including but not limited

to, the provisions of the Companies Act and listing rules of the SGX-ST as may for the time

being be applicable, be and is hereby authorised and approved generally and unconditionally

(the “Share Purchase Mandate”);

(b) unless varied or revoked by the members of the Company in a general meeting, the authority

conferred on the Directors of the Company pursuant to the Share Purchase Mandate may

be exercised by the Directors of the Company at any time and from time to time during the

period commencing from the date of the passing of this Ordinary Resolution and expiring

on the earlier of:

(i) the date on which the next annual general meeting of the Company ("AGM") is held

or required by law to be held; or

(ii) the date on which the purchases or acquisitions of Shares by the Company pursuant

to the Share Purchase Mandate are carried out to the full extent mandated,

whichever is the earlier;

(c) in this Ordinary Resolution:

"Maximum Limit" means that number of issued Shares representing three per cent. (3%) of

the total number of issued Shares (excluding treasury shares) as at the date of the passing

of this Ordinary Resolution unless the Company has effected a reduction of the share capital

of the Company in accordance with the applicable provisions of the Companies Act, at any

time during the Relevant Period, in which event the total number of issued Shares shall be

taken to be the total number of Shares as altered (excluding any treasury shares that may

be held by the Company from time to time);

"Relevant Period" means the period commencing from the date on which the last AGM

was held and expiring on the date the next AGM is held or is required by law to be held,

whichever is the earlier, after the date of this Ordinary Resolution; and

"Maximum Price", in relation to a Share to be purchased or acquired, means the purchase

price (excluding brokerage, stamp duties, commission, applicable goods and services tax

and other related expenses) which shall not exceed:

(i) in the case of a Market Purchase, one hundred and five per cent (105%) of the

Average Closing Price; and

(ii) in the case of an Off-Market Purchase pursuant to an equal access scheme, one

hundred and twenty per cent. (120%) of the Average Closing Price,


164


ANNUAL REPORT 2012


where:

"Average Closing Price" means the average of the closing market prices of a Share over

the last five (5) Market Days (a "Market Day" being a day on which the SGX-ST is open for

trading in securities), on which transactions in the Shares were recorded, before the day on

which the purchase or acquisition of Shares was made and deemed to be adjusted for any

corporate action that occurs after the relevant five (5) Market Days; and

(d) the Directors of the Company and/or any of them be and are hereby authorised to complete

and do all such acts and things (including executing such documents as may be required)

as they and/or he may consider necessary, expedient, incidental or in the interests of the

Company to give effect to the transactions contemplated and/or authorised by this Ordinary

Resolution.

[See Explanatory Note (vi)] (Resolution 10)

11. Renewal of the Employee Share Option Scheme

That the employee share option scheme to be known as the "HG Metal Employee Share Option

Scheme" (the "Employee Share Option Scheme") under which options ("Options") may be granted

to the employees (including the Chief Executive Officer) of the Company and/or its subsidiaries (the

"Group") who have, inter alia, attained the age of 21 years, to subscribe for Shares, particulars of

which are set out in the Circular to Shareholders of the Company dated 21 December 2011 (the

"Circular"), be and is hereby approved and adopted, and that the Directors of the Company be

and are hereby authorised:

(a) to establish and administer the Employee Share Option Scheme;

(b) to modify and/or amend the Employee Share Option Scheme from time to time provided

that such modification and/or amendment is effected in accordance with the rules of the

Employee Share Option Scheme, and to do all such acts and to enter into such transactions,

arrangements and agreements as may be necessary or expedient in order to give full effect

to the Employee Share Option Scheme; and

(c) to offer and grant Options in accordance with the rules of the Employee Share Option

Scheme and pursuant to Section 161 of the Companies Act (Chapter 50 of Singapore), and

to deliver existing Shares (including treasury shares, if any) and allot and issue from time

to time such number of new Shares as may be required to be transferred or allotted and

issued pursuant to the exercise of the Options under the Employee Share Option Scheme.

(Resolution 11)

By Order of the Board

Tan Swee Gek

Company Secretary

Singapore

27 March 2013


165


ANNUAL REPORT 2012


Explanatory Notes:

(i) Mr Chee Wai Pong will, upon re-election as a Director of the Company, remain as Chairman of the Nominating

Committee and a member each of the Audit & Risk Committee and the Remuneration Committee and will be considered

independent.

(ii) Mr Tan Chan Too will, upon re-election as a Director of the Company, remain as Executive Director.

(iii) The effect of the Ordinary Resolution 4 and 5 above, is to re-appoint the directors of the Company who are over 70 years

of age.

Dr Tan Eng Liang will, upon re-election as a Director of the Company, remain as Chairman of the Audit & Risk Committee

and a member each of the Nominating Committee and the Remuneration Committee and will be considered independent.

Mr Gui Kim Young will, upon re-election as a Director of the Company, remain as Chairman of the Remuneration

Committee and a member each of the Audit & Risk Committee and Nominating Committee, and will be considered

independent.

(iv) The Ordinary Resolution 8 above, if passed, will empower the Directors of the Company from the date of this Meeting

until the date of the next Annual General Meeting of the Company, or the date by which the next Annual General

Meeting of the Company is required by law to be held or such authority is varied or revoked by the Company in a

general meeting, whichever is the earlier, to issue shares, make or grant instruments convertible into shares and to

issue shares pursuant to such instruments, up to a number not exceeding, in total, 50% of the total number of issued

shares (excluding treasury shares), of which up to 20% may be issued other than on a pro-rata basis to shareholders.

For the purpose of determining the aggregate number of shares that may be issued, the percentage of issued shares

in the capital of the Company will be calculated based on the total number of issued shares (excluding treasury shares)

in the capital of the Company at the time this Ordinary Resolution is passed after adjusting for new shares arising from

the conversion or exercise of the Instruments or any convertible securities, the exercise of share options or the vesting

of share awards outstanding or subsisting at the time when this Ordinary Resolution is passed and any subsequent

consolidation or subdivision of shares.

(v) The Ordinary Resolution 9 seeks to renew the annual mandate to allow the Company, its subsidiaries and associated

companies that are entities at risk, or any of them, to enter into certain Interested Person Transactions with persons

who are considered "Interested Persons" (as defined in Chapter 9). Details of the terms of the mandate are set out in

the Appendix to the 2012 Annual Report of the Company.

(vi) The Ordinary Resolution 10 seeks to renew the share purchase mandate to enable the Directors of the Company to

exercise all the powers of the Company to purchase or otherwise acquire issued ordinary shares fully paid in the capital

of the Company not exceeding in aggregate the Maximum Limit (as defined in the mandate). Details of the terms of the

mandate are set out in the Appendix to the 2012 Annual Report of the Company.

*Notes

1. A Member entitled to attend and vote at the Annual General Meeting (the "Meeting") is entitled to appoint not more

than two proxies to attend and vote in his/her stead. A proxy need not be a Member of the Company.

2. The instrument appointing a proxy must be deposited at the Registered Office of the Company at not less than forty-

eight (48) hours before the time appointed for holding the Meeting.


This page has been intentionally left blank


HG METAL MANUFACTURING LIMITEDCompany Registration No. 198802660D

(Incorporated In The Republic of Singapore)

PROXY FORM

(Please see notes overleaf before completing this Form)

IMPORTANT:

1. For investors who have used their CPF monies to buy HG Metal Manufacturing Limited’s shares, this Report is forwarded to them at the request of the CPF Approved Nominees and is sent solely FOR INFORMATION ONLY.

2. This Proxy Form is not valid for use by CPF investors and shall be ineffective for all intents and purposes if used or purported to be used by them.

3. CPF investors who wish to attend the Meeting as an observer must submit their requests through their CPF Approved Nominees within the time frame specified. If they also wish to vote, they must submit their voting instructions to the CPF Approved Nominees within the time frame specified to enable them to vote on their behalf.

I/We,

of

being a member/members of HG Metal Manufacturing Limited (the "Company"), hereby appoint:

Name NRIC/Passport No. Proportion of Shareholdings

No. of Shares %

Address

and/or (delete as appropriate)

Name NRIC/Passport No. Proportion of Shareholdings

No. of Shares %

Address

or failing the person, or either or both of the persons, referred to above, the Chairman of the Meeting as my/our proxy/proxies to vote for me/us on my/our behalf at the Annual General Meeting (the "Meeting") of the Company to be held at Orchid Room, 15 Jurong Port Road, Singapore 619119 on 11 April 2013 at 10.00 a.m. and at any adjournment thereof. I/We direct my/our proxy/proxies to vote for or against the Resolutions proposed at the Meeting as indicated hereunder. If no specific direction as to voting is given or in the event of any other matter arising at the Meeting and at any adjournment thereof, the proxy/proxies will vote or abstain from voting at his/her discretion. The authority herein includes the right to demand or to join in demanding a poll and to vote on a poll.

(Please indicate your vote "For" or "Against" with a tick [✓] within the box provided.)

No. Resolutions relating to: For Against

1 Directors' Report and Audited Accounts for the financial period ended 31 December 2012

2 Re-election of Mr Chee Wai Pong as a Director

3 Re-election of Mr Tan Chan Too as a Director

4 Re-appointment of Dr Tan Eng Liang as a Director

5 Re-appointment of Mr Gui Kim Young as a Director

6 Approval of Directors' fees amounting to S$278,567/-

7 Re-appointment of Ernst & Young LLP as Auditors

8 Authority to issue shares and convertible securities pursuant to Section 161 of the Companies Act, Chapter 50.

9 Renewal of mandate for Interested Person Transactions

10 Renewal of the Share Purchase Mandate

11 Renewal of the Employee Share Option Scheme

Dated this day of 2013

Signature of Shareholder(s) or,Common Seal of Corporate Shareholder

* Delete where inapplicable

Total number of Shares in: No. of Shares

(a) CDP Register

(b) Register of Members


Notes:

1. Please insert the total number of Shares held by you. If you have Shares entered against your name in the Depository

Register (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of

Shares. If you have Shares registered in your name in the Register of Members, you should insert that number of Shares.

If you have Shares entered against your name in the Depository Register and Shares registered in your name in the

Register of Members, you should insert the aggregate number of Shares entered against your name in the Depository

Register and registered in your name in the Register of Members. If no number is inserted, the instrument appointing

a proxy or proxies shall be deemed to relate to all the Shares held by you.

2. A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or two

proxies to attend and vote in his/her stead. A proxy need not be a member of the Company.

3. Where a member appoints two proxies, the appointments shall be invalid unless he/she specifies the proportion of his/

her shareholding (expressed as a percentage of the whole) to be represented by each proxy.

4. Completion and return of this instrument appointing a proxy shall not preclude a member from attending and voting at

the Meeting. Any appointment of a proxy or proxies shall be deemed to be revoked if a member attends the meeting in

person, and in such event, the Company reserves the right to refuse to admit any person or persons appointed under

the instrument of proxy to the Meeting.

5. The instrument appointing a proxy or proxies must be deposited at the registered office of the Company at 15 Jurong

Port Road, Singapore 619119 not less than 48 hours before the time appointed for the Meeting.

6. The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised

in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either

under its seal or under the hand of an officer or attorney duly authorised. Where the instrument appointing a proxy or

proxies is executed by an attorney on behalf of the appointor, the letter or power of attorney or a duly certified copy

thereof must be lodged with the instrument.

7. A corporation which is a member may authorise by resolution of its directors or other governing body such person as

it thinks fit to act as its representative at the Meeting, in accordance with Section 179 of the Companies Act, Chapter

50.

General:

The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed

or illegible, or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified

in the instrument appointing a proxy or proxies. In addition, in the case of Shares entered in the Depository Register, the

Company may reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown

to have Shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the

Meeting, as certified by The Central Depository (Pte) Limited to the Company.


CORPORATE PROFILE

OUR BUSINESS

OUR STRATEGY

OUR NETWORK

MESSAGE TO SHAREHOLDERS

BUSINESS HIGHLIGHTS

FINANCIAL HIGHLIGHTS

OPERATING & FINANCIAL REVIEW

FIVE-YEAR FINANCIAL SUMMARY

BOARD OF DIRECTORS & SENIOR MANAGEMENT

CORPORATE RESPONSIBLITY

CORPORATE STRUCTURE

CORPORATE INFORMATION

CORPORATE GOVERNANCE

Contents

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22 Designed and produced by

(65) 6578 6522

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IT’S ALL ABOUTSTEELAR 2012


15 Jurong Port Road

Singapore 619119

T: (65) 6268 2828

F: (65) 6268 3838

www.hgmetal.com

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