ANNUAL REPORT
v
ISION To be the leading lifestyle furniture provider enhancing living concepts for every home
MISSION To provide comfort in style through constant innovation and product development to our customers
CONTENTS 01 CORPORATE PROFILE 02 MESSAGE FROM THE CHAIRMAN 06 OPERATIONS & FINANCIAL REVIEW 10 OUR PRODUCTS 12 BOARD OF DIRECTORS 16 CORPORATE STRUCTURE & INFORMATION 18 CORE VALUES & OUR PHILOSOPHY 21 CORPORATE GOVERNANCE 41 FINANCIAL STATEMENTS 94 SHAREHOLDING STATISTICS 96 NOTICE OF ANNUAL GENERAL MEETING 99 PROXY FORM
01 21 Corporate Governance
02 41
Message From The Chairman
Financial Report
06
Operations & Financial Review
CORPORATE PROFILE Lorenzo, with a history dating back to 1983, is a branded lifestyle furniture retailer. Committed to upholding its traditional heritage of quality and excellence, the Group controls all aspects of its business through vertical integration, which includes the design, manufacture, assembly and distribution of its conceptualized furniture. The Group builds on its standing as an emerging consumer brand by establishing brand presence through wholly-owned stores and Licensed Retailing System (“LRS”) stores across the world. Lorenzo sells most of its products under the Lorenzo brand name which are grouped under two main collections - Dante for classic leather sofas and Enzo for wood-based products. The Enzo series of products includes furniture for the living room, dining room and bedroom. Attesting to its promise of excellence, Lorenzo also acts as an Original Design Manufacturer to design and manufacture furniture under customers’ brand, as well as an Original Equipment Manufacturer to manufacture based on customers’ designs. Evolving to meet the varied needs of today’s consumers, Lorenzo acquired Builders Shop Pte Ltd (“Builders Shop”), a leading importer, retailer, distributor, supplier and installer of building materials, at the end of 2011. Builders Shop specializes in the supply and installation of exquisite granite, marble, limestones, travertine, quartz, onyx and tiles to both individual retail customers and large scale project and property developments. Together, the Group and its subsidiaries delivers the ultimate living experience by offering exquisite, high quality building materials to accompany the well-designed furniture, creating and enhancing living concepts for every home.
MESSAGE FROM THE CHAIRMAN
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IMING For The Sky
Dear Shareholders, On behalf of the Board of Directors, I am pleased to present to you our annual report for the financial year ended 31 December 2012 (“FY2012”).
The Year In Review
Goh Ah Lee, Executive Chairman/ Group Managing Director
Revenue increased by S$3.5 million or 4.7% from S$74.7 million in FY2011 to S$78.2 million in FY2012 due mainly to the contribution from Builders Shop post-acquisition in FY2011. Gross profit margin declined from 48.9% in FY2011 to 40.8% in FY2012, mainly due to the lower gross margins for Builders Shop’s business. Overall, the Group reported a net loss after tax of S$5.6 million in FY2012 as compared to a net loss after tax of S$1.2 million in FY2011. If Builders Shop’s losses and provisions, impairments and write-offs were excluded, the loss before tax in FY2012 would have been S$2.6 million instead of a loss before tax of S$4.3 million. The decline in our core revenue, excluding contributions from Builders Shop, was due to weak demand in both retail and export segments of our business.
02 03
Recognition From The Industry Established since 1983, we have grown from a local furniture brand to becoming one of the largest lifestyle retailers in the region with 48 retail stores and 16 LRS stores across Asia. Apart from retailing its own products, the Group exports its “LORENZO” branded products globally.
In addition, the Group clinched three awards at the 28th International Famous Furniture Fair in Dongguan, one of the most prestigious and the only furniture event in China supported by the Ministry of Commerce of China and Hong Kong Trade Development Council. The Group won Besides gaining traction with customers, the Group also a distinguished Gold award for the “Most emerged as one of Singapore’s top SGX-listed brands in Creative” under the Living Room category, 2012, ranked among the top 100 SGX-listed companies by Overall Gold award for the Bedroom Brand Finance, the world’s leading independent brand valuation category and Overall Silver award for consultancy company. The Group increased its brand value by the Living Room category, based on the approximately 27% to US$14 million in 2012, according to the distinctive design and superior quality ranking methodology used by Brand Finance. This also marks the of our latest “Rong Yi” (“融意”) first time Lorenzo has been ranked amongst the top 100 of Singapore Collection. It is an achievement to be brands. More importantly, this recognition serves to encourage and the only Singapore furniture company reinforce our commitment to continue to build on our “Lorenzo” brand to receive recognition at the fair, a to create distinctive perceptions of quality and comfort in the minds of clear reflection of our culture of consumers. innovation and creativity. Moving forward, we will continue to strengthen our brand name and further enhance our brand value to further unlock shareholder value through customer trust and loyalty.
MESSAGE FROM THE CHAIRMAN Building For The Future The Group has been actively strategising and synergising Lorenzo and Builders Shop businesses to create a more competitive and cost-efficient business model. Historically, Builders Shop’s customer base included more corporate customers such as property developers, construction companies and architecture firms. Moving forward, Builders Shop will renew its attention on attracting retail customers by tapping on Lorenzo’s expertise. For example, with Lorenzo’s involvement, Builders Shop has broadened its reach by participating in various trade shows and exhibitions such as BEX Asia, The Home Deco Show and The Hospitality Show. Through expanding the existing customer base and adding more retail customers, Builders Shop can help to provide a more diversified income stream for the Group.
In line with this, Builders Shop is undergoing renovations to re-launch a revamped showroom focused on providing premier customer experience. Centred on the modern luxury brand, the showroom will have a luxurious lounge and gallery concept with spacious layout to exude a unique and relaxing ambience. The showroom’s gallery will also showcase our exclusive distribution of Silestone, Europe’s leading brand in quartz surfaces for kitchens and bathroom countertops, allowing our customers to experience the use of this special material. Once the showroom is revamped, Builders Shop will have increased focus to target the retail market. We are also hopeful of capitalising on opportunities in the industrial and residential markets in Singapore and expect improved performance from Builders Shop over the next few years.
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04 05
oncrete Conversation
Looking Ahead
We are cautiously optimistic about our core markets and the future of Builders Shop. The pre-election jitters which affected consumer sentiment in our key market, Malaysia, will no longer remain an issue since the general election has to be held by the first half of the year. Stronger economic numbers from China are positive for our stores there; while consumer sentiment remains healthy in Taiwan. In Singapore, we are seeing encouraging new store sales; and the addition of Builders Shop will also allow us to expand our business horizons. The Group will continue its prudent and vigilant approach in seeking new opportunities for enhancing value in the coming year.
In Appreciation We would like to express our deepest condolences to the family of the late Mr. Ng Soon Heng, who passed away on 20 February 2013. Mr Ng, one of our founders, retired on 24 June 2009 and remained a substantial shareholder of Lorenzo. The Board and Management would also like to acknowledge the contributions made by Mr Ng to Lorenzo. In conclusion, I will like to express our appreciation to all our business partners, customers and shareholders for all the support we have received from them over the years. On behalf of the Board, I will also like to thank our management and staff for their diligence, commitment and passion. Yours sincerely Goh Ah Lee, Executive Chairman/ Group Managing Director 09 April 2013
OPERATIONS & FINANCIAL REVIEW
TOTAL REVENUE HAS IMPROVED Revenue increased by S$3.5 million or 4.7% from S$74.7 million in FY2011 to S$78.2 million in FY2012 due entirely to the contribution from Builders Shop post-acquisition. The Group completed the acquisition of Builders Shop, a building material company specialising in the supply and installation of granite, marble and tiles, for a consideration of S$5 million at the end of 2011. Revenue for FY2012 would have been S$5.8 million lower compared with FY2011, excluding the $9.3 million revenue contribution from Builders Shop in FY2012. The decline in non-Builders Shop revenue was due to weak demand in both retail and export segments of our business. Gross profit margin declined from 48.9% in FY2011 to 40.8% in FY2012, mainly due to the lower gross margins for Builders Shop’s business and in particular the contract/project side of the business. In addition, lower factory utilization rates, relocation costs and pricing pressures from weak consumer demand also contributed to lower margins. Administrative expenses increased by 15.5% or S$3.6 million from S$23.0 million in FY2011 to S$26.6 million in FY2012 were mainly due to administrative expenses of S$5.0 million incurred for Builders Shop. Distribution and Marketing costs remained approximately the same at S$9.5 million for both FY2012 and FY2011. Overall, the Group reported a net loss after tax of S$5.6 million for the full year ended 31 December 2012 as compared to a net loss after tax of S$1.2 million in FY2011. If Builders Shop’s losses and provisions, impairments and write-offs were excluded, the loss before tax in FY2012 would have been S$2.6 million instead of a loss before tax of S$4.3 million. Non-current assets decreased by S$1.5 million from S$33.1 million as at 31 December 2011 to S$31.6 million as at 31 December 2012. This was mainly due to an increase in non-current asset being partially offset by the depreciation of property, plant and equipment and goodwill written off. Current portion of the bank borrowings increased from S$18.4 million as at 31 December 2011 to S$21.4 million as at 31 December 2012 primarily attributed to Builder Shop’s S$2.3 million of overdraft and trust receipts issued for raw material purchases. As at 31 December 2012, the Group’s net gearing ratio stood at 0.71 times as compared to 31 December 2011’s 0.51 times.
06 07 REVENUE (S$’000) FY 2012 78,207 FY 2011 74,698 FY 2010 83,210
(S$’000)
FY2012 FY2011
FY2010
Malaysia
37,341
39,725
42,531
Singapore
20,635
12,989
12,832
Taiwan
9,459
12,133
11,921
China
1,871
1,465
1,113
Other Countries
8,901
8,386
14,813
Total Revenue
78,207
74,698
83,210
Revenue by Geographical Locations Malaysia remained the main contributor for the Group, contributing 47.7% of total revenue in FY2012. This is followed by revenue from Singapore which contributed 26.4% of total revenue in FY2012. Slowing GDP growth, and consequently weak consumer sentiment was the key reason for the fall in revenue for the Group’s key markets Malaysia, Singapore and Taiwan. Pre-election jitters, in particular played a big factor in the decline in FY2012 revenue from Malaysia.
OPERATIONS & FINANCIAL REVIEW Revenue by Business Segment The increase in Group’s revenue was mainly attributable to Builders Shop’s revenue contribution of S$9.3 million, offset partly by the decline in revenue for the retail and LRS segments. Revenue from the retail segment remained as the main contributor, contributing 71.4% of total revenue in FY2012. The Group’s key retail business segment registered a decrease of 8.8% from S$61.2 million in FY2011 to S$55.8 million in FY2012. This was primarily due to weak consumer sentiment in Taiwan and Malaysia and relocation of a major store in Singapore. The export market has improved by 9.5% from S$7.5 million in FY2011 to S$8.2 million in FY2012. Sales in LRS stores had decreased by S$1.1 million or 18.9% from S$6.0 million in FY2011 to S$4.9 million in FY2012 over the same comparative period.
(S$’000)
FY2012
FY2011
FY2010
Retail Segment Export Segment LRS Licensing Others (Builders Shop)
55,836 8,212 4,870 9,289
61,195 7,500 6,003 -
64,276 13,792 5,142 -
Total Revenue
78,207
74,698
83,210
export market improved by 9.5% GROUP
FY2012
FY2011
FY2010
Retail Stores Malaysia Taiwan Singapore China
21 16 6 5
23 14 6 5
21 14 5 2
Total Retail Stores
48
48
42
FY2012
FY2011
FY2010
LRS Stores China Malaysia Other Country Total LRS stores
3 10 3 16
3 10 4 17
4 9 4 17
Total No. of Stores
64
65
59
GROUP
Retail Statistics The Group’s number of retail stores remained constant at 48; while the number of LRS stores decreased by one to 16. This constitutes part of the Group’s rationalization plans for its retail stores. The Group will be prudent in management of expenses by implementing new measures to decrease cost and improve efficiency, such as concentrating on promoting outlets that are profitable while looking at consolidating the non-performing outlets to increase operating profit per store.
08 09
(S$’000) Net Profit/ (Loss) After Tax
FY2012 FY2011 FY2010 (5,640)
(1,196)
4,425
78,207 (3,281) (4,331) (5,640)
74,698 1,668 760 (1,196)
83,210 7,854 6,989 4,425
Analysis Revenue Growth Net Profit Growth Operating (Loss)/ Profit Margin Net (Loss)/ Profit Before Tax Margin Net (Loss)/ Profit Margin
4.7% -371.6% -4.2% -5.5% -7.2%
-10.2% -127.0% 2.2% 1.0% -1.6%
-3.4% 262.2% 9.4% 8.4% 5.3%
Balance Sheet Non-Current Assets Current Assets Current Liabilities Non-Current Liabilities Net Assets Shareholders’ Equity
31,568 46,273 (44,831) (1,439) 31,571 31,571
33,065 50,364 (43,585) (1,607) 38,238 38,238
27,373 49,787 (36,829) (1,545) 38,786 38,786
Analysis Total Assets Net Gearing Ratio (x) Return On Total Assets Return On Equity
77,842 0.71 -7.2% -17.9%
83,430 0.51 -1.4% -3.1%
77,160 0.48 5.7% 11.4%
Profit & Loss Revenue Operating (Loss)/ Profit Net (Loss)/ Profit Before Tax Net (Loss)/ Profit After Tax
OUR PRODUCTS
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HARACTERISED
DANTE
Dante speaks of the classic collection that finds favour in everyone’s eyes. Much like Dante Alighieri, Italy’s greatest poet his works withstand the test of time, never to run out of style.
ENZO
Derived from the name Lorenzo, meaning crowned with laurels, Enzo is stylish and graceful, simple and elegant. It embraces the philosophy of zen - a quiet, uncomplicated lifestyle perfect for the minimalist in you.
By A Manufactured Urbanity
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“RONG YI” “Rong Yi” (literally translated from the Chinese character, “融意”) lifestyle series is derived from the Eastern mind-set and inspired with China traditional culture. The raw materials imported from the West are used solely in this collection and complemented with vast creation of accessories to truly reflect your lifestyle.
CRISTALLO COLLEZIONE Cristallo Collezione is Lorenzo’s exclusive collection of fine quality sofas with superb craftsmanship. It is Lorenzo’s 1st edition of sofa collections that are made with CRYSTALLIZEDTM – Swarovski Elements.
Lorenzo is proud to be the pioneer in the local market to incorporate the embellishing of CRYSTALLIZEDTM – Swarovski Elements onto our finest quality leather sofas using the latest production technology. The perfect combination of these ingredients will truly enhance the glamour of these sofas, making them as brilliant as the throne in the palace. Placing these sofas under beautiful lightings will definitely refine the atmosphere tremendously. The natural sensation of richness, quality and amazing designs will give you great pleasure and visual fulfillment of accomplishment, wealth and value in life. Cristallo Collezione enriches your room’s ambience instantaneously, exuding a sense of your unique style and personality.
BOARD OF DIRECTORS
l
EADING The Way
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7
4
2
8
5
3
9
6
12 13 1 Goh Ah Lee, Executive Chairman/ Group Managing Director Mr Goh was appointed Executive Chairman of the Board on 16 June 2005 and was last appointed on 24 June 2009 as the Group Managing Director. He was the co-founder of our subsidiary retailing arm (Supreme Furnishing Centre Pte Ltd) in Singapore in 1983. His principal areas of responsibilities include corporate governance, corporate matters, treasury, information technology, human resource and general administration. Mr Goh’s added portfolio is to lead the Group to establish itself as the leading sofa retailer in the furniture industry. He will also be responsible for developing new markets for the Group. Mr Goh has been instrumental in the development and running of our retail operations in Singapore. Together with his fellow directors and key executives, he is also involved in progress reviews and implementation of workflow initiatives for the furtherance of business competitiveness. He served as the President of the Singapore Furniture Industries Council (SFIC) from 2010 to 2012 before taking on the position as Presidential Advisor in the Executive Committee in 2012.
2 Chung Kim Yew, Chief Operating Officer Mr Chung was appointed Executive Director of the Board on 28 October 2005. Armed with years of manufacturing experience, he is responsible for the development of the facilities including the management review of its operations. He was also instrumental in setting up our furniture retail chain in Malaysia. Besides being the head of the manufacturing facilities in Malaysia and China, he takes on additional appointment as the Chief Operating Officer of the Group. In view of his new role, he is also responsible for the Group’s business development opportunities which include retail operations and the LRS.
3 Lee Fut Hua, Finance Director Mr Lee was the Group Financial Controller since 2004 and was appointed as Finance Director of the Board on 24 June 2009. He is primarily responsible for the Group’s accounting and financial operations, overseeing its financial reporting requirements and ensuring compliance with relevant regulations. With his new appointment, he is now also responsible for overseeing the Company’s Information Technology infrastructure. Mr Lee had over 15 years of experience in accounting and finance before joining our Group in February 2001. Previously, he was a Corporate Development manager with HL Cement Co Pte Ltd, a position he had held since April 1998. His responsibilities there included overseeing the corporate finance and accounts division. From 1986 to 1998, he held the position of Accounting Manager with Sintat Rent-A-Car (Pte) Limited and was in charge of the finance and accounting activities for Singapore and Malaysia. He is a member of the Institute of Certified Public Accountants of Singapore and a fellow member of the Association of Chartered Certified Accountants. Mr Lee is also a member of the Singapore Institute of Directors.
BOARD OF DIRECTORS 4 Christopher Chong Meng Tak, Lead Independent Director Mr Chong was appointed to our Board as an Independent Director on 28 March 2006. He was an award winning analyst and the Managing Director of HSBC Securities (Singapore) Pte Ltd, formerly known as HSBC James Capel Securities Pte Ltd, and prior to this was an Executive Director of UOB Kay Hian Holdings Ltd, formerly known as Kay Hian James Capel Ltd. Mr Chong is currently an Independent Director of several listed companies as well as a Director of several private companies, trusts and funds. He is also a member of the Society of Chartered Accountants of Scotland, a fellow of the Hong Kong Society of Accountants, a master stockbroker of the Securities, Investment and Derivatives Association of Australia, a fellow of the Singapore Institute of Directors and a fellow of the Australian Institute of Company Directors.
5 Choo Yong Fee, Independent Director Mr Choo was re-appointed to our Board as an Independent Director on 01 February 2012. He is the Chairman of Cheng Meng Decoration & Furniture (Su Zhou) Co Ltd, and Deputy Managing Director of Cheng Meng Furniture Co Pte Ltd. Both companies specialize in interior fit-out works and custom furniture manufacturing. Mr Choo has served in various furniture related committees of educational institutions and government statutory boards. He was the president of Singapore Furniture Industries Council from 1994 to 1998, and currently serves as Presidential Advisor in the Executive Committee. of Directors and a fellow of the Australian Institute of Company Directors. 6 Lie Chin-Chin, Independent Director Ms Lie was appointed to our Board as an Independent Director on 28 March 2006. She is a practising advocate and solicitor of the Supreme Court of Singapore. She started her legal career in 1992 with Messrs Michael Khoo and BB Ong, before joining Messrs Lie Kee Pong Partnership in 1995. Ms Lie is currently the Director of Messrs Characterist LLC (incorporating Messrs Lie Kee Pong Partnership), a position she has held since 2000.
14 15
7 Ng Siong Lin, Deputy Chief Executive Officer Mr Ng was appointed as Deputy Chief Executive Officer of the Group and Managing Director of Builders Shop Pte Ltd, Lorenzo’s wholly-owned subsidary, on 1 March 2012. He has amassed more than 20 years of experience in the furniture industry and is a prominent stakeholder in the “Furniture & Building Material Industry”. Mr Ng is currently the Chairman of the Board of Directors of International Furniture Fair Singapore (IFFS) Pte Ltd and the organisor of IFFS. He served as the President of the Singapore Furniture Industries Council (SFIC) from 2006 to 2010 before taking on the position as Presidential Advisor in the Executive Committee since 2010.
8 Chen Wen Te, Design Director Mr Chen was appointed Design Director of the Group since September 2003. He is responsible for the Group’s overall creative team and its product design development. He has been the key driver in designing our products, showroom layout concept, corporate identity and design strategy. In addition, he works very closely with the R&D team in developing new products. He is also involved in sourcing for raw materials and OEM Manufacturers.
9 Chong See Keong, Accounts & Finance Manager Mr Chong is our Accounts & Finance Manager and is in charge of the finance and accounting operations for our companies in Malaysia. He joined Uhin Sofa Sdn Bhd in 1998 as Cost and Management Accountant and was later re-designated as the Accounts & Finance Manager in 2001. He also helped to oversee the Human Resource and Administration department in Malaysia from 1999 to 2002. Prior to joining us, he was a Financial Controller with Pentatech Holdings Sdn Bhd in 1994. He was responsible for the accounts, finance and administration of the company. In 1996, he was promoted to Assistant General Manager with added responsibility of overseeing the Sales Department. From 1987 to 1994, he held the position of Credit Controller in Ericsson Telecommunications Sdn Bhd and was later promoted to Assistant Manager – Management Accounting taking charge of their costing department.
CORPORATE STRUCTURE
LORENZO INTERNATIONAL LIMITED LORENZO INTERNATIONAL (KUNSHAN) CO., LTD BUILDERS SHOP PTE LTD UHIN HOLDING PTE LTD SUPREME FURNISHING CENTRE PTE LTD
SUPREME FURNITURE (KUNSHAN) CO., LTD
UHIN SOFA SDN BHD
GINOVA MARKETING SDN BHD GINOVA FURNISHING SDN BHD UHIN WOOD INDUSTRIES SDN BHD MONICA DESIGN SDN BHD
UHIN INTERNATIONAL CO., LTD LORENZO FURNITURE TRADING (SHANGHAI) CO., LTD
16 17
CORPORATE INFORMATION
Board of Directors Goh Ah Lee (Executive Chairman/ Group Managing Director) Chung Kim Yew (Executive Director/ Chief Operating Officer) Lee Fut Hua (Finance Director) Christopher Chong Meng Tak (Lead Independent Director) Lie Chin-Chin (Independent Director) Choo Yong Fee (Independent Director)
Company Secretary
Bankers
Ong Beng Hong, LLB (Hons)
United Overseas Bank Limited DBS Bank Ltd
Registered Office
Standard Chartered Bank
27 Kaki Bukit Place, Eunos Techpark, Singapore 416205
ANZ Banking Group Ltd Maybank Berhad
Share Registrar B.A.C.S. Pte Ltd
Audit Committee
63 Cantonment Road, Singapore 089758
Christopher Chong Meng Tak (Chairman) Lie Chin-Chin
Auditors
Choo Yong Fee
Foo Kon Tan Grant Thornton Certified Public Accountants
Remuneration Committee
47 Hill Street #05-01, Chinese Chamber of Commerce &
Choo Yong Fee (Chairman)
Industry Building, Singapore 179365
Christopher Chong Meng Tak Lie Chin-Chin
Partner-in-charge: Toh Kim Teck (since financial year 2010)
Nominating Committee
(a member of the Institute of Certified Public Accountants
Lie Chin-Chin (Chairperson)
in Singapore)
Christopher Chong Meng Tak Choo Yong Fee
Key Management Ng Siong Lin (Deputy Chief Executive Officer) Chen Wen Te (Design Director) Chong See Keong (Accounts & Finance Manager)
Lorenzo clinched 3 awards at the 28th International Famous Furniture Fair (Dongguan), one of the most prestigious and the only furniture event in China supported by the Ministry of Commerce of China and Hong Kong Trade Development Council. The distinctive design and superior quality of Lorenzo’s latest “Rong Yi” Collection unveiled at the fair, won the Group a distinguished Gold award for the “Most Creative” under the Living Room category, Overall Gold award for the Bedroom category and Overall Silver award for the Living Room category.
OUR PHILOSOPHY
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18 19
ore Values
DESIGNED WITH YOU IN MIND
THE FINEST MATERIALS
Crafted with pride and perfection, Lorenzo sofas are designed with your total well-being in mind. As you sink into the comfort and softness of a Lorenzo sofa, the stress of the day floats away, leaving behind a quiet sense of peace and harmony.
Because we at Lorenzo never settle for second best, we scour the world in search of the finest material. From carefully selected hides to the best fabrics and woods, our signature of perfection shines through.
OFFERING YOU TRUE VALUE
CARE AND ASSURANCE
Behind Lorenzo lies a guiding philosophy to always provide you, our customer, with the best in value, savings, service and price. We make sure that your total experience at Lorenzo achieves optimum comfort for you in every sense of the word. After all, our satisfaction comes from yours.
At Lorenzo, we believe in sharing with you the secret of caring for your sofa - so that it continues to provide you with extraordinary comfort, year after year. You’ll be glad to know that with the right care and maintenance; your Lorenzo sofa will always look as good as new.
LORENZO BAGS 3 AWARDS AT THE PRESTIGIOUS 28TH INTERNATIONAL FAMOUS FURNITURE FAIR, CHINA
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20 21
CORPORATE GOVERNANCE
22 BOARD MATTERS 29 REMUNERATION MATTERS 32 ACCOUNTABILITY AND AUDIT 37 COMMUNICATION WITH SHAREHOLDERS 38 DEALING IN SECURITIES AND COMPLIANCE WITH BEST PRACTICES GUIDE 39 INTERESTED PERSON TRANSACTIONS 39 MATERIAL CONTRACTS 39 REPORT ON THE USE OF PLACEMENT SHARE PROCEEDS
CORPORATE GOVERNANCE Adapting and adhering to recognised standards of corporate governance principles and practices has always been one of the top priorities of the Company. The Board of Directors (the “Board”) believes that sound and responsible corporate governance is an integral part of the Company in ensuring transparency and creating long-term value and returns to its shareholders. The Board and the management of the Company (“Management”) are committed to complying with and adhering to the benchmark set by the Code of Corporate Governance (“Code”) issued in July 2005 and they are devoted to on-going enhancements of the efficiency and effectiveness of such principles and practices. The Board reviews the Company’s governance practices, processes and structures regularly using the Governance and Transparency Index launched by The Business Times and the Singapore Corporate Governance & Financial Reporting Centre. This report outlines the main corporate governance practices, processes and structures, with specific reference to the guidelines of the Code that were put in place during the year. The Company has generally complied with the spirit and intent of the Code. In addition to the Code, the Company has also adopted a code of ethics (“Ethics”) to provide its employees with guidance on how to act in ways to prevent the Group, its employees and all those who come into contact with the Group from being exposed to harm. The Ethics is designed to ensure that the Group’s reputation is maintained. The Ethics set the minimum standard that the Group’s employees are required to meet but in the event that the local laws or regulations in the country which the Group has operations in set a higher standard, then the Group will ensure compliance with such laws and regulations. The Ethics provide guidelines to the Group’s employees on inter alia the following matters: (i) respecting human rights; (ii) compliance with observance of laws and regulations; (iii) acting in fairness in the Group’s business dealings; (iv) protecting and respecting intellectual property; (v) maintaining confidentiality obligations; and (vi) not using one’s position in the Group for personal gain. Copies of the Ethics were circulated to the Group’s employees and may be found on the Company’s corporate website (http://www.lorenzo-international.com/Corporate_Policies.html).
(A) BOARD MATTERS
Board’s Conduct of its Affairs
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. As at the date of this Annual Report, the Board comprises three Executive Directors and three Independent Directors. The contribution of the experience and competency of each Director helps in the overall effective management of the Company and its subsidiaries (the “Group”). The Board’s principal duties include the following: (i) protecting and enhancing long-term value and return to the Company’s shareholders (“Shareholders”); (ii) establishing, reviewing and approving the annual budget, corporate policies, strategies and objectives for the Group; (iii) ensuring the effectiveness and integrity of management; (iv) chartering the corporate strategy and direction of the Group and setting goals for the Management; (v) supervising and monitoring the Management’s achievement of these goals; (vi) conducting periodic reviews of the Group’s financial performance, internal controls and reporting compliance; (vii) approving nominations to the Board and appointment of key personnel; (viii) ensuring the Group’s compliance with all relevant and applicable laws and regulations; (ix) assuming responsibility for the corporate governance of the Group; and (x) setting the values and standards for the Group, and ensure that obligations to Shareholders and others are understood and met.
22 23 To assist in the execution of its responsibilities, the Board has established an Audit Committee, a Nominating Committee and a Remuneration Committee (collectively referred herein as “Director Committees”). The Director Committees function within clearly defined terms of reference and operating procedures, which are reviewed on a regular basis. The effectiveness of each Director Committee is also monitored. The Executive Directors also supervise the management of the business and affairs of the Company and reduces the administrative time, inconvenience and the expenses associated with the convening of meetings of the Board and circulation of resolutions in writing of the Board, without comprising the Group’s corporate objectives and adversely affecting the day-to-day operations of the Company. However, meetings of the Board are still held and/or resolutions in writing of the Board are circulated for matters which require the Board’s approval, including the following, but are not limited to: (i) review of the annual budget and the performance of the Group; (ii) review of the key activities and business strategies; (iii) approval of the corporate strategy and direction of the Group; (iv) approval of transactions involving a conflict of interest for a substantial shareholder or a Director or interested person transactions; (v) material acquisitions and disposals; (vi) corporate or financial restructuring and share issuances; (vii) declaration of dividends and other returns to shareholders; and (viii) appointments of new Directors or key personnel. Board meetings are conducted regularly at least once every quarter and ad-hoc meetings (including but not limited to the meetings of the Director Committees) are convened whenever a Director deems it necessary to address any issue of significance that may arise. Teleconferencing and video conferencing at meetings of the Board are allowed under the Company’s Articles of Association. In addition to holding meetings, important matters concerning the Group are also put to the Board for its decision by way of written resolutions. In the financial year under review, the number of meetings held and attended by each Director is as follows(1): Board of Directors Directors Goh Ah Lee Chung Kim Yew Lee Fut Hua Christopher Chong Meng Tak Lie Chin-Chin Choo Yong Fee(2) Ng Siong Lin(3)
Audit Committee
Remuneration Committee
Nominating Committee
No. of No. of No. of No. of meetings Attendance meetings Attendance meetings Attendance meetings Attendance 6 6 6 6
6 4 6 6
6 6 6
6 5 6
4 4 4 4
4(invited) 2(invited) 4(invited) 4
1 1 1 1
1(invited) 1(invited) 1(invited) 1
2 2 2 2
1(invited) 2
4 4 4
4 4 3(invited)
1 1 1
1 1 -
2 2 2
2 1 -
Notes: (1) The attendance of the Directors, including those also acting as the members of the respective Director Committees, at the meetings of the Board and the Director Committees was recorded in the relevant attendance lists prepared and circulated by the Company Secretary prior to the commencement of such meetings and these attendance lists are kept in the statutory records of the Company. (2) Mr Choo Yong Fee was appointed as an Independent Director with effect from 1 February 2012. He was appointed as the Chairman of the Remuneration Committee, a member of the Audit Committee and a member of the Nominating Committee on 15 February 2012. Announcements in relation to his re-appointment as Independent Director and to the Board Committees (as set out above) were released via SGXNET respectively on 1 February 2012 and 15 February 2012. (3)
After assessing Mr Ng Siong Lin’s abilities and work experience, the Board invited Mr Ng to join the Company as a full-time staff. Mr Ng accepted the abovementioned invitation and was appointed as an Executive Officer with effect from 1 March 2012. Taking to the above into account, Mr Ng resigned from the position of Independent Director of the Company with effect from 15 February 2012. He also stepped down as the Chairman of the Remuneration Committee, a member of the Audit Committee and a member of the Nominating Committee on the same day. Announcement in relation to Mr Ng’s cessation as Independent Director was released via SGXNET on 15 February 2012.
CORPORATE GOVERNANCE (cont’d) A newly-appointed Director will be given an orientation to familiarise him/her with the Group’s business and governance practices and he/she will also be given a formal letter setting out the duties and obligations of a director of a listed company. Such orientation shall include separate briefing session with the CEO, the CFO, the head of the Company’s Malaysia operations, the Audit Chairman, the Group’s legal advisors and the Group’s auditors. Such newly-appointed Director shall also on request, travel to see the operations of the Group. On 1 February 2012, the Company appointed Mr Choo Yong Fee as an Independent Director. Taking into account that Mr Choo Yong Fee was previously an Independent Director of the Company from 27 April 2007 to 30 June 2010, the Board was of the view that Mr Choo was familiar with (a) the duties and obligations of a director of a listed company; (b) the duties and obligations of a member of the Audit Committee; and (c) business and operations of the Company. Nevertheless, the Management held an informal briefing session with Mr Choo to update him on the changes in the Company and the Chairpersons of the Audit and Nominating Committee had separate meetings with Mr. Choo, such that he may carry out his duties as Independent Director effectively. The Directors are updated, from time to time, when new laws or regulations affecting the Group are introduced. The Directors are encouraged to attend seminars and training courses that will assist them in executing their obligations and responsibilities as directors to the Company and the Company has a training budget which can be used by the Directors to attend courses that they are interested in. Courses attended by some of the Directors in the financial year ended 31 December 2012 include but are not limited to Listed Company Director Certificate Programme, Effective Board Leadership Programme and Insider Trading and Market Rigging Seminar by Singapore Institute of Directors. In the event that a Director is interested in any transaction of the Group, he shall inform the Board accordingly and abstain from making any recommendation or decision with regards to the transaction. This policy on disclosure of conflicts of interest is also contained in the Group’s Ethics and is applicable to all employees of the Group. Under the Ethics, all employees are also advised to avoid situations which create conflicts of interest.
Board Composition and Balance
Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgment 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. The Board comprises six Directors, of which three are Independent Directors. The composition of the Board is as follows: Executive Directors Goh Ah Lee (Executive Chairman and Group Managing Director) Chung Kim Yew (Chief Operating Officer) Lee Fut Hua (Finance Director) Independent Directors Christopher Chong Meng Tak (Lead Independent Director) Lie Chin-Chin (Independent Director) Choo Yong Fee (Independent Director) (appointed with effect from 1 February 2012) The Board considers a director to be “independent” if he/she has no relationship with the Company, the related companies or the officers that could interfere, or be reasonably perceived to interfere, with the exercise of that director’s independent judgment of the conduct of the Group’s affairs. None of the Directors are related to the Company’s Controlling Shareholders. As half of the Board is made up of Independent Directors, the Company believes the Board shall be able to exercise independent judgment on corporate affairs and ensures that no one individual or groups of individuals dominate any decision making process. The composition of the Board is also reviewed on an annual basis by the Nominating Committee to ensure that the Board has the appropriate mix of diversity, expertise and experience, and collectively possess the necessary core competencies for effective functioning and informed decision-making. The Nominating Committee is of the view that the Board has a good balance of Directors who have extensive business, financial, accounting and management experience. For details on the experiences and responsibilities of the Directors, please refer to their profiles set out in page 12 of this Annual Report.
24 25 Executive Chairman and Group Managing Director
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. The Executive Chairman and Group Managing Director Mr Goh Ah Lee sets the tone for the conduct of the Board and ensures the Group’s adherence to best corporate governance practices prescribed by the Code. He also ensures that the Board holds regular meetings and oversees the proper dissemination of corporate information to the relevant parties (including but not limited to the Directors and Shareholders). Further to the above, Mr Goh is also responsible for the corporate secretarial, treasury, human resources, information technology and overall administration of the Group. All major decisions made by the Executive Chairman and Group Managing Director are under the purview of review by the Audit Committee. His performance and appointment to the Board are also reviewed periodically by the Nominating Committee while his remuneration package is reviewed periodically by the Remuneration Committee. As such, the Board believes that there are adequate safeguards in place against an uneven concentration of power and authority in a single individual. The Board is of the view that power is not unduly concentrated in the hands of one individual nor is there any compromised accountability and independent decision-making as all major decisions and policy changes are conducted through the respective Director Committees, all of which are chaired by the Independent Directors. In addition, the Board also believes that notwithstanding that the Executive Chairman and the Group Managing Director is the same person, the Group’s interest is well served by: (i) the benefit of an Executive Chairman and Group Managing Director who is very experienced and knowledgeable about the Group’s businesses, thereby ensuring the smooth and efficient implementation of decisions on policy issues; (ii) the good balance of power and authority on the Board as all the Director Committees of the Board are chaired by the Independent Directors; (iii) the half the Board is made up of the Independent Directors to ensure independent review of the Management’s performance; and (iv) the benefit of the objective and independent views that we receive from the Independent Directors. In view that the Executive Chairman and Group Managing Director is the same person, the Company has appointed Mr Christopher Chong Meng Tak as the Lead Independent Director to adhere to the principles set out in the Code. Mr Chong’s appointment as Lead Independent Director was approved by the Nominating Committee and an announcement relating to this appointment made with the Singapore Exchange Limited via the SGXNET on 15 December 2010. As Lead Independent Director, Mr Christopher Chong Meng Tak shall act as the contact person for the Shareholders in the event that the Shareholders have concerns or issues which communication with the Executive Chairman and Group Managing Director is in appropriate or where such communication has failed to resolve the concerns or issues raised. The Board has also adopted a succession policy in the event that the Executive Chairman and Group Managing Director is unable to fulfil his duties for whatever reasons.
Board Membership
Principle 4: There should be a formal and transparent process for the appointment of new directors to the Board. The Nominating Committee comprises the Company’s three existing Independent Directors, namely Ms Lie Chin-Chin (Chairperson of the Nominating Committee), Mr Christopher Chong Meng Tak (Member of the Nominating Committee) and Mr Choo Yong Fee (Member of the Nominating Committee). The Nominating Committee is responsible for: (i) ensuring the Directors contribute a right blend of relevant experiences to the Board and have the core competencies to effectively manage the Company;
CORPORATE GOVERNANCE (cont’d) (ii) (iii) (iv) (v) (vi) (vii)
nominating suitable candidates to fill up any core competencies and expertise which is lacking in the Board; proposing objective performance criteria for evaluating the performance of the Board and the performance of each Director with respect to that Director’s delegated duties; evaluating the performance and effectiveness of the Board and each Director against the proposed performance criteria which the Board set out and approved of; deciding whether or not a Director is able to and has been adequately carrying out his duties as a Director, particularly when he has multiple board representations, and to assess the maximum number of listed entity board representations which any one of the Directors may hold; determining the independence of each Independent Director annually; and re-nominating any Director to the Board, taking into account that Director’s effectiveness, performance and contribution to the Board.
In the event that there is a need to change the structure of the Board, the chairmanship of the Company or the membership of the Director Committees, the Nominating Committee would also review the change to be implemented and make recommendations to the Board accordingly. For the appointment of new Directors, the Nominating Committee would, in consultation with the Board, examine the existing Board’s strengths, capabilities and the existing Directors’ contribution of skills, knowledge and experience to the Group and the Board. Further to the above, the Nominating Committee will take into account the future needs of the Group and, together with the Board, it will seek candidates who are able to contribute to the Group. The Nominating Committee seeks candidates widely and beyond persons directly known to the existing Directors. Further to the above, the Nominating Committee is also entitled to engage professional search firms to source for suitable candidates. Resumes of the suitable candidates are reviewed and background checks are conducted before interviews are conducted again for the short-listed candidates. The Nominating Committee shall then recommend suitable candidates to the Board. Announcements on all appointments and cessation of Directors are released via SGXNET. The date of initial appointment and last re-election of each Director are set out as follows: Name of Directors
Appointment
Date of Initial Appointment
Date of last re-election/ re-appointment
Goh Ah Lee Executive Chairman and 16 June 2005 (Executive Chairman) Not applicable Group Managing Director 24 June 2009 (Group Managing Director) Chung Kim Yew Executive Director 28 October 2005 29 April 2011 Lee Fut Hua Executive Director 24 June 2009 27 April 2012 Christopher Chong Meng Tak
Lead Independent Director
28 March 2006 27 April 2012
Lie Chin-Chin
Independent Director
28 March 2006 29 April 2011
Choo Yong Fee
Independent Director
1 February 2012 27 April 2012
In the course of the financial year ended 31 December 2012, Mr Choo Yong Fee was appointed as Independent Director as well as the Chairman of the Remuneration Committee, a member of the Audit Committee and a member of the Nominating Committee. The abovementioned appointment was reviewed by the Nominating Committee and the Nominating Committee took into account Mr Choo’s experience as well as his qualifications before recommending the appointment to the Board for approval.
26 27 Further to the above, the Nominating Committee reviews the independence of each of the Independent Directors annually. As part of their review process, the Nominating Committee requires the Independent Directors to complete and execute declaration forms in relation to their independence. These declaration forms are drawn up based on the guidelines in the Code. The Nominating Committee reviewed declaration forms executed by the Independent Directors as well as any declaration which they may make to determine their respective independence. Pursuant to its review, the Nominating Committee is of the view that Mr Christopher Chong Meng Tak, Ms Lie Chin-Chin and Mr Choo Yong Fee are independent of the Group and the Management. The Nominating Committee holds meetings with the Management to set out key performance indicators for the Management in the year. These key performance indicators take into account the Company’s business operations and plans as well as the global economy. The Nominating Committee reviews the Management’s performance on an annual basis to determine if they have met the key performance indicators which have been set. The Nominating Committee also reviews the performance of the Directors as well as their contribution to the Board. After conducting reviews, the Nominating Committee is also satisfied that the Directors have been able to devote adequate time and attention to the affairs of the Company and they are able to fulfil their duties as directors of the Company. The Nominating Committee notes that Mr Christopher Chong Meng Tak serves on five other publicly listed companies. The Nominating Committee notes that during the year Mr Christopher Chong Meng Tak visited the Malaysian operations, held three or four meetings with management, spoke to various officers of the Group and spoke several times to the legal advisors and auditors of the Group. Accordingly, the Nominating Committee is satisfied that despite being on these other Boards, Mr Christopher Chong Meng Tak has devoted adequate time and attention to the affairs of the Group. The present directorships in listed companies of the present Directors as well as their directorships in listed companies for the preceding three years are set out below: Name of Directors
Present Directorship in Listed Companies
Past Directorship in Listed Companies
Goh Ah Lee -
-
Chung Kim Yew -
-
Lee Fut Hua -
-
Christopher Chong Meng Tak
ASL Marine Holdings Ltd Imagi International Holdings Limited GLG Corp Ltd SKY China Petroleum Services Ltd Koda Ltd Xpress Holdings Limited Koon Holdings Limited Yingli International Real Estate Ltd
Lie Chin-Chin - Choo Yong Fee -
-
Lorenzo International Limited (27 April 2007 to 30 June 2010)
Under Article 90 of the Company’s Articles of Association, at least one-third of the Directors (or if their number is not three or a multiple of three, then the number nearest to but not less than one-third) is required to retire from the office of Director and stand for re-election at the Company’s Annual General Meeting. Generally, the retiring Directors are Directors who have been the longest in office since their last election (unless otherwise nominated by the Nominating Committee). Notwithstanding the above, the Articles of Association also provide that the Company’s Managing Director, being Mr Goh Ah Lee, shall not be subject to retirement by rotation or be taken into account in determining the number of Directors that are to retire under Article 90.
CORPORATE GOVERNANCE (cont’d) The Directors standing for re-election at the forthcoming Annual General Meeting pursuant to Article 90 of the Company’s Articles of Association are Mr Chung Kim Yew and Ms Lie Chin-Chin. After assessing each of their contributions and performance, the Nominating Committee is recommending Mr Chung Kim Yew and Ms Lie Chin-Chin for re-election at the forthcoming Annual General Meeting. Further to the above, it should also be noted that our Nominating Committee also reviews the appointment of any manager of the Company or any of its principal subsidiaries, who is a relative of a Director or Chief Executive Officer or Substantial Shareholder. Pursuant to Rule 704(11) of the SGX-ST Listing Manual, the Company confirms that, as far as the Company is aware and save as set out below, there are no other persons occupying managerial positions in the Company or any of its principal subsidiaries who are related to a director or chief executive officer or substantial shareholder of the Company or its principal subsidiaries are as follows:
Name of Directors
Age
Family Relationship with any Director and/ or Substantial Shareholder
Current Position and duties, and the year position was first held
Details of changes in duties and position held, if any, during the year
Mr Chung Yook Fong 46 Brother of Factory Manager, in charge of Mr Chung Kim Yew factory and product research and development Mr Chung Kam Seng 50 Brother of Mr Chung Kim Yew
NIL
Warehouse & Service Manager, NIL in charge of warehouse and services
Ms Wong Ying Nyok 56 Wife of Research & Development Mr Chung Kim Yew Assistant, in charge of product research and development
NIL
Mr Lester Chung Win 28 Son of Purchasing Manager of Mr Lester Chung joined Kwong Mr Chung Kim Yew Ginova Marketing Sdn Bhd, Ginova Marketing Sdn a wholly-owned subsidiary Bhd in 2010. He was of the Company, in charge promoted to purchasing of purchasing and stock manager with effect inventory control matters from 1 February 2013.
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. The Nominating Committee has established a process for assessing the effectiveness of the Board as a whole and for assessing the contribution of each individual Director to the effectiveness of the Board. This assessment is conducted by the Nominating Committee at least once a year. Each member of the Nominating Committee shall abstain from voting on any resolutions in respect of the assessment of his/her performance or re-nomination as a Director. To assess the effectiveness of the Board as a whole, the factors evaluated by the Nominating Committee include but are not limited to: (i) the size and composition of the Board; (ii) the discussion and decision-making processes of the Board (including the conduct of meetings by the Board); (iii) the Board’s access to information; (iv) the accountability of the Board to the shareholders; (v) the observation of risk management and internal control policies by the Board; and (vi) the performance of the Board (including the Board’s performance in relation to the discharge of its principal responsibilities in terms of the financial indicators set out in the Code).
28 29 To assess the contribution of each individual Director, the factors evaluated by the Nominating Committee include but are not limited to: (i) his/her participation at the meetings of the Board; (ii) his/her ability to contribute to the discussion conducted by the Board; (iii) his/her ability to evaluate the Company’s strengths and weaknesses and make informed business decisions; (iv) his/her ability to interpret the Company’s financial reports and contribute to the formulation of strategies, budgets and business plans that are compatible with the Group’s vision and existing business strategy; (v) his/her compliance with the policies and procedures of the Group; (vi) his/her performance of specific tasks delegated to him/her; and (v) his/her disclosure of any related person transactions or conflicts of interest; and (vi) for Independent Directors, his/her independence from the Group and the Management. The Board and the Nominating Committee have endeavoured to ensure that the Directors possess the experience, knowledge and expertise critical to the Group’s business.
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 on-going basis. To ensure that the Directors are able to effectively discharge their duties and be fully aware of the decisions and actions of the Management, the Directors have been given detailed information concerning the Group’s business operations periodically. In particular, financial statements of the Group are also prepared on a half-yearly basis and circulated to all Directors for their review, allowing the Directors to have an awareness of the Group’s financial position. When required, board papers are also prepared for meetings of the Board to provide information on financial, business and any other corporate issues to the Board. In addition, the Directors have, at all times: (i) unrestricted access to the Company’s records and information; and (ii) separate and independent unlimited access to the Company Secretary and the Management. The attendance of the Company Secretary and/or her representatives at all the meetings held by the Board and/or the Director Committees ensures that procedures for these meetings (including those stipulated in the Articles of Association) are followed and that applicable rules and regulations, including the requirements of the Singapore Companies Act (Cap. 50) and the Singapore Exchanged Securities Trading Limited, are complied with. The Board also supports the taking of independent professional advice, at the Company’s expense, if necessary in order for it or an individual Director to effectively discharge his/her duties and responsibilities.
(B) REMUNERATION MATTERS
Procedures 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 Remuneration Committee comprises the Company’s three existing Independent Directors, namely Mr Choo Yong Fee (Chairman of the Remuneration Committee), Mr Christopher Chong Meng Tak (Member of the Remuneration Committee) and Ms Lie Chin-Chin (Member of the Remuneration Committee). The Remuneration Committee meets at least once annually. If so required, it may seek expert advice in the field of executive compensation outside the Company upon approval by the Board.
CORPORATE GOVERNANCE (cont’d) The Remuneration Committee is principally responsible for reviewing and recommending to the Board remuneration packages and policies for the Directors, key executives and any persons occupying managerial positions who are related to a Director, Chief Executive Officer or Substantial Shareholder of the Group. This review process covers all aspects of remuneration, including but not limited to Directors’ fees, salaries, allowances, bonuses, share options, performance shares, and benefits-in-kind, as the case may be. Pursuant to its review, the Remuneration Committee will submit its recommendations to the entire Board for endorsement. Each member of the Remuneration Committee abstains from voting on any resolutions in respect to his/her remuneration package.
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 Committee carries out annual reviews of the remuneration packages of the Directors and the Management, having due regard to their contributions as well as the financial and commercial needs of the Group. The Remuneration Committee takes into account the industry norms/standards, the Group’s performance as well as the contribution and performance of each Director when determining the remuneration packages of the Directors. The Independent Directors receive directors’ fees, in accordance with their contributions, taking into account factors such as effort and/or time spent, the responsibilities of the Independent Directors and the need to pay competitive fees to attract, retain and motivate the Independent Directors. The Independent Directors are not over-compensated to the extent their independence may be compromised. The remuneration for the Executive Directors and the Management comprise a basic salary component and a variable component, namely, the annual bonus. The latter is based on the performance of the Group as a whole and their individual performance. The Company has, in 2009, entered into separate service agreements with Mr Goh Ah Lee, Mr Chung Kim Yew and Mr Lee Fut Hua to set out the framework of their respective remuneration. These service agreements came into effect on 1 July 2009 and provide inter alia that either the each Executive Director or the Company may terminate that Executive Director’s service agreement upon giving written notice of not less than six months. At an Extraordinary General Meeting of the Company held in 2009, the Company, having obtained majority votes from the then existing Shareholders, implemented a share performance plan (“Share Performance Plan”) as a compensation scheme to promote higher performance goals and recognise exceptional achievement by individuals who well-contributed to the Group’s growth. The Share Performance Plan was also extended to the Non-Executive Directors who have made and who continue to make significant contributions to the long-term growth of the Group. For further details of the Share Performance Plan, please refer to the Company’s Circular to Shareholders dated 23 November 2009, which may be found on the SGXNET (http://www.sgx.com/wps/portal/marketplace/mp-en/listed_companies_info/prospectus_circulars). The Share Performance Plan was renewed at the Annual General Meeting of the Company for its financial year period ended 31 December 2011. The Share Performance Plan will be renewed at the forthcoming Annual General Meeting of the Company.
30 31 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. In addition to its strict policies on bribery and money-laundering, the Group also maintains, under its Ethics, strict policies on gifts and entertainment which applies to all employees (including Directors). In the event that gifts, entertainment or other benefits are offered to employees, they must be properly declined if there is a risk of there being an appearance of impropriety. Similarly, all employees must also not offer any gifts, entertainment or other benefits to others if it creates an appearance of impropriety. The breakdown of remuneration of the Directors for the financial year ended 31 December 2012 is set out below: Remuneration Band and Name of Directors (1)
Fees
Salary
Bonus Benefits- Allowances in-kind
Directors who receive less than S$100,000 Christopher Chong Meng Tak S$42,900 - - - Lie Chin-Chin S$34,320 - - - Choo Yong Fee(2) S$31,460 - - - - Directors who receive S$100,000 to S$249,999 Lee Fut Hua - 92% 8% - - Directors who receive S$250,000 to S$499,999 Goh Ah Lee - 92% 8% - - Chung Kim Yew - 92% 8% - -
Total
S$42,900 S$34,320 S$31,460 100% 100% 100%
Notes: (1) No shares were issued to the Directors under the Company’s Share Performance Plan for the financial year ended 31 December 2012. (2) Mr Choo Yong Fee was appointed with effect from 1 February 2012.
The breakdown of remuneration of the top Executive Officers for the financial year ended 31 December 2012 is set out below: Remuneration Band and Name of Directors (1)
Fees
Salary
Bonus Benefits- Allowances in-kind
Executive Officers who receive less than S$100,000 Chong See Keong - 79% 21% - - Executive Officers who receive S$100,000 to S$249,999 Chen Wen Te 72% - - - 28% Ng Siong Lin 2% 98% - - - Note: (1) No shares were issued to the Executive Officers under the Company’s Share Performance Plan for the financial year ended 31 December 2012.
Total
100%
100% 100%
CORPORATE GOVERNANCE (cont’d) Pursuant to Rule 704(11) of the SGX-ST Listing Manual, the Company has disclosed in its full year results announcement released via SGXNET on 27 February 2013, a list of persons occupying managerial positions who are related to a Director, Chief Executive Officer or Substantial Shareholder of the Group (“Related Employees”). The breakdown of Related Employees for the financial year ended 31 December 2012 is set out below: Remuneration Band and Name of Directors (1)
Fees
Salary
Bonus Benefits- Allowances in-kind
Related Employees who receive less than S$100,000 Wong Ying Nyok - 76% 24% - - Lester Chung Win Kwong - 72% 28% - - Related Employees who receive S$100,000 to S$249,999 Chung Kam Seng - 46% 54% - - Chung Yook Fong - 56% 44% - -
Total
100% 100%
100% 100%
Note: (1) No shares were issued to Related Employees under the Company’s Share Performance Plan for the financial year ended 31 December 2012.
(C) ACCOUNTABILITY AND AUDIT Accountability
Principle 10: The Board should present a balanced and understandable assessment of the company’s performance, position and prospects. One of the Board’s principal duties is to protect and enhance the long-term value and returns to the Shareholders. This accountability to the Shareholders is demonstrated through the presentation of its periodic financial statements as well as the timely announcements and news releases of significant corporate developments and activities so that the Shareholders can have a detailed explanation and balanced assessment of the Group’s financial position and prospects. The Management maintains close contact and communication with the Board by various means, including but not limited to holding meetings with the Board or via email in which documents are circulated to the Board for their review or for their information. The Company is required to make half-yearly announcements in relation to their financial results. However, the Management prepares the financial results every quarter and meetings are held with the Board to review these financial results. The Management also prepares and updates the Company’s budget and table the same to the Board for their review. The abovementioned arrangement allows the Directors to monitor the Group’s performance as well as the Management’s achievements of the goals and objectives determined and set by the Board. For further accountability, the announcements containing the half-yearly financial statements are signed jointly by the Executive Chairman and Group Managing Director Mr Goh Ah Lee and the Finance Director Mr Lee Fut Hua for and on behalf of the Board, to confirm that it is to the best of the Board’s knowledge, nothing has come to the attention of the Board which may render the unaudited interim financial results contained in the announcement to be false or misleading in any material aspects. The Directors’ Report to the audited financial statements of the Company is also signed by the Executive Chairman and Group Managing Director Mr Goh Ah Lee and the Finance Director Mr Lee Fut Hua. Prior to his appointment as Finance Director, Mr Lee Fut Hua acted as the Group Financial Controller since 2004. The Company also completes and submits the compliance checklists to SGX (if applicable and when required) to ensure that all announcements, circulars or letters to our Shareholder comply with the minimum requirements set out in the SGX-ST Listing Manual. For its annual reports, the Company also reviews the documents against the documents using the Governance and Transparency Index launched by The Business Times and the Singapore Corporate Governance & Financial Reporting Centre.
32 33 Under the Ethics, the Company and its employees are also required to provide the Shareholders, analysts, customers, creditors and any other relevant persons reliable information relating to the Group’s operations and performance and outlook. The Board ensures that there is proper record keeping and financial reporting to safeguard the integrity and credibility of the Group and to prevent financial irregularities and even fraud. All employees are required under the Ethics to keep accurate and truthful records and reports (including those used for internal purposes and be in compliance with local and global accounting standards as well as laws, rules and regulations of countries in which the Group operates in). The Group’s reputation is valuable and has been achieved through many years of excellent service and integrity in its business operations, To maintain the Group’s reputation, our Group has maintained, under the Ethics, policies for proper marketing, advertising and sales practices to ensure that description of the Group’s offerings and services are legal and fair and there are no false, misleading or deceptive practices.
Audit Committee
Principle 11: The Board should establish an Audit Committee with written terms of reference which clearly set out its authority and duties. The Audit Committee comprises the Company’s three existing Independent Directors, namely, Mr Christopher Chong Meng Tak (Chairman of the Audit Committee), Ms Lie Chin-Chin (Member of the Audit Committee) and Mr Choo Yong Fee (Member of the Audit Committee). The Company has appointed Mr Christopher Chong Meng Tak as the Chairman of the Audit Committee as he has a strong accounting and financial management expertise, being a member of the Society of the Chartered Accountants of Scotland and a fellow of the Hong Kong Society of Accountants. Further to the above, Mr Christopher Chong Meng Tak also sits on the board of directors of other listed companies. The Audit Committee meets periodically and once every quarter to review the accounting, auditing and financial reporting matters so as to ensure that an effective system of control is maintained within the Group. The Audit Committee’s duties include the review of: (i) audit plans of the External Auditors and their evaluation of the Group’s system of internal accounting controls; (ii) the External Auditors’ reports; (iii) co-operation given by the Group’s officers to the External Auditors; (iv) the financial statements and announcements before their submission to the Board; (v) nomination of the External Auditors for reappointment; (vi) interested person transactions, if any; and (v) scope and adequacy of the Group’s internal control procedures. For the financial year ended 31 December 2012, the Audit Committee has reviewed the Company’s financial reporting function, internal controls and processes and is satisfied with the adequacy and quality of the same. The Audit Committee is also satisfied with the adequacy of the Company’s accounts and financial reporting resources and the performance of the Finance Director Mr Lee Fut Hua and all other senior management in the Finance Department of the Company. Apart from the duties listed above, the Audit Committee has the authority to commission and review the findings of internal investigations of matters where there is any suspected fraud or irregularity, or failure of internal controls or infringement of any Singapore or other applicable law, rule or regulation which has or is likely to have a material impact on the Group’s operating results and/or financial position. The Audit Committee is entitled to obtain independent professional advice to execute its duties. In the event that a member of the Audit Committee is interested in any matter being considered by the Audit Committee, he/she will abstain from reviewing that particular transaction or voting on that particular resolution.
CORPORATE GOVERNANCE (cont’d) The Audit Committee has also reviewed the arrangements by which the Company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters within the Group, with the objectives of ensuring that arrangements are in place for independent investigations of such matters and for appropriate follow-up action as and when the need arise. As at the date of this Annual Report, the Company has put in place a whistle-blowing policy for this purpose. Under the Company’s whistle-blowing policy, employees may submit a complaint (which may be an anonymous basis) to the Chairman of the Audit Committee and/or the officer designated by the Audit Committee, who will proceed to investigate the complaint. Complaints which should be reported pursuant to the whistle-blowing policy, include without limitation, the following: (i) fraud or deliberate error in the recording and maintaining of the financial records of the Group or in the preparation, review or audit of the Group’s financial statements; (ii) significant deficiencies in or deliberate non-compliance with the Group’s internal accounting controls; (iii) use of the Group’s funds, assets or property for any illegal, improper or unethical purpose, for example, fraud, theft of corporate property, embezzlement or misappropriation of corporate funds, assets or confidential information, and any acts of corruption or bribery; (iv) fraud against investors, or the making of fraudulent statements to the SGX, members of the investing public and government or state authorities; (v) violation of existing legislation, rules and regulations applicable to the Group relating to its accounting, financial reporting, internal controls and auditing matters; (vi) distinct effort to mislead, deceive, manipulate, coerce or fraudulently influence any internal or external accountant or auditor in connection with the preparation, examination, audit or review of any financial statements or records of the Group; (vii) improper actions or omissions which are likely to endanger colleagues, customers and suppliers of the Group and/ or members of the public; (viii) improper or abuse of Company position / appointment for personal gain; and (ix) information relating to any of the above is being deliberately concealed or attempts are being made to conceal the same. Questions, concerns and complaints relating to the enforcement or application of human resources policies and regulations of the Group, aspects of the workplace environment of the Group and the behavioural aspects of employees (including matters relating to discrimination and harassment of any nature), are not considered complaints and should not be reported under this Policy but should be reported directly to the employee’s supervisors or to the Group’s Human Resource Manager. A copy of the Company’s whistle-blowing policy and procedure may be found on the Company’s corporate website (http://www.lorenzo-international.com/Corporate_Policies.html). The Audit Committee reviewed the adequacy of audit arrangements, with particular emphasis on the observations of the External Auditors, the scope and quality of their audits and the independence and objectivity of the External Auditors. The Audit Committee also reviewed: (i) the work performed by the External Auditors taking into consideration the guidelines set out in the Guidance to Audit Committees on Evaluation of Quality of Work Performed by External Auditors issued in July 2010 by SGX-ST and the Singapore Accounting and Corporate Regulatory Authority; and (ii) the fees and expenses paid to the External Auditors, including fees for non-audit services. The Audit Committee reviewed the independence and objectivity of the external auditors as required under Section 206(1A) of the Companies Act and determined that the external auditors were independent in carrying out their audit of the financial statements. The Audit Committee has also reviewed the scope and quality of the external auditors’ work before recommending the external auditors to the Board for re-appointment. After taking into account that the resources and experience of Messrs Foo Kon Tan Grant Thornton LLP and the audit engagement partner assigned to the audit, Messrs Foo Kon Tan Grant Thornton LLP’s other audit engagement, the size and complexity of the audit for the Group as well as the number and experience of the staff assigned by Messrs Foo Kon Tan Grant Thornton LLP for the audit, the Audit Committee is of the opinion that Messrs Foo Kon Tan Grant Thornton LLP’s independence has not been compromised and is able to meet its audit obligations. Together with the Board, the Audit Committee recommends the re-appointment of Messrs Foo Kon Tan Grant Thornton LLP at the forthcoming Annual General Meeting.
34 35 Messrs Foo Kon Tan Grant Thornton LLP is an audit firm registered with the Singapore Accounting & Corporate Regulatory Authority and was appointed on 11 October 2005. The Audit Committee noted that Messrs Foo Kon Tan Grant Thornton LLP was not engaged to provide non-audit services in the financial year ended 31 December 2012. The audit fees paid to the External Auditors for their audit services in the financial year ended 31 December 2012 are S$292,000 (excluding disbursements and GST). Messrs Foo Kon Tan Grant Thornton LLP was also appointed in the financial year ended 31 December 2011 to audit the accounts of the Company, its subsidiaries and its significant associated companies. The Company is in compliance with Rule 712 and Rule 715 of the Listing Manual. The Audit Committee and External Auditors have, at all times, unrestricted access to each other. The Audit Committee also meets annually with the External Auditors, without the presence of the Management and is authorised to have full and unrestricted access to management and all personnel, records, operation, properties and other informational sources of the Company as required or desirable to properly discharge its responsibilities. The Audit Committee has also reviewed the arrangements by which the Company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters within the Group, with the objectives of ensuring that arrangements are in place for independent investigations of such matters and for appropriate follow-up action as and when the need arises. As at the date of this Annual Report, the Company has put in place a whistle-blowing policy for this purpose. Under the Company’s whistle-blowing policy, employees may submit a complaint (which may be an anonymous basis) to the Chairman of the Audit Committee and/or the officer designated by the Audit Committee, who will proceed to investigate the complaint. A copy of the Company’s whistle-blowing policy and procedure may be found on the Company’s corporate website (http://www.lorenzo-international.com).
Internal Control
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 acknowledges that it is responsible for the overall internal control framework, but recognises that all internal control systems contain inherent limitations and that no cost effective internal control system will preclude all errors and irregularities, as a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss. The Audit Committee conducts regular reviews of the effectiveness of the Group’s internal controls, including financial, operational and compliance controls. The Audit Committee have, on behalf of the Board, reviewed the effectiveness of the various systems put in place by the Management and it is satisfied that there are adequate internal controls in the Company to provide reasonable assurance as to the integrity and reliability of the financial information and to safeguard and maintain accountability of its assets. As the Group is too small and its business is such that does not have a risk management committee, the Board, Audit Committee and the Management assumes the responsibility of the risk management function. The Management reviews regularly the Group’s business and operational activities to identify areas of significant risks as well as appropriate measures to control and mitigate these risks. Management reviews all significant policies and procedures and highlights all significant matters to the Board and the Audit Committee. Based on the internal controls established and maintained by the Group, the Audit Committee and the Board are of the opinion that the Group’s internal controls, addressing financial, operational and compliance risks, were adequate as at 31 December 2012. This is supported by the assurance from the Executive Chairman and Group Managing Director and the Finance Director that: (i) the financial records of the Company have been properly maintained and the financial statements give a true and fair view of the company’s operations and finances and are in accordance with the relevant accounting standards; and (ii) they have evaluated the effectiveness of the Company’s internal controls and have discussed with the Company’s external and internal auditors on their reporting points and note that there have been no significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarise or report the financial data.
CORPORATE GOVERNANCE (cont’d) In addition the Group’s whistle-blowing policy, the Ethics set out by the Group also requires employees to act in accordance with the values and policies of the Group. To monitor compliance with the Ethics, risk management systems are put in place and compliance audits are conducted. Breaches or potential breach of the Ethics are to be reported to a senior manager, a member of the Group’s legal department, a member of the Group’s human resource department, a member of the Group’s internal audit department or through local grievance procedures.
Internal Audit
Principle 13: The company should establish an internal audit function that is independent of the activities it audits. The Board acknowledges that it is responsible for maintaining an internal audit function independent of the activities it audits. The Company has appointed the external audit firm Nexia TS Risk Advisory Pte Ltd to perform such internal audit functions (“Internal Auditors”). Nexia TS Risk Advisory Pte Ltd is not the external auditor of the Company and the Audit Committee noted that the internal audits conducted by Internal Auditors meet the standards set out by the Institute of Internal Auditors. The role of the Internal Auditors is to support the Audit Committee in ensuring that the Company maintains a sound system of internal controls by monitoring and assessing the effectiveness of the key controls and procedures, conducting in-depth audits of high risk areas and undertaking investigation as directed by the Audit Committee. The Internal Auditors shall remain independent of management and shall report directly to the Chairman of the Audit Committee. The Internal Auditors shall be responsible for the preparation of internal audit plans to be reviewed and approved by the Audit Committee. The Audit Committee meets at least once annually to ensure the adequacy of the internal audit functions. The Audit Committee reviewed and approved the internal audit plan proposed by the Internal Auditors. The Audit Committee also believes that the system of internal controls and risk management maintained by the Company is adequate to safeguard the Shareholders’ investment and the Company’s assets. To determine the adequacy of the internal control and risk management, the procedures adopted include but are not limited to: (i) reviewing the revenue policies and procedures established; (ii) checking invoices raised to sales order and/or contracts; (iii) reviewing discrepancies of billing and receipts; (iv) reviewing monitoring system for unfulfilled sales order procedures; (v) reviewing processing and banking-in of receipts; (vi) reviewing customer complaints and respective corrective action taken; (vii) reviewing sales-related deductions and adjustments to ensure that they were supported with documentary evidence and were authorised; (viii) reviewing the timeliness of revenue recognition; (ix) checking the debtors aging report, the customer invoices and recording of debts in terms of amount period; (x) reviewing documentation and evidence supporting the monitoring of overdue balances and ensure that continuous monitoring is undertaken; (xi) reviewing overdue balances and determining whether provisions or write-offs were required based on evidence collected during the monitoring stage; (xii) reviewing credit evaluation procedures and credit management and commenting on its effectiveness; (xiii) checking that provision for bad debts and write offs were approved in accordance with policies and procedures; (xiv) checking goods received and issued to ensure that inventory records are updated accordingly; (xv) reviewing the top-up level for essential spares and inventory; (xvi) reviewing movements of inventory; (xvii) reviewing the obsolete or slow moving items; (xviii) inquiring and observing the adequacy of physical security and control; (xix) reviewing turnover of major inventory items and assessing the Group’s ability to manage inventory; (xx) reviewing stock take procedures and stock take report;
36 37 (xxi) reviewing the performance of reconciliation of stock take variance to ensure that it was conducted as approved and taken up in the accounts; and (xxii) reviewing stock returned and rejected by customers and the reasons given for such returns; (xxiii) reviewing key management/corporate information such as organisation charts, policies and procedures, systems and authorisation limits; (xxiv) interviewing key process owners (managers and employees) on the operating processes and controls; (xxv) performing walkthrough of processes to understand key controls in place; (xxvi) carrying out control testing through verification and reviewing of relevant documents; and (xxvii) reviewing employee job functions and responsibilities to assess whether incompatible duties were properly segregated. The findings from the abovementioned reviews and checks are rated and reported to the Audit Committee. In particular, high risk matters are highlighted to the Audit Committee and the Management to ensure that proper follow-up actions are undertaken to ensure proper internal control and risk management.
(D) COMMUNICATION WITH SHAREHOLDERS Communication with Shareholders
Principle 14: Companies should engage in regular, effective and fair communication with shareholders. The Company endeavours to maintain constant and effective communication with Shareholders through timely and comprehensive announcements. Price-sensitive information is released to all parties such as Shareholders, stakeholders and the public simultaneously to ensure a level playing field. Any material information or respective half-yearly and full year results (all issued within the mandatory period) is disseminated through SGXNET. The Company communicates regularly through the following channels: (i) the SGXNET; (ii) news and press releases; (iii) the annual report; and (iv) if it receives any email queries from Shareholders, replies by email. The Group’s material development and information shall also be disclosed in: (i) the Company’s announcement of periodic financial results on the SGXNET; (ii) notices of and explanatory memoranda for Annual General Meetings and Extraordinary General Meetings; (iii) press releases for the Group’s half-year and full-year results as well as other briefings, as appropriate; (iv) press releases on major developments and corporate affairs of the Group (which the Company also releases as announcements via SGXNET and any supporting materials to these press release such as PowerPoint slides are also attached to these announcements); and (v) circular or letters to shareholders to provide the shareholders with more information on its major transactions. In addition to the above, the Shareholders can access the Company’s corporate website (http://www.lorenzo-international. com/) at their convenience to receive updates. The Company’s corporate website also provides information about the Company, its products and its directors. In the investor relation section of the corporate website, we maintain website links to the latest announcements released on SGXNET by the Company, latest financial results released on SGXNET by the Company and latest annual report of the Company. The Company has a pool of professional and dedicated investor relation team in ensuring that queries by the Shareholders are responded in a timely manner. Contact details of the investor relation team may be found in the corporate website. The Company also engages an external investor relation consultant firm Financial PR Pte Ltd to support the Group in promoting the communication with its Shareholders and the investment community. The Company also conducts briefing for analysts and media and such briefings are attended by our external investor relation consultants, Executive Chairman/ Group Managing Director and Finance Director to answer questions which the analysts and media may have.
CORPORATE GOVERNANCE (cont’d) Greater Shareholder Participation
Principle 15: Companies should encourage greater shareholder participation at Annual General Meetings, and allow shareholders the opportunity to communicate their views on various matters affecting the company. The Board regards the Annual General Meeting as an opportunity to communicate directly with the Shareholders and encourages attendance and participative dialogue during the Annual General Meeting. The notice of the Annual General Meeting is dispatched to shareholders with the Annual Report (together with explanatory notes or a circular/letter to shareholders on items of special business, if applicable) at least 14 days before the Annual General Meeting if ordinary businesses are to be transacted at the meeting or at least 21 days before the meeting if special businesses are to be transacted at the meeting. The notice, first disseminated via SGXNET, is also advertised in newspapers. It is crucial that the notice of the Annual General Meeting is reached out to the Shareholders prior to the Annual General Meeting as it sets out the agendas that will be discussed, some of which may be of interest to the Shareholders. A member of the Company entitled to attend and vote at the Annual General Meeting of the Company is entitled to appoint one or two proxies to attend and vote in his place. The Chairman of the Annual General Meeting and the other Directors attending the Annual General Meeting will be available to answer questions from the Shareholders present. The External Auditors are also invited to attend the Annual General Meeting and will assist the Directors in addressing relevant queries by the Shareholders relating to the conduct of the audit and the preparation and content of the External Auditors’ report. Votes at the Annual General Meeting are taken by way of show of hands, unless a poll is called by the Chairman of the Annual General Meeting or any Shareholder. The Company also encourages all the Shareholders to attend the Annual General Meeting to grasp a better understanding of the Group’s business and be informed of the strategic goals and objectives. The Board and Management are committed to an open dialogue with the Shareholders at the Annual General Meeting to address the Shareholders’ issues, views and concerns. The Company’s Articles of Association allow the Shareholder to appoint one or two proxies to attend the Annual General Meeting and vote in place of that Shareholder. The Board is of the view that voting in absentia can only be possible if there is absolute certainty that integrity of the information and authentication of the identity of such Shareholder is not compromised. The Chairmen of the Audit Committee, Remuneration Committee and Nominating Committee are normally available at the Annual General Meeting as well to answer questions relating to the work of the Director Committees. The results of the Annual General Meeting will be released as an announcement via SGXNET.
(E) DEALING IN SECURITIES & COMPLIANCE WITH BEST PRACTICES GUIDE
The Group has adopted and implemented the best practices guidelines advised by SGX-ST in relation to the dealing of shares of the Company. The Group has maintained policies on insider-trading in its Ethics and also put in place procedures prohibiting the Directors and employees of the Group from dealing in the Company’s shares during the periods commencing one month prior to the announcement of the Group’s financial results and ending on the date of the announcement of the results, or if they are in possession of unpublished material price-sensitive information of the Group. The Directors and employees are also expected to observe insider trading laws at all times even when dealing in securities within the permitted trading period. In addition, the Directors and employees are expected not to deal in the Company’s securities on short term considerations. The Board shall ensure that the Company complies with the principal corporate governance recommendations set out in the best practices guide issued by SGX-ST for the financial year ended 31 December 2012. The Company also has a policy of encouraging its Non-Executive Directors (including Independent Directors) to purchase shares in the Company (provided always that the best practices guidelines advised by SGX-ST are observed) and for the Non-Executive Directors to hold these shares until the Non-Executive Director leaves the Board.
38 39 (F) INTERESTED PERSON TRANSACTIONS
To ensure compliance with the relevant rules under Chapter 9 of the SGX-ST Listing Manual on interested person transactions, the Board and Audit Committee regularly reviews if the Company enters into any interested person transaction and if it does, to ensure that the Company complies with the requisite rules under Chapter 9. If the Company does enter into an interested party transaction, and a potential conflict of interest arises, the Director concerned will abstain from any discussions and will also refrain from exercising any influence over other members of the Board. Further to the above, the Group has introduced policies under its Ethics, requiring all employees (including Directors) to disclose, at all times, any actual or apparent conflicts of interests as well as avoiding such potential conflicts. Details of the interested person transactions for the financial year ended 31 December 2012 are as follows: Aggregate value of all interested party transactions (excluding transactions less than S$100,000 and transactions conducted under the shareholders’ mandate pursuant to Rule 920 of the SGX-ST Listing Manual)
Name of interested person
Financial year ended 31 December 2011 S$’000
PT. Fine Concept Furniture(1) (Sale of raw materials)
Financial year ended 31 December 2012 S$’000
36
2
PT. Fine Concept Furniture(1) (Purchase of furniture) 869 194 Chung Kim Yew (Rental of property) 138 135 Note: (1) PT. Fine Concept Furniture is a company in Indonesia which is owned by the brother of our Executive Director, Mr Chung Kim Yew.
(G) MATERIALS CONTRACTS
There were no material contracts of the Company or its subsidiaries involving the interests of the Executive Chairman and Group Managing Director, Chief Executive Officer, any Director or Controlling Shareholder except for the service agreements entered into between the Company and the Executive Directors.
(H) REPORT ON THE USE OF PLACEMENT SHARE PROCEEDS
Pursuant to a placement exercise, the Company issued 33,000,000 new ordinary shares at S$0.11 per share for cash on 1 October 2010. Of the gross proceeds of S$3.63 million raised from the aforementioned placement exercise, the balance of the unutilised funds as at the date of this Annual Report is as follows:
Intended Use
Amount Allocated (S$’000)
Amount Utilised (S$’000)
Funding merger and acquisition and joint-venture Working capital Placement share expenses
3,350 3,350 147 147 133 133
Total amount
3,630 3,630
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40 41
FINANCIAL REPORT
42
DIRECTORS’ REPORT
45
STATEMENT BY DIRECTORS
46
INDEPENDENT AUDITOR’S REPORT
48
STATEMENT OF FINANCIAL POSITION
49
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
51
CONSOLIDATED STATEMENT OF CASH FLOWS
52
NOTES TO THE FINANCIAL STATEMENTS
94
SHAREHOLDING STATISTICS
96
NOTICE OF ANNUAL GENERAL MEETING
99
PROXY FORM
DIRECTORS’ REPORT for the financial year ended 31 December 2012 The directors submit this annual report to the members together with the audited consolidated financial statements of the Group and statement of financial position of the Company for the financial year ended 31 December 2012. Names of directors The directors of the Company in office at the date of this report are: Goh Ah Lee Chung Kim Yew Lee Fut Hua Christopher Chong Meng Tak (Independent director) Lie Chin-Chin (Independent director) Choo Yong Fee (Independent director) Arrangements to enable directors to acquire shares or debentures During and at the end of the financial year, neither the Company nor any of its subsidiaries was a party to any arrangement the object of which was to enable the directors to acquire benefits through the acquisition of shares in or debentures of the Company or of any other corporate body, other than as disclosed in this report. Directors’ interest in shares or debentures According to the Register of Directors’ Shareholdings kept by the Company under Section 164 of the Companies Act, Chapter 50, the following directors who held office at the end of the financial year were interested in shares of the Company and its related corporations as follows:
Holdings registered in the name of director
Holdings in which director is deemed to have an interest
As at As at 31.12.2012 31.12.2012 As at and As at and 1.1.2012 9.3.2013# 1.1.2012 9.3.2013# The Company - Lorenzo International Limited Goh Ah Lee Chung Kim Yew Lee Fut Hua Christopher Chong Meng Tak #There
7,147,000 33,493,200 865,000 210,000
Number of ordinary shares
7,217,000 12,246,000 12,246,000 33,493,200 86,000 86,000 965,000 - 210,000 175,000 175,000
are no changes to the above shareholdings as at 10 March 2013.
DIRECTORS’ REPORT for the financial year ended 31 December 2012
42 43
Directors’ benefits Since the end of the previous financial year, no director has received or has become entitled to receive by reason of a contract made by the Company or a related corporation with the director, or with a firm of which he is a member, or with a company in which he has a substantial financial interest other than as disclosed in the financial statements. Share options No options to take up unissued shares of the Company or its subsidiaries have been granted during the financial year. No shares were issued during the financial year by virtue of the exercise of the options to take up unissued shares of the Company or its subsidiaries. There were no unissued shares of the Company or its subsidiaries under option at the end of the financial year. Audit Committee The Audit Committee comprises the following three members all of whom, including the Chairman, are independent. Christopher Chong Meng Tak (Chairman) Lie Chin-Chin Choo Yong Fee The Audit Committee performs the functions set out in Section 201B(5) of the Companies Act, Cap. 50, the SGX Listing Manual and the Code of Corporate Governance. The AC functions under the terms of reference that sets out its responsibilities include: • To review audit plans of the internal auditor and external auditor, assistance given by the Company’s officers to the internal auditor and external auditor and results of the internal audit procedures; • To review the internal auditor’s and external auditor’s evaluation of the Company’s system of internal accounting controls; • To review the quarterly financial information and annual financial statements of the Group and the Company before submission to the directors of the Company for approval; • To make recommendations to the Board on the nomination for the appointment, re-appointment and removal of external auditors; • To review interested person transactions (as defined in Chapter 9 of the Listing Manual of the Singapore Exchange); and • To undertake such other reviews and projects as may be requested by the Board, and report to the Board its findings from time to time on matters arising. The Audit Committee has full access to management and is given the resources required for it to discharge its functions. It has full authority and the discretion to invite any director or executive officer to attend its meetings. The Audit Committee also recommends the appointment of the external auditors and reviews the level of audit and non-audit fees.
DIRECTORS’ REPORT for the financial year ended 31 December 2012 The Audit Committee is satisfied with the independence and objectivity of the external auditors and has recommended to the Board of Directors that the auditor, Foo Kon Tan Grant Thornton LLP, be nominated for re-appointment as auditor at the forthcoming Annual General Meeting of the Company. Independent auditor The independent auditor, Foo Kon Tan Grant Thornton LLP, Certified Public Accountants, has expressed its willingness to accept re-appointment.
On behalf of the Directors
GOH AH LEE
LEE FUT HUA Dated: 31 March 2013
Statement by directors for the financial year ended 31 December 2012
44 45
In the opinion of the directors, the accompanying statements of financial position, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows, together with the notes thereon, 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, changes in equity and cash flows of the Group for the year ended on that date in accordance with the provisions of the Singapore Companies Act, Chapter 50 and Singapore Financial Reporting Standards; and 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 Directors
GOH AH LEE
LEE FUT HUA Dated: 31 March 2013
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF LORENZO INTERNATIONAL LIMITED Report on the financial statements We have audited the accompanying financial statements of Lorenzo International Limited (the “Company”) and its subsidiaries (the “Group”), which comprise the statements of financial position of the Group and the Company as at 31 December 2012, the statement of comprehensive income, statement of changes in equity and statement of cash flows of the Group for the year then ended, 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 (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.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF LORENZO INTERNATIONAL LIMITED (cont’d)
46 47
Opinion In our opinion, the consolidated financial statements of the Group and the statement of financial position of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards 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 for the year ended on that date. 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 auditor have been properly kept in accordance with the provisions of the Act.
Foo Kon Tan Grant Thornton LLP Public Accountants and Certified Public Accountants Singapore, 31 March 2013
Statements Of Financial Position as at 31 December 2012 The Company The Group 31 December 31 December 31 December 31 December 2012 2011 2012 2011 Note $ $ $ $ ASSETS Non-Current Assets Goodwill 4 - - - 47,274 Property, plant and equipment 5 1,958 1,748 27,700,443 28,261,569 Land use rights 6 - - 1,197,205 1,144,656 Subsidiaries 7 30,254,360 32,388,360 - 8 - - 345,886 1,051,329 Intangible assets - - 96,932 79,715 Available-for-sale financial assets 9 11 - - 2,227,857 2,480,942 Other receivables 30,256,318 32,390,108 31,568,323 33,065,485 Current Assets 6 - - 29,011 26,697 Land use rights 27,715,169 28,560,250 Inventories 10 - - 11 1,830,307 3,337,674 10,712,207 10,960,927 Trade and other receivables 12 - 261,102 7,816,933 10,816,335 Cash and cash equivalents 1,830,307 3,598,776 46,273,320 50,364,209 32,086,625 35,988,884 77,841,643 83,429,694 Total assets EQUITY Capital and Reserves 13 30,258,120 30,258,120 30,258,120 30,258,120 Share capital (1,286,408) 2,340,731 1,313,356 7,979,565 Reserves 14 28,971,712 32,598,851 31,571,476 38,237,685 Total equity Non-Current Liabilities 995,330 1,145,633 Borrowings 15 - - 16 - - 39,119 Deferred income 17 - - 404,647 461,503 Deferred tax liabilities - - 1,439,096 1,607,136 Current Liabilities 18 3,112,651 3,390,033 23,230,386 24,771,123 Trade and other payables 16 - - 73,520 Deferred income 2,262 - 21,364,883 18,442,539 Borrowings 15 - - 162,282 371,211 Current tax payable 3,114,913 3,390,033 44,831,071 43,584,873 3,114,913 3,390,033 46,270,167 45,192,009 Total liabilities Total equity and liabilities 32,086,625 35,988,884 77,841,643 83,429,694
The annexed notes form an integral part of and should be read in conjunction with these financial statements.
48 49
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the financial year ended 31 December 2012
Year ended Year ended 31 December 2012 31 December 2011 Note $ $ Revenue 3 78,206,876 74,697,536 (46,321,697) (38,165,102) Cost of sales Gross profit 31,885,179 36,532,434 Other income 19 5,047,903 1,116,733 (9,496,790) (9,474,817) Distribution costs Administrative expenses (26,618,935) (23,056,495) (4,098,163) (3,450,355) Other operating expenses 20 (1,050,530) (907,796) Finance costs (4,331,336) 759,704 (Loss)/Profit before taxation 21 22 (1,308,516) (1,955,624) Tax expense (5,639,852) (1,195,920) Loss after taxation Loss for the year attributable to owners (5,639,852) (1,195,920) of the Company Other comprehensive income: Net change in fair value of available-for-sale financial assets, at nil tax Currency translation differences, at nil tax Other comprehensive income for the year, net of tax Total comprehensive loss for the year attributable to owners of the Company
17,217 39,199 606,301 56,416
606,301
(5,583,436)
(589,619)
Loss per share (cents) - basic
23
(2.60) (0.59)
- diluted
23
(2.60) (0.59)
The annexed notes form an integral part of and should be read in conjunction with these financial statements.
The annexed notes form an integral part of and should be read in conjunction with these financial statements.
At 1 January 2012 30,258,120 (2,105,824) 68,256 698,545 (3,282,141) - 12,600,729 38,237,685 Total comprehensive loss for the year Loss for the year - - - - - - (5,639,852) (5,639,852) 39,199 - - - 17,217 - 56,416 Other comprehensive income - Total comprehensive loss for the year - 39,199 - - - 17,217 (5,639,852) (5,583,436) Transactions with owners of the Company, recognised directly in equity contributions by and distributions to owners Dividend (Note 24) - - - - - - (1,082,773) (1,082,773) Total contributions by and distributions to owners - - - - - - (1,082,773) (1,082,773) Total transactions with owners of - - - - - - (1,082,773) (1,082,773) the Company Transfer to capital reserve - - - 139,505 - - (139,505) At 31 December 2012 30,258,120 (2,066,625) 68,256 838,050 (3,282,141) 17,217 5,738,599 31,571,476
Statutory Share Translation common Capital Merger Fair value Retained Total capital reserve reserve reserve reserve reserve earnings equity $ $ $ $ $ $ $ $ At 1 January 2011 29,011,043 (2,712,125) 68,256 614,410 (3,282,141) - 15,086,580 38,786,023 Total comprehensive loss for the year - - - - - - (1,195,920) (1,195,920) Loss for the year Other comprehensive income - 606,301 - - - - - 606,301 Total comprehensive loss for - 606,301 - - - - (1,195,920) (589,619) the year Transactions with owners of the Company, recognised directly in equity contributions by and distributions to owners Dividend (Note 24) - - - - - - (1,205,796) (1,205,796) - - - - - - 1,247,077 Issue of ordinary shares (Note 13) 1,247,077 Total contributions by and distributions to owners 1,247,077 - - - - - (1,205,796) 41,281 Total transactions with owners 1,247,077 - - - - - (1,205,796) 41,281 of the Company Transfer to capital reserve - - - 84,135 - - (84,135) At 31 December 2011 30,258,120 (2,105,824) 68,256 698,545 (3,282,141) - 12,600,729 38,237,685
Consolidated statement of changes in equity for the financial year ended 31 December 2012
Consolidated statement of cash flows for the financial year ended 31 December 2012
50 51
Year ended Year ended 31 December 2012 31 December 2011 Note $ $ Cash Flows from Operating Activities Profit before taxation (4,331,336) 759,704 Adjustments for: Depreciation of property, plant and equipment 5 3,385,539 3,042,411 Amortisation of land use rights 6 28,967 26,425 8 350,443 Amortisation of customer lists and relationships Goodwill written off 4 47,274 8 355,000 Impairment loss on customer lists and relationships 21 236,420 41,866 Loss on disposal of property, plant and equipment 19 (96,358) (212,317) Interest income 20 961,740 818,697 Interest expense 937,689 4,476,786 Operating profit before working capital changes 845,081 (1,230,632) Changes in inventories 91,658 655,074 Changes in operating receivables (893,043) (1,803,185) Changes in operating payables 981,385 2,098,043 Cash generated from operations (961,740) (818,697) Interest paid (1,488,753) (2,541,897) Income tax paid (1,469,108) (1,262,551) Net cash used in operating activities Cash Flows from Investing Activities 7 Acquisition of a subsidiary, net of cash acquired 5 Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Interest received Net cash used in investing activities Cash Flows from Financing Activities Repayments to finance lease liabilities Proceeds of trust receipts and bill payable Repayment of trust receipts and bill payable Proceeds from bank loans Repayments of bank loans 24 Dividend paid Net cash generated from/(used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Exchange differences on translation of cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 12
- (1,947,101) (3,409,798) (3,242,630) 175,187 133,180 96,358 212,317 (3,138,253) (4,844,234) (982,139) (762,742) 25,232,441 23,096,377 (26,074,093) (23,000,285) 4,293,210 1,000,000 (1,189,122) (1,551,156) (1,082,773) (1,205,796) 197,524 (2,423,602) (4,409,837) (8,530,387) 8,754,789 17,274,892 180,813 10,284 4,525,765 8,754,789
The annexed notes form an integral part of and should be read in conjunction with these financial statements.
Notes to the financial statements for the financial year ended 31 December 2012 1
General information
The financial statements of the Company and of the Group for the year ended 31 December 2012 were authorised for issue in accordance with a resolution of the directors on the date of the Statement by Directors. The Company was incorporated as a limited liability company and domiciled in Singapore. The registered office is located at 27 Kaki Bukit Place, Eunos Techpark, Singapore 416205. The principal activities of the Company are those relating to investment holding. The principal activities of the subsidiaries are stated in Note 7.
2(a)
Basis of preparation
The financial statements are 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 which is the Company’s functional currency. All financial information is presented in Singapore dollar, unless otherwise stated. The accounting policies set out below have been applied consistently to all periods presented in these financial statements, and have been applied consistently by Group entities. Critical accounting estimates, assumptions and judgements The preparation of the financial statements in conformity with FRS requires the use of judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the financial year. Although these estimates are based on management’s best knowledge of current events and actions, actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
Notes to the financial statements for the financial year ended 31 December 2012 2(a)
52 53
Basis of preparation (cont’d)
Identification of functional currencies These financial statements are presented in Singapore dollars, which is the functional currency of the Company and presentational currency of the Group. Determination of functional currency involves significant judgment and other mining companies may make different judgments based on similar facts. The functional currency of the Group entities is principally determined by the primary economic environment in which the respective entities operate. The Group reconsiders the functional currency of its entities if there is a change in the underlying transactions, events and conditions which determine their primary economic environment. The determination of functional currency affects the carrying value of noncurrent assets included in the statement of financial position and, as a consequence, the amortisation of those assets included in the income statement. It also impacts exchange gains and losses included in the income statement. Business Combinations – Purchase-Price Allocation Accounting for business combinations requires the allocation of the Company’s purchase price to the various assets and liabilities of the acquired business at their respective fair values. The Company uses all available information to make these fair value determinations, and for major acquisitions, may hire an independent appraisal firm to assist in making fair value estimates. In some instances, assumptions with respect to the timing and amount of future revenues and expenses associated with an asset might have to be used in determining its fair value. Actual timing and amount of net cash flows from revenues and expenses related to that asset over time may differ materially from those initial estimates, and if the timing is delayed significantly or if the net cash flows decline significantly, the asset could become impaired. Contingent consideration from business combinations The measurement of contingent consideration from business combination requires management to make certain assumptions and estimates. The measurement is based on circumstances prevailing at the acquisition date. Future events and changes in conditions can mean that the actual amounts differ materially from the estimated figures. Classification of land use rights Within the People’s Republic of China, it is the practice for the State to issue land use rights to individuals or entities. Such rights are evidenced through the granting of a land use rights certificate, which gives the holder the right to use the land (including the construction of buildings thereon) for a given length of time. An upfront payment is made for this right. Management judges that the substance of these arrangements is an operating lease over the land, and that the upfront payment represents prepaid lease rentals. As such a prepayment is recognised in the consolidated statement of financial position, analysed between current and non-current assets which represent amounts to be utilised within and after 12 months of the end of each reporting period respectively. The prepayment is amortised to spread the lease cost over the duration of the term of the land use right, as specified in the land use right certificate. Depreciation of property, plant and equipment Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. The Group’s business is capital intensive and the annual depreciation of property, plant and equipment forms a significant component of total costs charged to profit or loss. The Group performs annual reviews on whether the assumptions made on useful lives continue to be valid. As changes in the expected level of usage, competitors’ actions and technological obsolescence arising from changes in market demands or service output of the assets could impact the economic useful lives and the residual values of these assets, future depreciation charges could be revised. A 5% (2011 – 5%) difference in the expected useful lives of these assets from management’s estimates would result in approximately 3% variance in the Group’s loss for the financial year (2011 – 13%). Impairment of non-financial assets Goodwill is tested for impairment annually and whenever there is indication that the goodwill may be impaired. Property, plant and equipment, intangible assets and investments in subsidiaries are tested for impairment whenever there is any objective evidence or indication that these assets may be impaired. The recoverable amounts of these assets and, where applicable, cash-generating units, have been determined based on value-in-use calculations. These calculations require the use of estimates. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit (or group of cash generating units) and also to use many estimates and assumptions such as future market growth, forecast revenue and costs, useful lives of utilisation of the assets, discount rates and other factors.
Notes to the financial statements for the financial year ended 31 December 2012 2(a)
Basis of preparation (cont’d)
Amortisation of intangible assets The Group performs annual reviews on whether the assumptions made on useful lives of intangible asset continue to be valid. If the expected useful life of the asset is different from previous estimates, the amortisation period shall be changed accordingly. If there has been a change in the expected pattern of consumption of the future economic benefits embodied in the asset, the amortisation method shall be changed to reflect the changed pattern. Impairment of available-for-sale equity investments The determination of impairment of available-for-sale equity investments requires significant judgement. In making this judgement, the group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of and short term business outlook for the investee, including factors such as market conditions, industry and sector performance, changes in technology and operational and financing cash flow. Allowance for bad and doubtful receivables Allowances for bad and doubtful debts are based on an assessment of the recoverability of trade and other receivables. Allowances are applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible. A significant degree of judgement is applied by management when considering whether a trade receivable is impaired. In determining this, management has used estimates based on historical loss experience for assets with similar credit risk characteristics, default of payments, indications of financial difficulties of the specific customer, and general economic conditions. Allowance for inventories A review is made periodically on inventories for excess inventories and decline in net realisable value below cost and a provision will be made against the inventory balance for any such decline. These reviews require management to estimate future demand for products. Possible changes in these estimates could result in revisions to the valuation of inventories. The process for evaluating inventory obsolescence or market value issues often requires management to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventory will be sold in the normal course of business. Management adjusts inventories by the difference between the estimated market value and the actual cost of inventories to arrive at net realisable value. Changes in estimates of future sales volume may necessitate future write-downs of inventory value. Income tax Significant estimates are required to determine the current and deferred assets and liabilities for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations. Management believes that the estimates are reasonable and that the recognised liability for income tax is adequate. Differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to taxable income and expense already recorded.
Notes to the financial statements for the financial year ended 31 December 2012 2(b)
54 55
New accounting standards and interpretations
Adoption of new or revised accounting standards and interpretations On 1 January 2012, the Group adopted the new or revised FRS and Interpretations to FRS (“INT FRS”) that are mandatory for application from that date. Reference Description FRS 12 Deferred Tax – Recovery of Underlying Assets FRS 107 Disclosures – Transfers of Financial Assets Improvements to FRSs 2010 The adoption of these new/revised FRS and INT FRS did not result in substantial changes to the Group’s accounting policies nor any significant impact on these financial statements. FRS not effective At the date of authorisation of these financial statements, the following FRS and INT FRS were issued but not yet effective: Reference Description FRS 1 Amendments to FRS 1 – Presentation of Items of Other Comprehensive Income Revised FRS 19 Employee Benefits Revised FRS 27 Separate Financial Statements Revised FRS 28 Investments in Associates and Joint Ventures FRS 32 Amendments to FRS 32: Offsetting of Financial Assets and Financial Liabilities FRS 107 Amendments to FRS 107: Disclosures – Offsetting of Financial Assets and Financial Liabilities FRS 110 Consolidated Financial Statements FRS 110 Amendments to FRS 110, FRS 111 and FRS 112: Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance FRS 111 Joint Arrangements FRS 112 Disclosure of Interests in Other Entities FRS 113 Fair Value Measurement Improvements to FRSs 2012 The directors do not anticipate that the adoption of other FRS and INT FRS in future periods will have a material impact on the financial statements of the Group.
Notes to the financial statements for the financial year ended 31 December 2012 2(c)
Summary of significant accounting policies
Consolidation Business combinations The consolidated financial statements relate to the Company and its subsidiaries (together referred to as the “Group”). The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. When share-based payment awards (replacement awards) are required to be exchanged for awards held by acquiree’s employees (acquiree’s awards) and relate to past services, then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replacement awards compared with the market-based value of the acquiree’s awards and the extent to which the replacement awards relate to past and/or future service. Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value of consideration transferred, b) the recognised amount of any non-controlling interest in the acquire and c) acquisition-date fair value of any existing equity interest in the acquire, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (ie gain on a bargain purchase) is recognised in profit or loss immediately.
Notes to the financial statements for the financial year ended 31 December 2012 2(c)
56 57
Summary of significant accounting policies (Cont’d)
Consolidation (Cont’d) Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained. Investments in subsidiaries are stated in the Company’s statement of financial position at cost less accumulated impairment losses. The accounting policies of subsidiaries have been changed where necessary to align with the policies adopted by the Group. Transactions eliminated on consolidation All inter-company balances and significant inter-company transactions and resulting unrealised profits or losses are eliminated on consolidation and the consolidated financial statements reflect external transactions and balances only. Property, plant and equipment and depreciation Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any. Depreciation is computed utilising the straight-line method to write off the cost of these assets over their estimated useful lives as follows: Leasehold properties Factory buildings Plant, machinery and equipment Motor vehicles
over the remaining period of lease 20 years 3 to 10 years 5 to 6 years
Depreciation methods, useful lives and residual values are reviewed, and adjusted as appropriate, at the end of each reporting period as a change in estimates. The cost of property, plant and equipment includes expenditure that is directly attributable to the acquisition of the items. Dismantlement, removal or restoration costs are included as part of the cost of property, plant and equipment if the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring or using the asset. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Subsequent expenditure relating to property, plant and equipment that have been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the standard of performance of the asset before the expenditure was made, will flow to the Group and the cost can be reliably measured. Other subsequent expenditure is recognised as an expense during the financial year in which it is incurred.
Notes to the financial statements for the financial year ended 31 December 2012 2(c)
Summary of significant accounting policies (Cont’d)
Property, plant and equipment and depreciation (Cont’d) For acquisitions and disposals during the financial year, depreciation is recognised in profit or loss from the month of acquisition and to the month before disposal respectively. Fully depreciated property, plant and equipment are retained in the books of accounts until they are no longer in use. The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and is recognised net within other income/ other expenses in profit or loss. Land use rights Land use rights represent upfront payments to acquire long-term interest in the usage of land. Land use rights are stated at cost less accumulated amortisation and impairment loss, if any. Amortisation is calculated on the straight-line basis to write off the cost of land use rights over the respective lease periods. Intangible assets Intangible assets with finite useful lives are measured at cost less accumulated amortisation and impairment losses. Customer lists and relationships acquired as part of a combination are initially measured at fair value and amortised on a straight-line basis over their useful economic lives of 3 years. Financial assets Financial assets, other than hedging instruments, can be divided into the following categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. The designation of financial assets is re-evaluated and classification may be changed at the end of the reporting period with the exception that a financial asset shall not be reclassified into or out of the fair value through profit or loss category while it is held or issued. All financial assets are recognised on their trade date - the date on which the Group commits to purchase or sell the asset. Financial assets are initially recognised at fair value, plus directly attributable transaction costs except for financial assets at fair value through profit or loss, which are recognised at fair value. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. On disposal of a financial asset, the difference between the carrying amount and the sale proceeds is recognised in profit or loss. Any amount previously recognised in other comprehensive income relating to that asset is reclassified to profit or loss. An assessment for impairment is undertaken at least at the end of each reporting period whether or not there is objective evidence that a financial asset or a group of financial assets is impaired. The Group does not hold any financial assets at fair value through profit or loss or held-to-maturity investments.
Notes to the financial statements for the financial year ended 31 December 2012 2(c)
58 59
Summary of significant accounting policies (Cont’d)
Financial assets (Cont’d) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available for sale or are not classified in any of the categories of financial assets. Available-for-sale financial assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale debt instruments, are recognised in other comprehensive income and presented in the fair value reserve in equity. If any evidence of impairment exists, the cumulative loss that was previously recognised in other comprehensive income is reclassified to profit or loss. The cumulative loss is measured as the difference between the acquisition cost (net of any principal repayments and amortisation) and the current fair value, less any impairment loss previously recognised in profit or loss. Changes in impairment provisions attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed. The amount of the reversal is recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. When an investment is derecognised, the gain or loss accumulated in equity is reclassified to profit or loss. Available-forsale financial assets comprise equity securities. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivables. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. Loans and receivables are recognised initially at fair value plus any directly attributable transaction costs. They are subsequently measured at amortised cost using the effective interest method, less allowance for impairment. If there is objective evidence that the asset has been impaired, the financial asset is measured at the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. The impairment or writeback is recognised in profit or loss. Loans and receivables include cash and cash equivalents and trade and other receivables. Cash and cash equivalents Cash and cash equivalents comprise cash and bank balances. For the purpose of the statement of cash flows, bank overdrafts that are repayable on demand and that form an integral part of the Group’s cash management are included in cash and cash equivalents. Projects work-in-progress Projects work-in-progress comprises direct expenditure plus the proportion of estimated profits earned to-date and an appropriate portion of overhead costs, less progress billings. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. On the statement of financial position, the Group reports the net contract position for each contract as either an asset or a liability. A contract represents an asset where costs incurred plus recognised profits (less recognised losses) exceed progress billings; a contract represents a liability where the opposite is the case.
Notes to the financial statements for the financial year ended 31 December 2012 2(c)
Summary of significant accounting policies (Cont’d)
Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted-average basis and includes all costs incurred in bringing the inventories to their present location and condition. In the case of manufactured inventories, cost includes the cost of raw materials, direct labour and an appropriate proportion of production overheads based on the normal level of activity. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. Allowance is made for obsolete, slow-moving and defective inventories in arriving at the net realisable value. The amount of any write-down of inventories to net realisable value is recognised as an expense in the period the write-down occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new ordinary shares are deducted against the share capital account. Dividends Final dividends proposed by the directors are not accounted for in owner’s equity as an appropriation of retained earnings, until they have been approved by the shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability. Interim dividends are simultaneously proposed and declared, because of the articles of association of the Company grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised directly as a liability when they are proposed and declared. Financial liabilities The Group’s financial liabilities comprise borrowings and trade and other payables. Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest-related charges that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised as an expense in “finance cost” in profit or loss. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled. Borrowings are recognised initially at the fair value of proceeds received less attributable transaction costs, if any. Borrowings are subsequently stated at amortised cost which is the initial fair value less any principal repayments. Any difference between the proceeds (net of transaction costs) and the redemption value is taken to profit or loss over the period of the borrowings using the effective interest method. The interest expense is chargeable on the amortised cost over the period of the borrowings using the effective interest method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process. Borrowings which are due to be settled within 12 months after the end of the reporting period are included in current borrowings in the consolidated statement of financial position even though the original terms was for a period longer than 12 months and an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the end of the reporting period. Borrowings to be settled within the Group’s normal operating cycle are considered as current. Borrowings with agreements incorporating an overriding repayment on demand clause, which gives the lenders the right to demand repayment at any time, at their sole discretion and irrespective of whether a default event has occurred are considered as current. Other borrowings due to be settled more than 12 months after the end of the reporting period are included in non-current borrowings in the consolidated statement of financial position.
Notes to the financial statements for the financial year ended 31 December 2012 2(c)
60 61
Summary of significant accounting policies (Cont’d)
Financial liabilities (Cont’d) Trade and other payables are initially measured at fair value, and subsequently measured at amortised cost, using the effective interest method. Finance lease liabilities are measured at initial value less the capital element of lease repayments (see policy on finance leases). Dividend distributions to shareholders are included in current financial liabilities when the dividends are payable. Leases Finance leases Where assets are financed by lease agreements that give rights approximating to ownership, the assets are capitalised as if they had been purchased outright at values equivalent to the lower of the fair values of the leased assets and the present value of the total minimum lease payments during the periods of the leases. The corresponding lease commitments are included under liabilities. The excess of lease payments over the recorded lease obligations are treated as finance charges which are amortised over each lease to give a constant effective rate of charge on the remaining balance of the obligation. The leased assets are depreciated on a straight-line basis over their estimated useful lives as detailed in the accounting policy on “Property, plant and equipment”. Operating leases Leases of assets in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Rentals on operating leases are charged to profit or loss on a straight-line basis over the lease term. Lease incentives, if any, are recognised as an integral part of the net consideration agreed for the use of the leased asset. Penalty payments on early termination, if any, are recognised in profit or loss when incurred. The land use rights held by the Group are regarded as operating leases. The amounts paid for these rights are treated as lease prepayments and are amortised over the lease terms. Financial guarantees Financial guarantees are financial instruments issued by the Group that require the issuer to make specified payments to reimburse the holder for the loss it incurs because a specified debtor fails to meet payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantee contracts are initially recognised at fair value and are classified as financial liabilities. Subsequent to initial measurement, the financial guarantees are stated at the higher of the initial fair value less cumulative amortisation and the amount that would be recognised if they were accounted for as contingent liabilities. When financial guarantees are terminated before their original expiry date, the carrying amount of the financial guarantee is transferred to profit or loss.
Notes to the financial statements for the financial year ended 31 December 2012 2(c)
Summary of significant accounting policies (Cont’d)
Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. Income taxes Tax expense comprises current and deferred tax. Current tax and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of an asset or liability in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly-controlled entities to the extent that the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Employee benefits Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
Notes to the financial statements for the financial year ended 31 December 2012 2(c)
62 63
Summary of significant accounting policies (Cont’d)
Employee benefits (Cont’d) Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans a recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Employee leave entitlements Employee entitlements to annual leave are recognised when they accrue to employees. Accrual is made for the unconsumed leave as a result of services rendered by employees up to the end of the reporting period. Key management personnel Key management personnel are those persons having the authority and responsibility for planning, directing and controlling the activities of the entity. Directors and senior managers are considered key management personnel. Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. Impairment of non-financial assets The carrying amounts of non-financial assets, other than inventories, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated. For goodwill, the recoverable amount is estimated each year at the same time. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows 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 or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU. Individual assets or cash-generating units that include goodwill and other intangible assets with an indefinite useful life or those not yet available for use are tested for impairment at least annually or more often if there are indicators of impairment. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cashgenerating unit. Impairment losses are recognised in profit or loss. An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount or when there is an indication that the impairment loss recognised for the asset no longer exists or decreases. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognised.
Notes to the financial statements for the financial year ended 31 December 2012 2(c)
Summary of significant accounting policies (Cont’d)
Government grants Government grants are recognised initially as deferred income at fair value when there is reasonable assurance that they will be received and the Group will comply with the conditions associated with the grant. Grants that compensate the Group for expenses incurred are recognised in profit or loss as other income on a systematic basis in the same periods in which the expenses are recognised. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to profit or loss over the expected useful life of the asset. Foreign currency transactions and translation Transactions in foreign currencies are translated to the respective functional currencies of the Group entities at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date on which the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on translation are recognised in profit or loss except for (i) differences arising on the translation of monetary items that in substance form part of the Group’s net investment in a foreign operation (see below) and (ii) available-for-sale equity instruments (see above) that are recognised in other comprehensive income. Foreign subsidiaries The assets and liabilities of foreign operations are translated to Singapore dollars at exchange rates prevailing at the reporting date. The income and expenses of foreign operations are translated to Singapore dollars at average exchange rates. None of the foreign operations’ currencies is the currency of a hyper-inflationary economy. All resultant currency translation differences are recognised in the translation reserve in equity. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. Foreign exchange differences are recognised in the translation reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the translation reserve is transferred to profit or loss. Net investment in a foreign operation Exchange differences arising from monetary items that in substance form part of the Company’s net investment in a foreign operation are recognised in the Company’s statement of comprehensive income. Such exchange differences are reclassified to other comprehensive income and are accumulated in a separate component of equity in the consolidated financial statements. When the net investment is disposed of, the cumulative amount in equity is transferred to the consolidated statement of comprehensive income as an adjustment to the profit or loss arising on disposal. All resultant currency translation differences are recognised in the translation reserve in equity. Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for the effects of all dilutive potential ordinary shares.
Notes to the financial statements for the financial year ended 31 December 2012 2(c)
64 65
Summary of significant accounting policies (Cont’d)
Operating segments An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate expenses, financial income and expenses, and income tax expense. Revenue recognition Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised. The timing of the transfer of risks and rewards varies depending on the individual terms of the sales agreement. For sales of goods, transfer usually occurs when the goods are received at the customer’s warehouse; however, for some international shipments, transfer occurs upon loading the goods onto the relevant carrier at the port. Revenue from projects is recognised using the following percentage of completion method. The stage of completion is measured by reference to professional surveys of work performed. As soon as the outcome of a project can be estimated reliably, contract revenue and expenses are recognised in the statement of comprehensive income. When the outcome of a project cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. Revenue from post-sale services is recognised over the period in which the services are rendered. Transportation income is recognised upon the delivery of goods and acceptance by customers. Revenue from membership fee received from retail customers is recognised ratably over the membership period. Interest income is recognised on a time-apportionment basis using the effective interest rate method.
Notes to the financial statements for the financial year ended 31 December 2012
3 Revenue 2012 2011 $ $ The Group 77,899,512 74,342,960 Sale of goods Post-sale services 307,364 354,576 78,206,876 74,697,536 4 Goodwill During the financial year ended 31 December 2012, goodwill related to the acquisition of Builders Shop Pte Ltd in D ecember 2011 was written off because the amount was not material. 5 Property, plant and equipment The Company
Office equipment $
Cost At 1 January 2011 and at 31 December 2011 40,726 Additions 1,453 42,179 At 31 December 2012 Accumulated depreciation At 1 January 2011 30,859 Depreciation 8,119 38,978 At 31 December 2011 Depreciation 1,243 At 31 December 2012 40,221 Net book value At 31 December 2012 1,958 At 31 December 2011
1,748
66 67
Notes to the financial statements for the financial year ended 31 December 2012 5
Property, plant and equipment (Cont’d)
Plant, Leasehold Factory machinery and Motor properties buildings equipment vehicles Total $ $ $ $ $ The Group Cost At 1 January 2011 Additions Disposals Acquisition of subsidiary (Note 7) Translation differences At 31 December 2011 Additions Disposals Translation differences At 31 December 2012
7,211,171 12,729,064 13,847,019 3,381,946 37,169,200 - 393,270 3,123,728 555,550 4,072,548 - - (607,637) (296,750) (904,387) - - 563,266 63,000 626,266 (98,348) 798,439 (172,190) 97,482 625,383 7,112,823 13,920,773 16,754,186 3,801,228 41,589,010 1,545,795 - 1,711,032 916,884 4,173,711 - - (1,141,537) (299,571) (1,441,108) (120,202) (668,683) (391,100) 34,658 (1,145,327) 8,538,416 13,252,090 16,932,581 4,453,199 43,176,286
Accumulated depreciation At 1 January 2011 Depreciation Disposals Translation differences At 31 December 2011 Depreciation Disposals Translation differences At 31 December 2012
854,703 1,170,728 7,451,551 1,586,071 11,063,053 102,473 661,461 1,756,481 521,996 3,042,411 - - (500,251) (228,703) (728,954) (10,809) 158,876 (302,359) 105,223 (49,069) 946,367 1,991,065 8,405,422 1,984,587 13,327,441 125,142 665,879 2,007,147 587,371 3,385,539 - - (887,022) (142,479) (1,029,501) (14,598) (95,641) (158,934) 61,537 (207,636) 1,056,911 2,561,303 9,366,613 2,491,016 15,475,843
Net book value At 31 December 2012
7,481,505
10,690,787
7,565,968
1,962,183
27,700,443
At 31 December 2011
6,166,456
11,929,708
8,348,764
1,816,641
28,261,569
The net book value of property, plant and equipment acquired under finance leases for the Group as at 31 December 2012 amounted to $1,397,848 (2011: $1,409,604) and $853,544 (2011 - $870,808) in respect of motor vehicles and office equipment. During the financial year, the Group acquired property, plant and equipment with an aggregate cost of $4,173,711 (2011 - $4,072,548) of which $763,913 (2011 - $829,918) were acquired by means of finance leases. Cash payments of $3,409,798 (2011 - $3,242,630) were made to purchase property, plant and equipment. At 31 December 2012, the Group’s leasehold properties with carrying amount of $7,481,505 (2011 - $6,166,456) are mortgaged to financial institutions to secure bank borrowings (Note 15.2 and Note 15.3).
Notes to the financial statements for the financial year ended 31 December 2012 6 Land use rights 2012 2011 $ $ The Group Cost At 1 January Translation differences At 31 December
1,376,182 1,481,163 110,378 (104,981) 1,486,560 1,376,182
Accumulated amortisation 204,829 188,658 At 1 January 28,967 26,425 Amortisation 26,547 (10,254) Translation differences 260,343 204,829 At 31 December Net book value At 1 January
1,171,353 1,292,505
At 31 December
1,226,217 1,171,353
Represented by: 29,011 26,697 Current 1,197,205 1,144,656 Non-current 1,226,216 1,171,353 7 Subsidiaries 2012 2011 $ $ The Company Unquoted equity investments, at cost At 1 January Acquisition of a subsidiary Increase in investment Less: Impairment loss recognised At 31 December
32,388,360 25,371,628 - 7,016,732 2,600,000 (4,734,000) 30,254,360 32,388,360
Movement in impairment loss At 1 January Less: Impairment loss recognised At 31 December
- 4,734,000 4,734,000 -
Acquisition of a subsidiary (i) On 29 December 2011, the Company acquired 100% equity interest in Builders Shop Pte Ltd (“Builders Shop”). The principal activities of the company are those of investment holding, trading of building materials and contractors for construction.
The Group expects to enhance operational synergy through complementary business capabilities of Builders Shop, thereby expanding their business horizons and adding more business opportunities for the Group.
The acquisition of Builders Shop was completed near the financial year ended 31 December 2011. It had no effect on the Group’s results for the year ended 31 December 2011. If the acquisition had occurred on 1 January 2011, management estimated that consolidated revenue would have been $83,715,000, and consolidated profit for the year would have been $371,000. In determining these amounts, management assumed that the fair value adjustments, that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 January 2011.
Notes to the financial statements for the financial year ended 31 December 2012 7
68 69
Subsidiaries (Cont’d)
Acquisition of a subsidiary (Cont’d) (ii) The following summarises the major classes of consideration transferred, and the recognised amounts of assets acquired and liabilities assumed at the acquisition date: (A) Fair value of consideration transferred Cash paid Equity instruments issued Contingent consideration Total consideration transferred
2011 $ 2,500,000 1,247,077 3,316,929 7,064,006
The minimum consideration for the business combination is $5 million comprising cash of $3 million and issue of 15,588,465 new Lorenzo shares valued at $2 million based on the market price of Lorenzo shares on a date preceded the acquisition date on which the Company had not obtained power to control Builders Shop’s operations. The fair value of the equity instruments issued of $1,247,077 was based on the market price of Lorenzo shares at the acquisition date on which control was transferred to the Company.
The Company agreed to pay the selling shareholders of Builders Shop additional consideration of up to $4 million. The additional consideration payable by the Company would be $0.4 million, $2.2 million and $4 million if Builders Shop would achieve a net profit of between $1,201,000 and $1,600,000, between $1,600,001 to $1,999,999 and at least $2 million, respectively, for the year ended 31 March 2012. At 31 December 2011, the Group had included $3,316,929 as contingent consideration related to the additional consideration, which represented its fair value at the acquisition date based on a discount rate of 4.1%.
During the financial year ended 31 December 2012, the purchase consideration was finalised at $5 million based on Builders Shop’s achievement of the profit target for the year ended 31 March 2012.
The additional purchase consideration payable by the Company was $0.5 million (Note 18), being the minimum consideration of $5 million less cash paid of $2.5 million and the 15,588,465 new Lorenzo shares contractually valued at $2 million. The excess of the initial accrued contingent consideration of $3,316,929 over the additional purchase consideration of $0.5 million amounting to $2,816,929 (Note 19) was recorded in profit or loss for the year ended 31 December 2012.
Notes to the financial statements for the financial year ended 31 December 2012 7
Subsidiaries (Cont’d)
Acquisition of a subsidiary (Cont’d) (B) Fair value of identifiable assets acquired and liabilities assumed at acquisition date Plant and equipment (Note 5 and Note (a) below) Customer lists and relationships (Note 8 and Note (b) below) Available-for-sale financial assets (Note 9 and Note (c) below) Retention sums receivable (Note 11 and Note (d) below) Long term lease deposit (Note 11 and Note (d) below) Inventories (Note (e) below) Trade receivables (Note (f) below) Other receivables (Note (g) below) Amount due from customers - contract work-in-progress (Note 11) Cash and cash equivalents Deferred tax liabilities (Note 17) Trade and other payables Trust receipts Current tax payable Total identifiable net assets at fair value Goodwill arising from acquisition (Note (h) below)
Cash paid per (ii) above Less: Cash and cash equivalents in subsidiary acquired Net cash outflow on acquisition
2011 $ 626,000 1,051,329 79,715 946,936 1,534,006 4,162,164 1,870,557 151,356 1,727,644 552,899 (42,768) (4,746,472) (884,784) (11,850) 7,016,732 47,274 7,064,006 2,500,000 (552,899) 1,947,101
(a) Plant and equipment The fair value of plant and equipment recognised was determined based on the estimated amount for which a property could be exchanged on the date of acquisition between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably and willingly. The fair value of items of plant, equipment, fixtures and fittings is based on the market approach and cost approaches using quoted market prices for similar items when available and replacement cost when appropriate. Depreciated replacement cost estimates reflect adjustments for physical deterioration as well as functional and economic obsolescence. (b) Intangible assets The fair value of customer lists and relationships was determined using the multi-period excess earnings method, whereby the subject asset is valued after deducting a fair return on all other assets that are part of creating the related cash flows. (c)
Available-for-sale financial assets The fair value of available-for-sale financial assets related to quoted equity securities was determined by reference to their quoted closing bid price at the acquisition date.
(d) Retention sums receivable and long term lease deposit The fair value of Retention sums receivable and long term lease deposit estimated at the present value of future cash flows, discounted at the market rate of interest at the acquisition date.
Notes to the financial statements for the financial year ended 31 December 2012 7
70 71
Subsidiaries (Cont’d)
Acquisition of a subsidiary (Cont’d)
(B) Fair value of identifiable assets acquired and liabilities assumed at acquisition date (e) Inventories The fair value of inventories was determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories. (f)
Trade receivables The gross contractual amount for trade receivables due was $2,173,557, of which $303,000 was expected to be uncollectible at the acquisition date.
(g) Other receivables The gross contractual amount for other debtors was $228,356, of which $77,000 was expected to be uncollectible at the acquisition date. (h) Goodwill arising from acquisition The good will is attributable mainly to the synergies expected to be achieved from integrating the Builders Shop into the Group’s existing business. Acquisition-related costs The Group incurred acquisition-related costs of $147,743 related to external legal fees and due diligence costs. The legal fees and due diligence costs have been included in administrative expenses in the Group’s statement of comprehensive income. Impairment testing of investments in subsidiaries During the financial year, having regard to the financial performance of a subsidiary, impairment loss of $4,734,000 was recognised in respect of the Company’s investment in this subsidiary to reduce the carrying value of the investment to the recoverable amount. The recoverable amount of the subsidiary, as a cash-generating unit, is determined based on value in use calculation. The value in use calculation is a discounted cash flow model using cash flow projections based on the most recent financial budgets approved by the Board of Directors covering the five-year period ending 31 December 2017, a pre-tax discount rate of 14.1% and a terminal growth rate of 3% from 2018. The terminal growth rate used for the CGU does not exceed management’s expectation of the long term average growth rate of the industry and country in which the CGU operates.
Notes to the financial statements for the financial year ended 31 December 2012 7
Subsidiaries (Cont’d)
The subsidiaries are: Country of Name Incorporation Ownership interest Principal activities 2012 2011 % % Held by the Company Uhin Holding Pte Ltd # Singapore 100% 100% Investment holding and trading of sofa sets, wood-based furniture and accessories Held by the Company People’s 100% 100% Lorenzo International (Kunshan) Co., Ltd. ** Republic of China
Manufacturing and sale of wood-based furniture
Singapore 100% 100% Builders Shop Pte Ltd #
Investment holding and trading of building materials and contractors for construction
Held by Uhin Holding Pte Ltd Uhin Sofa Sdn Bhd * Malaysia 100% 100%
Investment holding and manufacturing and sale of sofa sets
Supreme Furnishing Centre Pte Ltd #
Singapore
100%
100%
Retail sale of furniture
Uhin International Co., Ltd *
Taiwan
100%
100%
Retail sale of furniture
100%
100%
Retail sale of furniture
People’s Lorenzo Furniture (Shanghai) Co., Ltd ** Republic of China Held by Supreme Furnishing Centre Pte Ltd
People’s 100% 100% Supreme Furniture (Kunshan) Co., Ltd ** Republic of China
Manufacturing and sale of sofa sets
Held by Uhin Sofa Sdn Bhd Malaysia 100% 100% Ginova Furnishing Sdn Bhd * Monica Design Sdn Bhd *
Malaysia
100% 100%
Investment holding and p rovision of management services Inactive
Uhin Wood Industries Sdn Bhd * Malaysia 100% 100%
Manufacturing and supply of wooden frames
Held by Ginova Furnishing Sdn Bhd Ginova Marketing Sdn Bhd * Malaysia
Retail sale of furniture
# * **
100%
Audited by Foo Kon Tan Grant Thornton LLP Audited by a member firms of Grant Thornton International Ltd Audited by Foo Kon Tan Grant Thornton LLP for consolidation purposes
100%
Notes to the financial statements for the financial year ended 31 December 2012
72 73
8 Intangible assets 2012 2011 $ $ The Group Customer lists and relationships Cost At 1 January Acquisition of a subsidiary (Note 7) At 31 December
1,051,329 - 1,051,329 1,051,329 1,051,329
Accumulated amortisation and impairment losses: At 1 January Amortisation for the year Impairment loss At 31 December
(350,443) (355,000) 345,886 1,051,329
Impairment testing of intangible assets During the financial year ended 31 December 2012, triggering events for impairment of the intangible assets were indentified. Based on the impairment test, the carrying amount of the intangible assets was determined to be higher than the recoverable amount and an impairment loss of $355,000 (2011: nil) was recognised. The impairment loss was included in other expenses. The recoverable amount of the cash generating unit (“CGU�) using the intangible assets was determined based on the value in use calculation. This calculation used pre-tax cash flow projections based on financial budgets approved by management covering a five-year period and a terminal growth rate of 3% from 2018. A pre-tax discount rate of 19% was applied to the cash flow projections. The terminal growth rate used for the CGU did not exceed management’s expectation of the long term average growth rate of the industry and country in which the CGU operates. 9 Available-for-sale financial assets 2012 2011 $ $ The Group Quoted equity securities, at fair value
96,932 79,715
10 Inventories 2012 2011 $ $ The Group 6,573,034 6,555,360 Raw materials Goods-in-transit 2,060,352 1,146,961 1,016,601 1,288,065 Work-in-progress 18,065,182 19,569,864 Finished goods 27,715,169 28,560,250 The cost of inventories recognised as an expense and included in cost of sales amounted to $18,676,143 (2011 $19,793,240) (Note 21) for the year ended 31 December 2012. During the current financial year the Group wrote off inventories that were no longer used in production amounting to $263,168 (2011 - $471,261) (Note 21).
Notes to the financial statements for the financial year ended 31 December 2012 11
Trade and other receivables The Company
The Group
2012 2011 2012 2011 $ $ $ $ Current Trade receivables - third parties - - 4,956,828 4,767,833 - - - 281,651 - related corporations # - - 4,956,828 5,049,484 Less: Impairment loss At 1 January Impairment loss recognised (Note 21) Allowance utilised during the year At 31 December Net trade receivables
- - 619,773 190 - - 302,146 619,773 - - (510,494) (190) - - 411,425 619,773 - - 4,545,403 4,429,711
- - 462,678 771,796 Other receivables 203,600 - 1,518,764 1,364,893 Deposits 28,400 25,109 617,119 1,114,641 Prepayments 1,598,307 3,312,565 - Amounts due from subsidiaries (non-trade) Costs incurred and attributable profits (a) Progress billings (b) Amounts due from customers for contract work-in-progress (a) - (b)
- - 8,210,831 4,828,833 - - (7,248,255) (3,101,189) - - 962,576 1,727,644
- - 2,437,136 1,490,732 Advances to suppliers - - 168,531 61,510 Tax recoverable 1,830,307 3,337,674 6,166,804 6,531,216 1,830,307 3,337,674 10,712,207 10,960,927 Total current trade and other receivables Non-current Other receivables Retention sums receivable Long term lease deposit Total non-current other receivables
- - 650,172 946,936 - - 1,577,685 1,534,006 - - 2,227,857 2,480,942
# A firm in which a former key management personnel of a subsidiary had financial interest and a firm related to a director of the Company Non-trade amounts due from subsidiaries, comprising mainly advances, are unsecured, interest-free and are to be settled in cash on demand.
74 75
Notes to the financial statements for the financial year ended 31 December 2012 11
Trade and other receivables (Cont’d)
Trade and other receivables are denominated in the following currencies: The Company
The Group
2012 2011 2012 2011 $ $ $ $ Current Singapore dollar 1,830,307 3,337,674 3,923,711 5,402,742 United States dollar - - 1,826,101 1,811,666 Malaysian ringgit - - 2,548,367 2,403,160 New Taiwan dollar - - 685,127 612,375 Renminbi - - 1,728,901 730,984 1,830,307 3,337,674 10,712,207 10,960,927 Non-current Singapore dollar
-
-
2,227,857 2,480,942
Trade receivables are granted credit terms of 30 days. The credit risk for trade receivables based on the information provided by key management is as follows: 2012 2011 $ $ The Group By geographical area Singapore 3,070,919 3,241,558 People’s Republic of China 126,249 559,041 1,491,642 928,539 Malaysia 268,018 320,346 Other countries 4,956,828 5,049,484 The ageing analysis of trade receivables is as follows: 2011 2012 Impairment Impairment The Group Gross losses Gross losses $ $ $ $ Not past due 2,401,018 - 2,776,178 Past due less than 30 days 984,488 - 801,431 Past due 31 to 60 days 409,297 - 207,414 1,162,025 411,425 1,264,461 619,773 Past due over 60 days 4,956,828 411,425 5,049,484 619,773 Based on historical default rates, the Group believes that no impairment allowance is necessary in respect of trade receivables not past due or past due up to 60 days as they mainly arise from customers that have a good credit record with the Group. Non-trade amounts due from subsidiaries, comprising mainly advances, are unsecured, interest-free and to be settled in cash on demand.
Notes to the financial statements for the financial year ended 31 December 2012 12
Cash and cash equivalents
The Company The Group 2012 2011 2012 2011 $ $ $ $ Fixed deposits - - 2,548,410 4,050,877 - 261,102 5,268,523 6,765,458 Cash and bank balances - 261,102 7,816,933 10,816,335 For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise the following: 2012 2011 $ $ The Group 2,548,410 4,050,877 Fixed deposits 5,268,523 6,765,458 Cash and bank balances (3,291,168) (2,061,546) Less: Bank overdrafts (secured) (Note 15.3) 4,525,765 8,754,789 Cash and cash equivalents are denominated in the following currencies: The Company The Group 2012 2011 2012 2011 $ $ $ $ - 261,102 891,942 1,644,578 Singapore dollar - - 1,242,600 1,698,777 United States dollar - - 3,952,507 5,338,019 Malaysian ringgit - - 893,765 1,803,207 New Taiwan dollar - - 836,119 331,754 Renminbi - 261,102 7,816,933 10,816,335 The weighted average effective interest rates of fixed deposits are as follows: 2012 2011 The Group Singapore dollar Malaysian ringgit 13
0.3% 0.6% 2.6% 2.0%
Share capital
2012 2011 2012 2011 The Company N $ $ umber of ordinary shares Issued and fully paid, with no par value 216,588,465 201,000,000 30,258,120 29,011,043 At 1 January Issue of ordinary shares in business - 15,588,465 - 1,247,077 combination (Note 7) 216,588,465 216,588,465 30,258,120 30,258,120 At 31 December The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. All shares rank equally with regard to the Company’s residual assets. In December 2011, the Company issued 15,588,465 shares as a result of the acquisition of Builder Shop.
Notes to the financial statements for the financial year ended 31 December 2012 14
76 77
Reserves
The Company The Group 2012 2011 2012 2011 $ $ $ $ - - (2,066,625) (2,105,826) Translation reserve Merger reserve - - (3,282,141) (3,282,141) Statutory common reserve - - 68,256 68,256 - - 838,050 698,545 Capital reserve Fair value reserve - - 17,217 (1,286,408) 2,340,731 5,738,599 12,600,731 Retained earnings (1,286,408) 2,340,731 1,313,356 7,979,565 Translation reserve Exchange fluctuation reserve arises from the translation of financial statements of foreign entities whose functional currencies are different from the presentation currency of the Company. Merger reserve Merger reserve arises from the difference between the nominal value of shares issued by the Company and the net asset values of the subsidiaries acquired under the restructuring exercise in 2006 which resulted in a business combination under common control. Statutory common reserve Pursuant to the People’s Republic of China (“PRC”) Company Law and accounting regulations for foreign-invested PRC enterprises, wholly foreign-owned enterprises and enterprises established in the PRC are required to appropriate 10% of the profit for each year arrived at in accordance with Generally Accepted Accounting Principles applicable in the PRC to a statutory reserve. The profit arrived at must be used to set off against any accumulated losses. The appropriation to statutory reserve, after offsetting against any accumulated losses, must be made before distribution of dividends to shareholders. The appropriation is required until the statutory reserve reaches 50% of the registered capital. The statutory reserve is not distributable in the form of cash dividends. The statutory reserve may be used to set off losses or be converted into paidin capital. Capital reserve Under the provisions of the Company Law of the Republic of China (“ROC”), companies in ROC are required to set aside a capital reserve equal to 10% of its annual net profit (less losses of prior years, if any), before it declares any part of such net profit as dividends and bonuses, until the accumulated reserve equals the total capital stock. This reserve shall be used exclusively to offset losses or, if the balance of the reserve exceeds 50% of paid-in capital, to increase capital not exceeding 50% of the reserve balance. Fair value reserve The fair value reserve comprises the cumulative net change in the fair value of available-for-sale financial assets until the investments are derecognised or impaired.
Notes to the financial statements for the financial year ended 31 December 2012 15 Borrowings 2012 2011 $ $ The Company 2,262 -
Bank overdraft
Bank overdraft is unsecured, bearing interest at 5.0% per annum and denominated in Singapore dollars. 2012 2011 The Group Note $ $ Non-current 15.1 995,330 1,145,633 Finance lease liabilities Current 15.1 746,505 814,428 Finance lease liabilities 15.2 7,484,955 4,380,867 Bank loans (secured) 15.3 13,133,423 13,247,244 Other borrowings (secured) 21,364,883 18,442,539 22,360,213 19,588,172 15.1 Finance lease liabilities 2012 2011 $ $ The Group Future minimum lease payments: 807,521 874,479 Due not later than one year 1,015,541 1,165,908 Due later than one year and not later than five years 101,827 101,011 Due later than five years 1,924,889 2,141,398 (183,054) (181,337) Future finance charges on finance leases 1,741,835 1,960,061 Present value of minimum lease payments Present value of minimum lease payments: 746,505 814,428 Due not later than one year 905,632 1,057,726 Due later than one year and not later than five years 89,698 87,907 Due later than five years 1,741,835 1,960,061 Represented by: 746,505 814,428 Current liabilities Non-current liabilities 995,330 1,145,633 1,741,835 1,960,061
15.2 Bank loans (secured) The Group Note Currency
Year of maturity
2012 2011 $ $
- # 1 (a) SGD 2013 1,000,000 500,000 - # 2 (b) SGD 2019 962,322 1,111,118 - # 3 (c) SGD - - 237,080 - # 4 (c) SGD 2013 406,394 925,140 - # 5 (c) SGD 2014 356,021 607,529 - # 6 (d) SGD 2013 4,000,000 1,000,000 (e) RM 2013 760,218 - # 7 7,484,955 4,380,867
Notes to the financial statements for the financial year ended 31 December 2012 15 15.2
78 79
Borrowings (Cont’d) Bank loans (secured) (Cont’d) (a)
Interest is charged at 3.90% (2011 - 2.78%) per annum. The bank loan is secured by a corporate guarantee by the Company.
(b)
Interest is charged at the Local Enterprise Finance Scheme (“LEFS”) lending rate of 5% (2011 - 5%) per annum. The bank loan is secured by:
(i)
a mortgage over the Group’s leasehold properties (Note 5);
(ii)
a guarantee by the Company; and
(iii) a guarantee by a subsidiary.
(c)
Interest is charged at the Local Enterprise Finance Scheme (“LEFS”) lending rate of 5% (2011 - 5%) per annum. The bank loans are secured by a corporate guarantee by the Company.
(d)
Interest is charged at 2.52% (2011 - 2.27%) per annum. The bank loan is secured by a joint guarantee by the Company and a subsidiary.
(e)
Interest is charged at 4.20% at 31 December 2012 per annum. The bank loan is secured by a corporate guarantee by a subsidiary and a mortgage over the Group’s leasehold properties (Note 5).
All loans are callable by the lenders on demand. The current interest rates charged by the lenders on the loans to subsidiaries are at market rates and are consistent with the borrowing costs of the subsidiaries without any corporate guarantees. 15.3 Other borrowings 2012 2011 $ $ The Group 5,752,820 5,841,314 Trust receipts (secured) 4,089,435 5,344,384 Bills payable (secured) 3,291,168 2,061,546 Bank overdrafts (secured) (Note 12) 13,133,423 13,247,244 Other bank borrowings are secured by: (a)
a first legal mortgage of the Group’s leasehold properties (Note 5);
(b) a debenture over a subsidiary’s present and future fixed and floating assets for $4,354,550 (2011 $4,462,460); (c)
a guarantee given by a subsidiary; and
(d)
a guarantee given by the Company.
At 31 December 2011, a shareholder provided a corporate guarantee of $5,345,000 to secure other borrowings.
Notes to the financial statements for the financial year ended 31 December 2012 15 15.4
Borrowings (Cont’d) Currency risk
Total borrowings are denominated in the following currencies: 2012 2011 The Group $ $ 12,526,708 8,916,253 Singapore dollar 4,754,792 4,956,530 United States dollar 2,896,389 2,537,139 Malaysian ringgit 2,182,324 3,178,250 Renminbi 22,360,213 19,588,172 15.5
Weighted average effective interest rates
The weighted average effective interest rates of total borrowings at the end of the reporting period are as follows: The Group
2012 2011
Obligations under finance leases Bank loans (secured) Trust receipts (secured) Bills payable (secured) Bank overdrafts (secured)
2.4% 2.2% 3.1% 4.1% 2.7% 4.7% 7.5% 6.7% 5.1% 5.8%
16 Deferred income 2012 2011 $ $ The Group Membership subscription fees, represented by: Current liabilities Non-current liabilities
39,119 73,520 112,639 -
The Group offers memberships to customers under the “Lorenzo Friends” membership program which enable the customers to purchase goods at a discount at its retail outlets. The memberships are valid for a period of five years. The membership subscription fees, recognised as a deferred income, are being amortised over the qualifying period of the membership.
Notes to the financial statements for the financial year ended 31 December 2012
80 81
17 Deferred tax liabilities 2012 2011 The Group $ $ At 1 January Exchange difference on translation Acquisition of a subsidiary (Note 7) Recognised in profit or loss (Note 22) At 31 December
461,503 257,287 (5,838) (4,562) - 42,768 (51,018) 166,010 404,647 461,503
The balance comprises tax on: Excess of net book value over tax written down value of qualifying property, plant and equipment
404,647 461,503
18
Trade and other payables
The Company The Group 2012 2011 2012 2011 $ $ $ $ - - 7,822,412 6,565,983 Trade payables to third parties - - 500,000 3,316,929 Contingent consideration (Note 7) 475,201 3,358,033 2,947,124 4,965,181 Other payables 2,600,000 - - Amount due to a subsidiary – non trade - - 7,902,595 5,761,639 Advances from customers 37,450 32,000 4,058,255 4,161,391 Accrued expenses 3,112,651 3,390,033 23,230,386 24,771,123 Trade and other payables are denominated in the following currencies: The Company The Group 2012 2011 2012 2011 $ $ $ $ 3,112,651 3,390,033 7,305,334 9,441,514 Singapore dollar - - 3,013,478 2,406,903 United States dollar - - 1,475,525 582,971 Euro Malaysian ringgit - - 7,244,669 6,913,397 - - 1,456,104 1,876,391 New Taiwan dollar - - 2,735,276 3,549,947 Renminbi 3,112,651 3,390,033 23,230,386 24,771,123 Non-trade amount due to a subsidiary, representing consideration for additional investment in that subsidiary, is unsecured, interest-free and repayable on demand. 19 Other income Note 2012 2011 The Group $ $ 7 2,816,929 Gain on settlement of contingent consideration 156,720 Government grants Interest income 96,358 212,317 Rental income 987,295 59,222 241,506 278,662 Sundry income 132,598 49,479 Sales of scrap materials 616,497 449,167 Transportation income - 67,886 Membership Subscription Fees 5,047,903 1,116,733
Notes to the financial statements for the financial year ended 31 December 2012 20
Finance costs
2012 2011 The Group $ $
Interest expense - finance leases 74,328 55,643 - bank loans 573,272 198,801 - trust receipts and bills payable 121,170 447,532 - bank overdrafts 192,970 116,721 961,740 818,697 Trade financing charges 88,790 89,099 1,050,530 907,796 21
(Loss)/ Profit before taxation
The following items have been included in arriving at (loss)/ profit before taxation: 2012 2011 The Group Note $ $ Amortisation of land use rights 6 Amortisation of intangible assets 8 Goodwill written off 4 8 Impairment loss on intangible assets Cost of inventories included in cost of sales 10 Depreciation of property, plant and equipment 5 Directors’ fees Exchange loss, net Impairment loss on trade receivables 11 10 Inventories written off Operating lease expense Loss on disposal of property, plant and equipment
28,967 26,425 350,443 47,274 355,000 18,676,143 19,793,240 3,385,539 3,042,411 112,970 111,540 138,493 348,081 302,146 619,773 263,168 471,261 7,503,953 5,922,969 236,420 41,866
Staff costs Key management personnel - directors: Directors’ remuneration other than fees - salaries and other related costs - Contributions to defined contribution plans
1,185,200 1,470,223 27,759 24,030
Key management personnel - other than directors - salaries and other related costs 583,335 414,103 - Contributions to defined contribution plans 57,558 57,999 1,853,852 1,966,355
Other than key management personnel - salaries, wages and other related costs 17,348,800 17,436,377 - Contributions to defined contribution plans 469,194 170,039 17,817,994 17,606,416 19,671,846 19,572,771
Notes to the financial statements for the financial year ended 31 December 2012
82 83
22 Tax expense 2012 2011 $ $ The Group Current tax expense Current year
1,359,534 1,807,987
Deferred tax expense Movements in temporary differences (Note 17) (51,018) 166,010 Adjustment for prior years - (18,373) 1,308,516 1,955,624 The tax expense on the results of the financial year varies from the amount of income tax determined by applying the Singapore statutory rate of income tax on profits as a result of the following: 2012 2011 $ $ The Group (Loss)/Profit before taxation
(4,331,336) 759,704
Tax at statutory rate of 17% (2011: 17%) (736,327) 129,150 Tax effect on non-deductible expenses 585,182 340,776 Tax effect on non-taxable income (2,098) (8,419) 1,194,566 1,083,621 Deferred tax assets on current year losses not recognised 37,074 (18,373) Adjustment for prior years (47,268) 25, 507 Differences in foreign tax rates (34,222) (8,419) Tax incentives Withholding tax 311,609 411,781 1,308,516 1,955,624 At the reporting date the Group had unabsorbed tax losses of approximately $16 million (2011: $11 million) attribute to certain subsidiaries. These unabsorbed tax losses are available for carry forward and set-off against future taxable income, subject to agreement by the tax authorities and compliance with certain provisions of the tax legislations of the respective countries in which the subsidiaries operate. Unabsorbed tax losses of $12 million related to certain subsidiaries expire from 2013 through 2018. Deferred tax assets of approximately $3.6 million (2011: $2.6 million) have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom. 23
Loss per share
The basic loss per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the financial year. The Company did not have any stock options or dilutive potential ordinary shares during the years ended 31 December 2011 and 2012. 2012 2011 The Group $ $ Loss after taxation attributable to owners of the Company
(5,639,852) (1,195,920)
Number of ordinary shares in issue at 1 January Issue of shares Weighted average number of ordinary shares in issue during the year
216,588,465 201,000,000 - 128,124
Loss per share (cents): - basic - diluted
216,588,465 201,128,124 (2.60) (0.59) (2.60) (0.59)
Notes to the financial statements for the financial year ended 31 December 2012 24
Dividends
2012 2011 $ $ The Group Final tax-exempt (one-tier) dividend of 0.49 cents (2011: 0.56 cents) per ordinary share paid in respect of the previous financial year
1,082,773 1,205,796
After the reporting date, final tax exempt (one-tier) dividend proposed by the directors which has not been provided for is as follows: 2012 2011 $ $ The Company and The Group Final tax-exempt (one-tier) dividend of 0.49 cents per ordinary share 25
- 1,082,773
Related party transactions
Other than those disclosed elsewhere in the financial statements, there were significant related party transactions which were carried out in the normal course of business on terms agreed between the parties during the financial year as follows: 2012 2011 $ $ The Group Sales to - a firm in which a key management personnel of a subsidiary has financial interest - a firm related to a director of the Company
482,092 1,209,493 2,495 35,677
Purchases from a firm related to a director of the Company
194,000 868,976
Rental expense paid and payable to a firm of which a director of the Company is a member
134,505 137,395
Notes to the financial statements for the financial year ended 31 December 2012 26
84 85
Commitments
Operating lease commitments (non-cancellable) (A)
Where the Group is a lessee
At the end of the reporting period, the Group was committed to making the following payments in respect of noncancellable operating leases of showrooms and warehouse premises: 2012 2011 $ $ The Group 7,010,830 4,533,125 Not later than one year 12,780,014 6,217,053 Later than one year and not later than five years 477,722 391,287 Later than five years 20,268,566 11,141,465 These operating leases expire between September 2013 and January 2019 and contain renewal options. (B)
Where the Group is a lessor
At the reporting date, the Group had the following rental receivables under non-cancellable operating leases in respect of sub-let of office premises: 2012 2011 $ $ The Group Not later than one year 1,368,409 1,335,618 1,141,960 2,303,618 Later than one year and not later than five years 2,510,369 3,639,236 These non-cancellable leases have remaining lease terms of between 1 to 3 years and contain renewal options. 27
Operating segments
For management reporting purposes, the Group is organised into the following reportable operating segments as follows: 1) 2) 3) 4)
Retail; Export; Licensing Retail System (“LRS�); and Building Materials
Retail segment relates to revenue generated from retail chain stores for trading of sofa and other furniture. Export segment to revenue generated from overseas corporate customers for trading of sofa and other furniture. LRS segment relates to revenue generated from overseas licensing for trading of sofa and other furniture. Building materials segment relates to revenue generated from supply of stones and tiles for residential, commercial and industrial projects. This segment was created following the acquisition of Builders Shop in a business combination on 29 December 2011. The acquisition of Builders Shop was completed on 29 December 2011 and had no effect on the Group’s results for the year ended 31 December 2011.
Operating segments (cont’d)
27,061 33,300 1,328 1,647 2,318 1,585 1,178 - 31,885 36,532
Gross profit
5,048 1,117 Other operating income (40,214) (35,981) Unallocated corporate expenses Finance costs (1,050) (908) (Loss)/ Profit before taxation (4,331) 760 Tax expense (1,309) (1,956) Loss for the year (5,640) (1,196)
LRS Building materials Total Retail Export 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 55,836 61,195 8,212 7,500 4,870 6,003 9,289 - 78,207 74,698
Revenue
The allocation of group assets and liabilities attributable to individual segments is not presented as the information is not provided to the chief operating decision maker.
Group financing, corporate expenses and income taxes are managed on a group basis and are not allocated to operating segments.
The chief operating decision maker monitors the operating results of the Group’s operating segments for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on revenue and gross profit, as included in the internal management reports that are reviewed by the Group’s chief operating decision maker.
27
Notes to the financial statements for the financial year ended 31 December 2012
Notes to the financial statements for the financial year ended 31 December 2012 27
86 87
Operating segments (cont’d)
Revenue based on geographical location of customers is as follows: 2012 2011 The Group $ $ Singapore 20,635 12,989 Malaysia 37,341 39,725 9,459 12,133 Taiwan People’s Republic of China 1,871 1,465 1,719 1,771 Japan 1,751 1,350 Indonesia 5,431 5,265 Other countries 78,207 74,698 28
Contingent Liabilities
The Group The Group has provided letters of credit in favour of third parties for contract performance amounting to $0.4 million (2011: $0.6 million). The Company (1) At 31 December 2012, the Company has provided guarantees to banks in respect of loan facilities granted to subsidiaries amounting to $12.7 million (2011: $13 million).
At 31 December 2012, a subsidiary has provided a guarantee to a bank in respect of loan facility granted to a subsidiary amounting to $2.9 million (2011: $2.5 million).
At 31 December 2012, the Company and a subsiding have provided a joint guarentee to a bank in respect of a loan facility granted to a subsidiary amounting to $5 million (2011: $2 million)
No material losses under these guarantees are expected. The financial effects of financial guarantee contracts issued by the Group and the Company are not material to the financial statements and are, therefore not recognised
(2) In August 2012, a suit was brought against the Company together with several other defendants, including the main contractor and sub-contractor of a subsidiary, in respect of injuries allegedly caused by debris form a fallen granite slab from a building in 2011. The subsidiary’s main contractor and sub-contractor completed installation of granite slabs on the façade of the building in 1997. The plaintiff is seeking damages of $1.6 million from the Company and other defendant jointly and severally.
In accordance with the agreement, the main contractor and sub-contractor should be responsible for work defects. The Company is contesting the claim rigorously. The former shareholder of the subsidiary has provided an undertaken in writing to the Company for an amount of up to $5 million for all actual and proven damages arising from the claim by the plaintiff.
At the date of these financial statements, the directors are of the view that no material losses will arise in respect of the legal suit.
Notes to the financial statements for the financial year ended 31 December 2012 29
Financial risk management
The Group is exposed to financial risks arising from its operations and the use of financial instruments. The key financial risks included credit risk, liquidity risk, interest rate risk, foreign currency risk and market price risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise adverse effects from the unpredictability of financial markets on the Group’s financial performance. There has been no change to the Group’s exposure to these financial risks or the manner in which it manages and measures the risk. Market risk exposures are measured using sensitivity analysis indicated below. The Group does not hold or issue derivative financial instruments for trading purposes or to hedge against fluctuations, if any, in interest rates and foreign exchange. Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the Group to incur a financial loss. The Group’s exposure to credit risk arises primarily from trade and other receivables. For trade receivables in respect of corporate customers, the Group adopts the practice of dealing only with those customers of appropriate credit history, and obtaining sufficient security where appropriate to mitigate credit risk. For other financial assets, the Group adopts the policy of dealing only with high credit quality counterparties. The Group’s objective is to seek continual growth while minimising losses incurred due to increased credit risk exposure. Credit exposure to an individual corporate counterparty is restricted by credit limits that are approved by the executive directors based on ongoing credit evaluation. The counterparty’s payment profile and credit exposure are continuously monitored at the entity level by the respective management and at the group level by the executive directors. Through ongoing credit monitoring and existing collection procedures in place, credit risk is mitigated substantially. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures. The allowance account in respect of trade and other receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible. At that point, the financial asset is considered irrecoverable and the amount charged to the allowance account is written off against the carrying amount of the impaired financial asset. Concentration of credit risk relating to trade receivables is limited due to the Group’s many varied customers. These customers are internationally dispersed, engage in a wide spectrum of manufacturing and distribution activities, and sell in a variety of end markets. The Group’s historical experience in the collection of accounts receivable falls within the recorded allowances. Due to these factors, management believes that no additional credit risk beyond amounts provided for collection losses is inherent in the Group’s trade receivables. The maximum exposure to credit risk for each class of financial instruments is the carrying amount of that class of financial instruments presented on the statements of financial position. The cash and cash equivalents are held with banks which are highly rated and regulated.
Notes to the financial statements for the financial year ended 31 December 2012 29
88 89
Financial risk management (Cont’d)
Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with financial instruments that are settled by delivering cash or another financial asset. Liquidity risk may result from an inability to sell a financial asset quickly at close to its fair value. The Group’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of stand-by credit facilities. The table below analyses the maturity profile of the Group’s and financial liabilities based on contractual undiscounted cash flows, including estimated interest payments: The Group At 31 December 2012 Trade and other payables Borrowings
Carrying Contractual Less than Between 1 Over amount cash flows 1 year and 5 years 5 years $ $ $ $ $ 23,230,386 23,230,386 23,230,386 - 22,360,213 22,732,052 19,864,852 1,996,317 45,590,599 45,962,438 43,095,238 1,996,317
870,883 870,883
At 31 December 2011 Trade and other payables Borrowings
24,771,123 24,771,123 24,771,123 - 19,588,172 20,606,636 17,494,868 2,510,718 44,359,295 45,377,759 42,265,991 2,510,718
601,050 601,050
The Company At 31 December 2012 Trade and other payables
3,112,651 3,112,651 3,112,651 3,112,651 3,112,651 3,112,651
- -
-
At 31 December 2011 Trade and other payables
3,390,033 3,390,033 3,390,033 3,390,033 3,390,033 3,390,033
- -
-
The Group ensures that there are adequate funds to meet all its obligations in a timely and cost-effective manner. The Group maintains sufficient level of cash and cash equivalents and has available adequate amount of committed credit facilities from financial institutions to meet its working capital requirements.
Notes to the financial statements for the financial year ended 31 December 2012 29
Financial risk management (Cont’d)
Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial instruments will fluctuate because of changes in market interest rates. The Group’s exposure to interest rate risk arises primarily from its variable rate bank balances, fixed deposits and borrowings which are contractually repriced at intervals of less than 6 months (2011 - less than 6 months). The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore a change in interest rates at the reporting date would not affect profit or loss. The Group’s policy is to obtain the most favourable interest rates available without increasing its interest rate exposure. Sensitivity analysis for interest rate risk A 30 (2011 - 30) basis points (bp) change in the interest rate of variable rate bank balances and fixed deposits and a 75 (2011 - 75) basis points (bp) change in the interest rate of variable rate borrowings at the reporting date would have increased/ decreased equity and loss before tax by the amounts shown below. The magnitude represents management’s assessment of the likely movement in interest rates under normal economic conditions. This analysis has not taken into account the associated tax effects and assumes that all other variables, in particular foreign currency rates, remain constant. Loss before tax Equity increase/ (decrease) increase/ (decrease) 30bp/75bp 30bp/75bp 30bp/75bp 30bp/75bp increase decrease increase decrease $ $ $ $ The Group 31 December 2012 Variable rate bank balances and fixed 7,645 7,645 7,645 7,645 deposits (136,507) (136,507) (136,507) (136,507) Variable rate borrowings (128,862) (128,862) (128,862) (128,862) 31 December 2011 Variable rate bank balances and fixed 14,813 (14,813) 14,813 (14,813) Deposits (103,231) 103,231 (103,231) 103,231 Variable rate borrowings (88,418) 88,418 (88,418) 88,418 Foreign currency risk Foreign currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Currency risk arises when transactions are denominated in foreign currencies. The Group has transactional currency exposures arising from sales and purchases that are denominated in a currency other than the respective functional currencies of the group entities, namely Singapore dollar, Malaysian ringgit, Renminbi and New Taiwan dollar. The foreign currency in which these transactions are denominated are primarily the United States dollar and the Euro. Consequently, the Group is mainly exposed to movements in the United States dollar and Euro exchange rates. Such risks are managed by matching sales with corresponding purchases, and assets and liabilities of the same currencies and amounts. However, the Group does not use any financial derivatives such as foreign currency forward contracts, foreign currency options or swaps for hedging purposes.
90 91
Notes to the financial statements for the financial year ended 31 December 2012 29
Financial risk management (Cont’d)
Foreign currency risk (Cont’d) The Group’s exposure to foreign currency risk in respect of the United States dollar and Euro are as follows: United States The Group dollar Euro $ $ At 31 December 2012 1,826,101 Trade and other receivables Cash and cash equivalents 1,242,600 Borrowings (4,754,792) Trade and other payables (3,013,478) (1,475,525) (4,699,569) (1,475,525) Net exposure At 31 December 2011 Trade and other receivables 1,811,666 Cash and cash equivalents 1,698,777 Borrowings (4,956,530) Trade and other payables (2,406,903) (582,971) Net exposure (3,852,990) (582,971) Sensitivity analysis for foreign currency risk A 5% strengthening/weakening of the United States dollar and Euro against the respective functional currencies of the group entities at 31 December would have increased/decreased equity and loss before tax by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. This analysis has not taken into account the associated tax effects and assumes that all other variables, in particular interest rates, remain constant. Increase/ (decrease) in The Group equity and loss before tax 2012 2011 $ $ (234,978) (192,649) USD - strengthened 5% (2011 - 5%) 234,978 192,649 - weakened 5% (2011 - 5%) Euro
- strengthened 5% (2011 - 5%) - weakened 5% (2011 - 5%)
(73,776) (29,149) 73,776 29,149
Price risk Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk),whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar financial instruments traded in the market. The Group is exposed to price risk arising from its investments in available-for-sale equity securities. Sensitivity analysis – price risk At 31 December 2012, if prices of equity had been 10% higher with all other variables held constant, the fair value increase of these investments and the corresponding increase in fair value reserve would have been $9,600 (2011: $8,000). Correspondingly, if prices of equity had been 10% lower with all other variables held constant, the fair value of these investments and the fair value reserve would have decreased by an equal amount.
Notes to the financial statements for the financial year ended 31 December 2012 29
Financial risk management (Cont’d)
Fair values of financial instruments Fair value hierarchy The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1: Level 2: Level 3:
quoted prices (unadjusted) in active markets for identical assets or liabilities; 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 inputs for the assets or liability that are not based on observable market data (unobservable inputs).
The Group 31 December 2012 Quoted available-for-sale financial assets
96,932
-
- 96,932
31 December 2011 Quoted available -for-sale financial assets
79,715
-
-
Level 1 Level 2 Level 3 $ $ $
Total $
79,715
Bank loans The carrying amounts of variable rate bank loans approximate their fair values. The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore, a change in interest rates at the reporting date would not affect profit or loss. Finance Lease Liabilities The carrying amounts of finance leases approximate fair value as they bear interest at rates which approximate the current incremental borrowing rate for similar types of lending and borrowing arrangements. Available-for-sale financial assets are The fair values of quoted available-for-sale financial assets are determined directly by reference to their published market bid prices at the reporting date. Other financial assets and liabilities The carrying amounts of financial assets and liabilities with a maturity of less than one year (including trade and other receivables, cash and cash equivalents and trade and other payables) approximate their fair values because of the short period to maturity.
92 93
Notes to the financial statements for the financial year ended 31 December 2012 30
Capital management
The Group’s objectives when managing capital are: (a) (b) (c) (d)
To safeguard the Group’s ability to continue as a going concern; To support the Group’s stability and growth; To provide capital for the purpose of strengthening the Group’s risk management capability; and To provide an adequate return to shareholders.
The Group actively and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholder returns, taking into consideration the future capital requirements of the Group and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities. The Group currently does not adopt any formal dividend policy. The Board of Directors monitors capital based on net debt to total equity ratio. Net debt comprises total borrowings less cash and cash equivalents. Net asset comprises total equity. The Group
2012 2011 $ $
Total borrowings Less: Cash and cash equivalents Net debt/(assets)
22,360,213 19,588,172 (7,816,933) (10,816,335) 14,543,280 8,771,837
Total equity
31,571,476 38,237,685
Net debt/ (assets) to total equity ratio (times)
0.46 0.23
There were no changes in the Group’s approach to capital management during the year. The Company and its subsidiaries are not subject to externally imposed capital requirements.
SHAREHOLDINGS STATISTICS as at 8 march 2013 ISSUED AND FULLY PAIDF CAPITAL TOTAL NUMBER OF SHARES IN ISSUE CLASS OF SHARES VOTING RIGHTS
: $31,610,000 : 216,588,465 : Ordinary shares fully paid : One vote of each ordinary share
Shareholdings held in hands of public Based on information available to the Company as at 08 March 2013, approximately 71.10% of the issued ordinary shares of the Company is held by the public. Accordingly, Rule 723 of the Listing Manual issued by the Singapore Exchange Securities Trading Limited has been complied with. DISTRIBUTION OF SHAREHOLDINGS SIZE OF NO. OF SHAREHOLDINGS SHAREHOLDERS 1 - 999 164 1,000 - 10,000 387 10,001 - 1,000,000 582 30 1,000,001 & ABOVE TOTAL 1,163
% 14.10 33.28 50.04 2.58 100.00
NO. OF SHARES 7,294 1,881,005 59,779,660 154,920,506 216,588,465
% 0.00 0.87 27.60 71.53 100.00
Treasury Shares There are no treasury shares held in the issued share capital of the Company. TOP 20 LARGEST SHAREHOLDERS AS AT 8 MARCH 2013 NO. OF SHARES % NAME 1 CHUNG KIM YEW 33,493,200 15.46 NG SOON HENG 15,836,800 7.31 2 3 HONG LEONG FINANCE NOMINEES PTE LTD 15,809,000 7.30 4 POLLUX PROPERTIES LTD 15,588,465 7.20 5 PHILLIP SECURITIES PTE LTD 7,545,454 3.48 6 GOH AH LEE 7,147,000 3.30 LIM CHYE HUAT @ BOBBY LIM CHYE HUAT 6,000,000 2.77 7 8 MAYBANK KIM ENG SECURITIES PTE LTD 4,087,000 1.89 9 DBS VICKERS SECURITIES (S) PTE LTD 3,538,000 1.63 10 OCBC SECURITIES PRIVATE LTD 3,464,633 1.60 11 CHEN MEI YING 3,435,154 1.59 12 DMG & PARTNERS SECURITIES PTE LTD 3,249,000 1.50 13 CHUNG YOOK FONG 3,248,000 1.50 14 ANG KIAN KOK 3,094,000 1.43 15 NG BOON CHING 3,000,000 1.39 16 CHUNG KAM SENG 2,695,000 1.24 17 CHAN MAI LIN 2,640,000 1.22 18 UNITED OVERSEAS BANK NOMINEES PTE LTD 2,588,600 1.20 19 YAN XIU YUN 2,502,000 1.16 20 ONG TIAK BENG 2,320,000 1.07 141,281,306 65.24
94 95 SUBSTANTIAL SHAREHOLDERS (As shown in the Company’s Register of Substantial Shareholders as at 08 March 2013) DIRECT INTEREST NO. OF SHARES % 1 CHUNG KIM YEW 33,493,200 15.46 2 NG SOON HENG 15,836,800 7.31 3 HONG LEONG FINANCE NOMINEES PTE LTD 15,809,000 7.30 4 POLLUX PROPERTIES LTD 15,588,465 7.20 GOH AH LEE 7,147,000 3.30 5
%
DEEM INTEREST NO. OF SHARES % 86,000 0.04 - - - 12,316,000 5.69
Note : 1) Chung Kim Yew is deemed to be interested in shares held by spouse, Ms Wong Ying Nyok. 2) Goh Ah Lee is deemed to be interested in shares held by spouse, Ms Lee Lee Wah and shares held by his nominees, Hong Leong Finance Nominees Pte. Ltd.
NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Eighth Annual General Meeting of the Company will be held at 27 Kaki Bukit Place, Eunos Techpark, Singapore 416205 on 26 April 2013 (Friday) at 10.00 a.m. to transact the following business:
ORDINARY BUSINESSES 1.
To receive and adopt the Audited Accounts for the financial year ended 31 December 2012 together with the Reports of the Directors and the Auditors of the Company.
2.
To re-elect as a Director, Mr Chung Kim Yew who is retiring under Article 90 of the Company’s Articles of Association:
Mr Chung Kim Yew will, upon re-election as a Director of the Company, remain as an Executive Director of the Company.
3.
To re-elect as a Director, Ms Lie Chin-Chin who is retiring under Article 90 of the Company’s Articles of Association:
Ms Lie Chin-Chin will, upon re-election as a Director of the Company, remain as an Independent Director of the Company as well as the Chairman of the Nominating Committee, a member of the Remuneration Committee and a member of the Audit Committee, and will be considered independent of the Management.
4. 5. 6.
To approve the payment of directors’ fees of S$111,540 for the financial year ending 31 December 2013, to be paid quarterly in arrears. To re-appoint Messrs Foo Kon Tan Grant Thornton LLP as the Company’s Auditors and to authorise the Directors to fix their remuneration. To transact any other business that may be transacted at an Annual General Meeting.
SPECIAL BUSINESSES 7.
To consider and, if thought fit, to pass the following resolution as an Ordinary Resolution, with or without modifications: “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 (“SGX-ST”), the Directors of the Company be authorised and empowered to:
(a)
(i) (ii)
issue shares in the Company (“shares”) whether by way of rights, bonus or otherwise; and/or 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 or 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, for such purposes and to such persons as the Directors of the Company may in their absolute discretion deem fit; and
(b) (notwithstanding the authority conferred by this Resolution may have ceased to be in force) issue shares in pursuant to any Instruments made or granted by the Directors of the Company while this Resolution was in force, provided always that: (i)
the aggregate number of shares (including shares to be issued in pursuant of the Instruments, made or granted pursuant to this Resolution) to be issued pursuant to this Resolution shall not exceed 50% of the total number of issued shares (excluding treasury shares) in the capital of the Company (as calculated in accordance with
Resolution 1
Resolution 2
Resolution 3 Resolution 4 Resolution 5
NOTICE OF ANNUAL GENERAL MEETING
(ii)
96 97
sub-paragraph (II) below), of which the aggregate number of shares to be issued other than on a pro rata basis to the Shareholders of the Company shall not exceed 20% of the total number of issued shares (excluding treasury shares) in the capital of the Company (as calculated in accordance with sub-paragraph (II) below); (subject to such calculation as may be prescribed by the SGX-ST) for the purpose of determining the aggregate number of shares that may be issued under subparagraph (I) above, the total number of issued shares (excluding treasury shares) shall be based on the total number of issued shares (excluding treasury shares) in the Company at the time of the passing of this Resolution, after adjusting for: (aa) new shares arising from the conversion or exercise of any convertible securities; (bb) new shares arising from exercising share options or vesting of share awards which are outstanding or subsisting at the time of the passing of this Resolution; and (cc) any subsequent bonus issue, consolidation or subdivision of shares;
(iii)
in exercising the authority conferred by this Resolution, the Company shall comply with the provisions of the Listing Manual of 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
(iv)
unless revoked or varied by the Company in a general meeting, such authority shall continue in force 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 the earlier.”
[See Explanation Note 1]
8.
To consider and, if thought fit, to pass the following resolution as an Ordinary Resolution, with or without modifications:
“That the Board of Directors be and is hereby authorised to:
(a)
grant awards (“Awards”) in accordance with the provisions of the Lorenzo Share Performance Share Plan (“Lorenzo SPP”); and
(b)
pursuant to Section 161 of the Singapore Companies Act, Cap. 50, to allot and issue from time to time such number of shares in the capital of the Company as may be required to be issued pursuant to the vesting of Awards under the Lorenzo SPP,
Resolution 6
provided that the total number of new shares to be issued pursuant to the Awards granted under the Lorenzo SPP shall not exceed 15% of the total number of issued shares (excluding treasury shares) in the capital of the Company from time to time and that such authority shall, unless revoked or varied by the Company in a general meeting, continue in force 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 the earlier.” [See Explanation Note 2] By Order of the Board Goh Ah Lee Executive Chairman/Group Managing Director 9 April 2013
Resolution 7
NOTICE OF ANNUAL GENERAL MEETING Explanatory Notes: 1.
The Ordinary Resolution 6 in item 7 above, if passed, will empower the Directors of the Company, effective 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 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) in the capital of the Company, of which up to 20% may be issued other than on a pro-rata basis to shareholders.
For determining the aggregate number of shares that may be issued, the total number of issued shares (excluding treasury shares) 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 any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time when this Ordinary Resolution is passed and any subsequent bonus issue, consolidation or subdivision of shares.
2.
The Ordinary Resolution 7 in item 8 above, if passed, will empower the Directors of the Company, effective 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 or such authority is varied or revoked by the Company in a general meeting, whichever is the earlier, to grant award of shares in accordance with the provisions of the Lorenzo SPP and pursuant to Section 161 of the Singapore Companies Act, Cap. 50 to allot and issue shares under the Lorenzo SPP, provided that the total number of new shares issued under the Lorenzo SPP shall not exceed 15% of the total number of issued shares (excluding treasury shares) in the capital of the Company from time to time. The Lorenzo SPP was first approved by the Shareholders of the Company at the Company’s Extraordinary General Meeting held on 9 December 2009 and subsequently renewed at the Company’s Seventh Annual General Meeting held on 27 April 2012. For further details on the Lorenzo SPP, please refer to the Company’s Circular to Shareholders dated 23 November 2009, which may be found on the SGXNET (http://www.sgx.com/wps/portal/sgxweb/home/company_disclosure/prospectus_circulars). Notes: 1)
A member entitled to attend and vote at the Eighth Annual General Meeting is entitled to appoint a proxy or proxies (not more than two) to attend and vote on his/her behalf. A proxy need not be a member of the Company.
2)
The instrument appointing a proxy or proxies must be under the hand of the appointor or of his/her 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.
3)
The instrument appointing a proxy or proxies must be deposited at the registered office of the Company at 27 Kaki Bukit Place, Eunos Techpark, Singapore 416205 at least 48 hours before the time fixed for the Eighth Annual General Meeting.
98 99
Proxy Form | Eighth Annual General Meeting LORENZO INTERNATIONAL LIMITED (Incorporated in the Republic of Singapore) (Company Registration No.: 200508277C) I/We (Name) of (Address) being a member/members of Lorenzo International Limited (the “Company”) hereby appoint NAME
ADDRESS
NRIC/PASSPORT NUMBER PROPORTION OF MY/ OUR SHAREHOLDING (%) No. of shares
%
and/or (delete as appropriate) NAME
ADDRESS
NRIC/PASSPORT NUMBER PROPORTION OF MY/ OUR SHAREHOLDING (%) No. of shares
%
or failing *him/her, the Chairman of the Eighth Annual General Meeting, as my/our proxy/proxies to vote for me/us on my/our behalf at the Eighth Annual General Meeting of the Company, to be held at 27 Kaki Bukit Place Eunos Techpark Singapore 416205 on Friday, 26 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 to be proposed at the Meeting as indicated hereunder. If no specific direction as to voting is given, the proxy/proxies will vote or abstain from voting at his/their discretion, as he/they will on any other matter arising at the Meeting. No.
ORDINARY RESOLUTIONS RELATING TO: Ordinary Business
1.
Adoption of Reports and Accounts
2.
Re-appointment of Mr Chung Kim Yew
3.
Re-appointment of Ms Lie Chin-Chin
4.
Approval of directors’ fees
5.
Re-appointment of Auditors Special Business
6.
Authority to allot and issue new shares
7.
Authority to allot and issue new shares pursuant to the Lorenzo Share Performance Share Plan
FOR
AGAINST
Proxy Form | Eighth Annual General Meeting (Please indicate with a cross (X) in the space provided whether you wish your vote to be cast for or against the Resolutions as set out in the Notice of the Meeting.)
Dated this day of 2013.
Number of Shares held in CDP Register Member’s Register
Signature of Shareholder(s) or Common Seal Important: Please read notes overleaf
TOTAL
IMPORTANT: 1. This Annual Report is also forwarded to investors who have used their CPF monies to buy shares in the Company at the request of their CPF Approved Nominees, and is sent solely for their information only. 2.
This Proxy Form is therefore, 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.
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, Cap. 50), 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 registered in 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 entitled to attend and vote at the Meeting is entitled to appoint one or two proxies to attend and vote in his stead. 3. Where a member appoints more than one proxy, the appointments shall be invalid unless he specifies the proportion of his shareholding (expressed as a percentage of the whole) to be represented by each proxy. 4. A proxy need not be a member of the Company. 5. The instrument appointing a proxy or proxies must be deposited at the Company’s registered office at 27 Kaki Bukit Place Eunos Techpark Singapore 416205, not less than 48 hours before the time set 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 common seal or under the hand of its attorney or a duly authorised officer. 7. Where an instrument appointing a proxy is signed on behalf of the appointor by an attorney, the letter of power of attorney or a duly certified copy thereof must (failing previous registration with the Company) be lodged with the instrument of proxy; failing which the instrument may be treated as invalid. 8. 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 of Singapore. 9. The submission of an instrument or form appointing a proxy by a member of the Company does not preclude him from attending and voting in person at the Annual General Meeting if he is able to do so. 10. The Company shall be entitled to reject a Proxy Form which is incomplete, improperly completed, illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified on the Proxy Form. In addition, in the case of shares entered in the Depository Register, the Company may reject a Proxy Form 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.
LORENZO INTERNATIONAL LIMITED 27 Kaki Bukit Place, Eunos Techpark Singapore 416205 T: (65) 6748 3003 F: (65) 6748 1551 E: corporate@lorenzo-international.com
Singapore
UHIN HOLDING PTE LTD SUPREME FURNISHING CENTRE PTE LTD 27 Kaki Bukit Place, Eunos Techpark Singapore 416205 T: (65) 6745 0330 F: (65) 6745 0770 BUILDERS SHOP PTE LTD 11 Changi South Street 3 #04-01 Builders Shop Building Singapore 486122 T: (65) 6603 0000 F: (65) 6545 5665
Malaysia
UHIN SOFA SDN BHD GINOVA MARKETING SDN BHD GINOVA FURNISHING SDN BHD UHIN WOOD INDUSTRIES SDN BHD MONICA DESIGN SDN BHD 21 Jalan TSB 8 Taman Industri Sungai Buloh 47000 Sungai Buloh Selangor Darul Ehsan, Malaysia T: (603) 6157 1591 F: (603) 6157 1931
China
LORENZO INTERNATIONAL (KUNSHAN) CO., LTD SUPREME FURNITURE (KUNSHAN) CO., LTD 9 Dongyuan Road, Dianshan Hu Town Kunshan City, Jiangsu Province, P.R.C. 215345 T: (86-512) 5763 9597 F: (86-512) 5763 9598 LORENZO FURNITURE TRADING (SHANGHAI) CO., LTD Jisheng Wellborn Greenland Global Home Furnishing Center B1-207, No. 5369 Middle Jiasong Road Shanghai, P.R.C. 201704 T: (86-021) 6975 5676 F: (86-021) 6975 5676
Taiwan
UHIN INTERNATIONAL CO., LTD 93-33 Lane 136 Zhonggang W. Road, Taishan District New Taipei City 243 Taiwan (R.O.C.) T: (886-2) 2900 0001 F: (886-2) 2900 0002
Our Accolades
W W W . L O R E N Z O - I N T E R N A T I O N A L . C O M
www.lorenzo-international.com
Head Office LORENZO INTERNATIONAL LIMITED Reg. No.: 200508277C 27 Kaki Bukit Place, Eunos Techpark, Singapore 416205 T. (65) 6748 3003 F. (65) 6748 1551 E. corporate@lorenzo-international.com