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Hosen Group Limited Annual Report 2010


CONTENTS Corporate Profile Chairman’s Statement Operations Review Financial Highlights Board of Directors Key Management Group Structure Corporate Governance Report Financial Statements Corporate Information

01 02 04 05 06 08 08 09 20 IBC *

* inside back cover

This annual report has been reviewed by the Company’s sponsor, KW Capital Pte. Ltd., for compliance with the relevant rules of the Singapore Exchange Securities Trading Limited (“SGX-ST”). The sponsor has not independently verified the contents of this annual report. This annual report has not been examined or approved by the SGX-ST and the SGX-ST assumes no responsibility for the contents of this annual report, including the correctness of any of the statements or opinions made or reports contained in this annual report. The details of the contact person for the sponsor is: Name:

Ms Nicole Tan Siew Ping (Registered Professional, KW Capital Pte. Ltd.)

Address: 80 Raffles Place, #25-01 UOB Plaza 1 Singapore 048624 Tel:

Hosen Group Ltd

6238 3377

Company Registration No.: 200403029E

267 Pandan Loop Singapore 128439 Tel: (65) 6595 9222 Fax: (65) 6779 0186 www.hosengroup.com


CORPORATE PROFILE

Hosen Group was first established in the 1970s in Singapore and has since grown to become a leading importer, exporter and distributor of fast-moving consumer goods (‘FMCG’) in Singapore and Asia, specialising in processed foods. The Company adopted the name Hosen Group Ltd when it went public on the Singapore Stock Exchange in September 2004. The initial public offering (‘IPO’) provided the public an opportunity to share in the success of the Company and enhanced its credibility and market leadership further in the FMCG business. Headquartered in Singapore and supported by a wholly-owned subsidiary in Kuala Lumpur, Malaysia, Hosen has built a distribution network that spans across more than 30 countries in the Asia Pacific Rim, in South Asia and other countries. With its core competencies in marketing and distribution, the Company has since the 1980s developed and nurtured its own house brands that command good market acceptance. The HOSEN brand carries mainly premium canned fruits and vegetables; FORTUNE brand carries premium canned seafood and HIGHWAY carries canned meat products. Our house brands have, through the years, become synonymous with quality and value for money. The HOSEN brand has won many accolades and bagged awards since the Company’s listing. It has won the Singapore’s Most Promising Brand for years 2003 and 2004, Singapore 1000 Company (Public Listed Companies) for years 2007, 2008, 2009, 2010 and 2011, and Superbrands status in year 2008. To further tap the vast restaurant and hotel market in Singapore and Malaysia, the Company has established a Food Service Department to provide value-added service to this market segment.

Our major house brands are “HOSEN”, “FORTUNE”, “HIGHWAY”, and “ROYAL SELECT”.

Leveraging on the good client base in our overseas network, the Company has widened the scope of its Export Department to include procurement and logistics services for our established customers. Our vision is to be the preferred partner in the procurement, supply and distribution of quality and reliable FMCG products at competitive prices in the domestic and international markets.

HOSEN GROUP LTD ANNUAL REPORT 2010 01


CHAIRMAN’S STATEMENT

NEW FLAVOURS

Exciting Ventures Dear Valued Shareholders, I am pleased to present the results of the Hosen Group (‘Group’) for the financial year ended 31 December 2010. The Group performed better in the financial year with an increased in revenue to S$65.2m (FY2009: S$62.8m) and a profit before income tax of S$2.3m (FY2009: S$1.5m), an improvement of 52% compared to FY2009. CORPORATE DEVELOPMENTS During the end of Year 2010 and early 2011, the Group incorporated three (3) new wholly-owned subsidiaries, introducing 3 new businesses and also a new geographical region coverage as below-mentioned: Hock Seng Food (Shanghai) Co., Ltd. was incorporated in Shanghai, in the People’s Republic of China (‘PRC’), providing the Group with an opportunity to lay a foothold in the vast market and various business opportunities in the PRC. New products may also be introduced within the Group for the PRC market in specific. Health Domain Pte. Ltd. was incorporated in Singapore, providing the Group an opportunity to enter into the wholesale, trading, import and export of healthcare, wellness and nutrition food products and beverages. In view of a more health conscious and a global aging population, this is an emerging market with an expected favourable profit margin and steady growth rate over the next 3 years. Arenas Seafood Pte. Ltd. (‘Arenas’) was incorporated in Singapore, providing the Group an opportunity to enter into the frozen food and related products. These increase the Group’s range of products complementing the existing canned food business and also provide the platform capabilities and experience to multiply the model for future similar investments in other parts of the world.

02 HOSEN GROUP LTD ANNUAL REPORT 2010


CHAIRMAN’S STATEMENT

With the introduction of new businesses, products and expansion of geographical coverage, the Group has taken positive but prudent step forward for expansion. The Management foresees that the new businesses may not contribute significantly to the Group’s earnings in the first 12 months of FY2011 operations, as all are still in the infant stage of development and positioning.

PURCHASE OF A LEASEHOLD INDUSTRIAL FACTORY The Group’s subsidiary Arenas have just completed a Sales and Purchase agreement in March 2011, securing a 20 years leasehold food processing factory at the Jurong Food Hub, 15 Jalan Tepong, Singapore. The factory will be renovated to accommodate a cold room and a food processing area. We expect the premise to be operational sometime in late June 2011.

PROPOSED DIVIDEND

As a long-term strategy, we remain disciplined and prudent at all times, balancing expansions and stability. We will continue to stay market-driven, manage risks effectively and build sustainable growth.

The Board is pleased to recommend a final tax-exempt (one-tier) dividend of 0.20 cents (FY2009: 0.138 cents) per ordinary share to shareholders. The recommended payout is subject to shareholders’ approval at the forthcoming Annual General Meeting (‘AGM’) to be held on 26 April 2011.

ACKNOWLEDGEMENTS As a long-term strategy, we remain disciplined and prudent at all times, balancing expansions and stability. We will continue to stay market-driven, manage risks effectively and build sustainable growth. Our reasonably better results in FY2010 were achieved by the concerted hard work and commitment of all our team members in Hosen. Business partners, customers and suppliers are also important stakeholders in the continued growth and profitability of the Group and I wish to express my sincere gratitude and thanks for their continued support. On behalf of the Board, I wish to express my sincere appreciation and thanks to the management team and staff for their dedication, commitment and contributions to the Group. The invaluable advice, guidance and support of the Board are crucial in the Group maintaining its course and to them I owe a debt of gratitude.

LIM HAI CHEOK Chairman and Chief Executive Officer HOSEN GROUP LTD ANNUAL REPORT 2010 03


OPERATIONS REVIEW

DISTINCTIVE PRODUCTS

Premium Taste FINANCIAL HIGHLIGHTS In FY2010, we delivered total revenue of S$65.2m compared to S$62.8m in FY2009, a 4% increase. The Group reported net profits of S$2.3m for the financial year compared to net profits of S$1.5m in FY2009. We started seeing a fundamental shift in our sales profile with a significant portion of sales from our House Brands. Although our distribution expenses increased by S$0.2m or 8%, our effective overseas marketing efforts paid off with our House Brands registering an increase in sales revenues of S$4.2m and profits of S$0.7m as we enlarge our market share in Malaysia and other countries. The profits from our Non-House Brands however showed a decrease in revenue as we discontinue certain products with low margins. Administrative expenses increased by S$0.4m or 10% due to higher staff costs as we strengthen our management team. Finance costs decreased by S$75,000 due to our improved cash flows which contributed to our ability to reduce our bank borrowings. Lower taxation expense arises from the carrying forward of unutilised losses to offset current tax payable.

FINANCIAL POSITION AND CASH FLOW Inventories, trade and other payables decreased by S$2.9m and S$1.9m correspondingly due to reduced carrying of inventories for certain items for Year 2011 Chinese New Year festive season. The loan to More Winner Investment Ltd amounting to S$2.9m (US$2.0m) was written off against the full provision (made in FY2008) during the financial year. However, the Company is exploring alternative options to recover the loan. The net cash generated from operations of S$4.4m and warrant issue of S$0.4m, was used to purchase treasury shares, pay dividends and repay bank borrowings. The balance of the cash from operations was S$1.9m. During the financial year, the Company purchased 17,243,000 of its own shares by way of on-market purchase for a total consideration of S$1.9m pursuant to the 2009 and 2010 Share Buy-back mandate. The shares purchased were held as treasury shares. This had in effect increased our EPS to 0.61 cents, which would have been 0.57 cents if not for the share buy-back transactions. Our shareholders’ funds was a healthy S$27.9m including cash and bank balances of S$10.3m.

UTILISATION OF PROCEEDS During the financial year, a sum of S$500,000 from the net proceeds of the rights cum warrants issue and private placement was utilised as working capital of the Company and its subsidiary. In the financial year, a further S$2.2 million from the net proceeds of the private placement was utilised for business expansion and working capital. 04 HOSEN GROUP LTD ANNUAL REPORT 2010


FINANCIAL HIGHLIGHTS

GROSS PROFIT

PROFIT FROM OPERATIONS

11.10 MIL 10.16 MIL 11.73 MIL

2010 2009 2008

64.91 MIL 62.80 MIL 65.20 MIL

2010 2009 2008

2010 2009 2008

REVENUE

.58 MIL 1.50 MIL 2.34 MIL

REVENUE BY OPERATING SEGMENT HOUSE BRANDS NON HOUSE BRANDS SEAFOOD

•• •

48% 11%

41%

2008

REVENUE BY GEOGRAPHICAL SEGMENT SINGAPORE MALAYSIA OTHERS

•• •

57% 22%

48%

52%

53%

2009 21%

52%

2010 19%

29%

47%

49%

21% 30%

HOSEN GROUP LTD ANNUAL REPORT 2010 05


BOARD OF DIRECTORS

MR LIM HAI CHEOK Chairman and Chief Executive Officer

Mr Lim Hai Cheok is the co-founder of the Group and serves as a member of the Nominating Committee. He has served as Managing Director of Hock Seng Food Pte Ltd (‘HSF’) since its incorporation as a private limited company in 1982. Mr Lim is in charge of formulating the strategic direction and growth of the Group. Prior to starting his own business, Mr Lim was involved in his family provision store business. He has more than 30 years experience in the FMCG market in Singapore, and was instrumental in the growth of the Group.

MADAM CHONG POH SOON Executive Director

Madam Chong Poh Soon is the co-founder of the Group. She has served as an Executive Director of HSF since its incorporation in 1982. She is responsible for procurement and logistics of the Group. Madam Chong has more than 30 years experience in the trading of canned products industry.

MS LIM KIM ENG SUSAN Executive Director

Ms Lim Kim Eng Susan joined the Group in 1982 and was appointed as an Executive Director of HSF in 1994. She is in charge of the Group’s re-export business. Over the years, Ms Lim has been instrumental in developing the Group’s network of overseas customers and suppliers.

MR LIM HOCK CHYE DANIEL Executive Director

Mr Lim Hock Chye Daniel joined the Group in 1997. He was appointed as an Executive Director in 2004 with overall responsibility for the Group’s house brands and direct distribution businesses. Mr Lim graduated from Hawaii Pacific University in 1994 with a Bachelor of Science in Business Administration.

MR LIM HENG SENG Independent Non-Executive Director

Mr Lim Heng Seng serves as a member of the Audit Committee and Remuneration Committee of Hosen Group. Mr Lim has been appointed as an Independent Director of the Company since July 2004. Between 2005 and 2007, he was the Chief Human Resources Officer (CHRO) for Titan Petrochemicals Group, a listed company in Hong Kong. Prior to that, he was the Senior Human Resource Executive with various US Multi-National Corporations (‘MNC’) including Seagram Asia Pacific and GE Plastics Singapore. From 1997 and 2000, he served as Vice President Human Resource – Asia Pacific for Seagram, following which Mr Lim was appointed General Manager for Seagram’s China till 2003. Before 1997, he served as a Human Resources Manager for GE Plastics’ operation in South East Asia. Mr Lim holds a Master of Business Administration degree from the University of Dubuque and a Bachelor of Social Science degree from the National University of Singapore.

06 HOSEN GROUP LTD ANNUAL REPORT 2010


BOARD OF DIRECTORS

MR WEE PIEW Independent Non-Executive Director

Mr Wee Piew is the Chairman of the Audit Committee and Remuneration Committee. He also serves as a member of the Nominating Committee. Mr Wee was formerly the CEO of HG Metal Manufacturing Ltd. Prior to HG Metal, he was in corporate banking with DBS Bank and ABN AMRO Bank. Mr Wee was appointed as Director of the Company in July 2004. He is also an independent director of other listed companies. He holds a Bachelor of Accountancy (Honours) from the National University of Singapore and is a Fellow of the Institute of Certified Public Accountants of Singapore. Mr Wee is also a member of the Singapore Institute of Directors.

MR YEO BOON SIAH Independent Non-Executive Director

Mr Yeo Boon Siah is the Chairman of the Nominating Committee and he also serves as a member of the Audit Committee and Remuneration Committee.

MR NGIAM ZEE MOEY Non-Executive Director

Mr Ngiam Zee Moey was appointed as a Non-Executive Director in July 2007. He has been a Joint Company Secretary of a public listed company, AEI Corporation Ltd since 2004. From 1987 to March 2005, Mr Ngiam was a Group Financial Controller with Lauw & Sons Group of Companies. From 1983 to 1987, he held various finance and accounting managerial positions in Primary Industries Enterprise Pte Ltd, a Singapore government linked company. From 1980 to 1983, Mr Ngiam was a Tax Officer under the Corporate Branch of Singapore Inland Revenue Department.

Mr Yeo was appointed as Director of the Company in December 2007. He was an Executive Director and the Chief Financial Officer of L&M Group Investments Ltd from June 2003 to November 2004 and the Chief Financial Officer of the L&M Group Investments Ltd from January 2000 to June 2001. He was the Director (Administration & Treasury) of Asian Finance and Investment Corporation Ltd (‘AFIC’) from February 1992 to August 1999, Dealers Representative of UOB Securities Pte Ltd from July 1991 to February 1992, Director and Financial Officer of various Singapore Incorporated units of the Summa Group including as General Manager with PT Bank Pertiwi in Jakarta from March 1983 to March 1991 and Bank Officer with Asia Commercial Bank Ltd from December 1972 to March 1983.

Mr Ngiam is a Fellow of Association of Chartered Certified Accountants of the United Kingdom and Institute of Certified Public Accountants of Singapore. He is also a member of Marketing Institute of Singapore. He graduated from Nanyang University, Singapore, with a Bachelor of Commerce in Accountancy in 1980. He has also obtained a Graduate Diploma in Marketing from the Marketing Institute of Singapore in 1993.

HOSEN GROUP LTD ANNUAL REPORT 2010 07


KEY MANAGEMENT

MR TAN WEE KOON Group Finance Manager

Mr Tan joined Hosen Group as Group Finance Manager in September 2008. He is responsible for the corporate finance, financial management and accounting matters of the Group. Prior to joining the Group, he worked in the commercial and public accounting field for more than 16 years. Mr Tan graduated from Leicester Business School, De Montfort University in the United Kingdom in 1996 with a Master of Science in Accounting degree.

GROUP STRUCTURE

HOSEN GROUP LTD

HEALTH DOMAIN PTE. LTD. 100%

HOCK SENG FOOD PTE. LTD. 100%

HOCK SENG FOOD (SHANGHAI) CO., LTD. 100%

08 HOSEN GROUP LTD ANNUAL REPORT 2010

ARENAS SEAFOOD PTE. LTD. 100%

HOCK SENG FOOD (M) SDN. BHD. 100%


CORPORATE GOVERNANCE

The Board of Directors (the “Board”) of Hosen Group Ltd (the “Company”) is committed to maintaining a high standard of corporate governance within the Company and its subsidiaries (the “Group”). Good corporate governance establishes and maintains an ethical environment and enhances the interests of all shareholders. The Company has adopted the recommendations of the Code of Corporate Governance 2005 (the “Code”) and confirms that it has adhered to the principles and guidelines as set out in the Code unless otherwise specified.

BOARD OF DIRECTORS Board’s Conduct of its Affairs The primary role of the Board is to lead and control the Company’s operations and affairs and to protect and enhance long-term shareholders’ value. The Board oversees the management of the business and affairs of the Group and is responsible for the overall performance of the Group. The Board provides entrepreneurial leadership, sets the overall strategy for the Group and ensures that the necessary financial and human resources are in place for the Company to meet its objectives. The Board is also responsible for: •

Supervising the management of the business and affairs of the Group;

Reviewing the financial performance of the Group;

Approving corporate and strategic directions;

Setting up the broad policies and financial objectives of the Company;

Overseeing the processes for evaluating the adequacy of internal controls, risk management, financial reporting and compliance;

Approving the nominations of board directors and appointment of key personnel;

Reviewing merger, acquisition and disposal transactions;

Approving annual budgets and major funding proposals;

Assuming responsibility for corporate governance; and

Reviewing the performance of Management.

To facilitate effective management, certain functions have been delegated to various Board committees, namely Nominating Committee, Remuneration Committee and Audit Committee, each of which has its own written terms of reference and whose actions are reported to and monitored by the Board. The Board conduct regular scheduled meetings at least twice a year and meets as and when deemed necessary. In addition, the Board holds meetings at such other time as may be necessary to address any specific significant matters that may arise. The Company’s Articles of Association allow the meetings of Directors to be conducted by means of telephone conference or other methods of simultaneous communication by electronic or telegraphic means.

HOSEN GROUP LTD ANNUAL REPORT 2010 09


CORPORATE GOVERNANCE

Details of Directors’ attendance at Board and Board committee meetings held in the financial year ended 31 December 2010 (“FY2010”) are set out in the table below:

Meeting of

Board

Audit Committee

Nominating Committee

Remuneration Committee

Total held in FY2010

3

3

1

1

Lim Hai Cheok

3

n.a.

1

n.a

Chong Poh Soon

3

n.a.

n.a.

n.a.

Lim Kim Eng

3

n.a.

n.a.

n.a.

Lim Hock Chye Daniel

3

n.a.

n.a.

n.a.

Lim Heng Seng

3

3

n.a.

1

Wee Piew

3

3

1

1

Ngiam Zee Moey

3

n.a.

n.a.

n.a.

Yeo Boon Siah

3

3

1

1

Note: n.a. means not applicable

The Company facilitates and updates the Directors on the relevant new laws, regulations and changing commercial risks, from time to time, to enable them to discharge their duties effectively. The Company will update newly appointed Directors (if any) with the Group’s business and corporate governance policies.

BOARD COMPOSITION As at the date of this report, the Board comprises the following Directors: Lim Hai Cheok

Chairman and Chief Executive Officer

Chong Poh Soon

Executive Director

Lim Kim Eng

Executive Director

Lim Hock Chye Daniel

Executive Director

Lim Heng Seng

Independent Non-Executive Director

Wee Piew

Independent Non-Executive Director

Yeo Boon Siah

Independent Non-Executive Director

Ngiam Zee Moey

Non-Executive Director

The Board is of the view that the current board size is appropriate, taking into account the nature and operations of the Group. The Nominating Committee which reviews the independence of each Director on an annual basis, adopts the Code’s definition of what constitutes an Independent Director. The Board comprises members with financial background and business/management experience, all of whom as a group, provides the Board with the necessary experience and expertise to direct and lead the Group.

10 HOSEN GROUP LTD ANNUAL REPORT 2010


CORPORATE GOVERNANCE

Non-Executive Directors contribute to the Board process by monitoring and reviewing Management’s performance against goals and objectives. Their views and opinions provide alternative perspectives to the Group’s business. When challenging Management’s proposals or decisions, they bring independent judgment on business activities and transactions involving conflicts of interest and other complexities.

ACCESS TO INFORMATION The Board is furnished with detailed information pertaining to the Group from time to time, to enable the Board to fulfill its responsibilities and to be fully cognizant of the decisions and actions of Management. All Directors have unrestricted access to the Company’s records and information, and are provided with detailed Board papers containing sufficient information from Management on financial, business and corporate issues prior to Board meetings and on an ongoing basis. The Independent Non-Executive Directors and Non-Executive Director have access to the senior executives of the Group and are encouraged to communicate with other employees to seek additional information if they so require. Should the Directors, whether as a group or individually, need independent professional advice, the Company will, upon direction by the Board, appoint a professional advisor selected by the group or the individual to render the advice. The Company will, if necessary, organise briefing sessions or circulate memoranda to the Directors to enable them to be updated with regulatory changes. The Board also has independent access to the Company Secretary, who provides advices, secretarial support and assistance to the Board and ensures adherence to Board procedures and relevant rules and regulations applicable to the Company. The Company Secretary or her representative attends Board and Board committee meetings.

ROLE OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER (“CEO”) The Chairman and CEO functions in the Company are assumed by Mr Lim Hai Cheok. Notwithstanding that, the Board is currently represented by three Independent Non-Executive Directors and a Non-Executive Director, which constitutes half of the Board seats, the Board is of the view that the balance of power, accountability and capacity of the Board for independent decision making of the Group would not be compromised. The Board will review from time to time the need to separate the roles of the Chairman and CEO if the situation warrants. In addition to the day-to-day operations of the Group, the Chairman cum CEO is also responsible for: •

scheduling meetings that enable the Board to perform its duties responsibly while not interfering with the flow of the Company’s operations;

preparing meeting agenda;

reviewing key proposals before they are presented to the Board for consideration;

exercising control over quality, quantity and timeliness of the flow of information between Management and the Board; and

assisting in ensuring compliance with the Company’s corporate governance guidelines.

HOSEN GROUP LTD ANNUAL REPORT 2010 11


CORPORATE GOVERNANCE

Although the roles of the Chairman and the CEO are not separated, the Board is of the view that there are sufficient safeguards and checks to ensure that the decision making process of the Board is independent and based on collective decision of the Directors, without any individual exercising any considerable concentration of power or influence. Furthermore, all Board committees are chaired by Independent Non-Executive Directors. In this regard, the Board is also of the view that the appointment of a lead independent director is deemed not necessary and would, however, review from time to time, the need to appoint a lead independent director.

BOARD COMMITTEES NOMINATING COMMITTEE The Nominating Committee (“NC”) comprises three members, majority of whom are Independent Non-Executive Directors, as follows: Yeo Boon Siah

(Chairman)

Lim Hai Cheok Wee Piew The NC Chairman is an Independent Non-Executive Director not associated with any substantial shareholder of the Company. The key functions of the NC regulated by its terms of reference are summarised below: • • • • • • •

reviews the structure, size and composition of the Board and to make recommendations to the Board with regards to any adjustment that are deemed necessary; makes recommendations to the Board on all Board appointments and re-appointments, having regard to each individual Director’s contribution and performance; determines the criteria for identifying candidates and to review nominations for new appointments: determines the independence of each Director; determines/proposes the objective performance criteria for the Board’s approval and to review the Board’s performance in terms of the performance criteria; assesses the effectiveness of the Board as a whole and contribution of each Director; and decides whether a Director is able to and has been adequately carrying out his duties as a Director of the Company, particularly when the Director has multiple Board representations.

In accordance with the Company’s Articles of Association, all Directors are required to retire at least once in every three years by rotation and all newly appointed Directors will have to retire at the next Annual General Meeting (“AGM”) following their appointments. The retiring Directors are eligible to offer themselves for re-election. The NC had recommended the re-appointment of the following Directors who will be retiring at the forthcoming AGM: (i)

Lim Kim Eng

(ii)

Ngiam Zee Moey

(iii)

Wee Piew

(iv)

Yeo Boon Siah

12 HOSEN GROUP LTD ANNUAL REPORT 2010


CORPORATE GOVERNANCE

The Board had accepted the NC’s recommendation and accordingly, the above-named Directors will be offering themselves for re-election. The NC had reviewed the independence of each Director for FY2010 in accordance with the Code’s definition of independence and is satisfied that at least one-third of the Board comprise Independent Non-Executive Directors. The NC is satisfied that the adequate time and attention accorded to the Company by the Independent Non-Executive Directors and Non-Executive Director whom have multiple Board representations. Key information of each Director is set out under the section of Board of Directors in this Annual Report. The following table sets out the information of date of appointment and re-election of the Directors:

Name of Director

Date of first appointment

Date of last re-election

Due for re-election at forthcoming AGM

Lim Hai Cheok Chong Poh Soon Lim Kim Eng Lim Hock Chye Daniel Lim Heng Seng Ngiam Zee Moey Wee Piew Yeo Boon Siah

15 March 2004 5 July 2004 5 July 2004 15 March 2004 5 July 2004 17 July 2007 5 July 2004 19 December 2007

29 April 2009 29 April 2010 29 April 2008 29 April 2010 29 April 2009 29 April 2008 29 April 2008 29 April 2008

N.A. N.A. 26 April 2011 N.A. N.A. 26 April 2011 26 April 2011 26 April 2011

The NC also has in place a process to evaluate and assess the effectiveness of the Board as a whole. The Board performance evaluation was carried out to evaluate Board’s composition and size, Board’s access to complete, adequate and timely information as well as Board procedures and accountability. The NC will ensure that Directors appointed to the Board possess the relevant background, experience and knowledge to enable balanced and well-considered decisions to be made. The performance criteria that the NC will consider in relation to an individual Director include the Director’s industry knowledge and/or expertise, time and effort dedicated to the Group’s business and affairs, workload commitments, attendance and participation at the Board and Board committee meetings. Each NC member will abstain from voting on any resolution in respect of the assessment of his performance or renomination as Director.

HOSEN GROUP LTD ANNUAL REPORT 2010 13


CORPORATE GOVERNANCE

REMUNERATION COMMITTEE The Remuneration Committee (“RC”) comprises three members, all of whom are Independent Non-Executive Directors, as follows: Wee Piew

(Chairman)

Lim Heng Seng Yeo Boon Siah The principal function of the RC is to ensure that a formal and transparent set of policies and procedures are in place for determining executive remuneration and for fixing the remuneration packages of each Director and that no Director should be involved in deciding his own remuneration. Other functions of the RC regulated by its set of written terms of reference are summarised below: • recommends to the Board a framework of remuneration for each Director and senior management that are competitive and appropriate to attract, retain and motivate Directors and senior management of the required quality to run the Company successfully; • reviews and determines the specific remuneration packages and terms of employment for each Director and senior management; and • reviews and recommends to the Board on the implementation of any appropriate long term incentive schemes for the Directors and employees of the Group, as appropriate. The RC covers all aspects of remuneration, including but not limited to Directors’ fees, salaries, allowances, bonuses, options, and benefits in kind. In setting remuneration packages, the RC takes into consideration the pay and employment conditions within the industry and in comparable companies, as well as the performance of the Group and the individual. The RC’s recommendations are submitted for the endorsement by the entire Board. The RC also ensures that the performance-related elements of remuneration are designed to align interests of Executive Directors with those of shareholders and tied to corporate and individual performance. The RC has access to professional advice internally or externally on remuneration matters, if required. The RC also reviews and ensures that the service agreements with the Executive Directors will not be excessively long or with onerous removal clauses. Independent Non-Executive Directors and Non-Executive Director have no service agreements with the Company. The Board recommends the quantum of Directors’ fees payable to the Independent Non-Executive Directors and NonExecutive Director based on their contributions and taking into account other factors such as frequency of meetings, effort and time spent as well as responsibilities. Directors’ fees are subject to the approval of the shareholders at AGM. The RC has recommended to the Board an amount of S$120,000 as Directors’ Fees for the year ended 31 December 2010. The Board will table this recommendation at the forthcoming AGM for shareholders’ approval. The remuneration of Executive Directors comprises a basic salary plus variable components tied to individual performance as well as the Group’s performance. The existing service agreements with the Executive Directors which commenced on 16 March 2010 are for a period of 3 years. The service agreement provides for termination by each party, upon giving not less than 6 months’ notice in writing.

14 HOSEN GROUP LTD ANNUAL REPORT 2010


CORPORATE GOVERNANCE

The Company has in place a Hosen Employee Share Option Scheme (the “Scheme”), administrated by the RC. All employees of the Group and Directors (excluding controlling shareholders and their associates) are eligible to participate in the Scheme. Details of the Scheme are disclosed in the Report of Directors of this Annual Report. No grants of share options have been made pursuant to the Scheme during FY2010.

DISCLOSURE ON REMUNERATION Remuneration of Directors A breakdown, showing the level and mix of each Director’s remuneration payable for FY2010, is set out in the following table: Remuneration Bands

Salary & Bonus

Fees

Profit Sharing

Share Option

Other Benefits

Total

%

%

%

%

%

%

62 64

– –

34 33

– –

4 3

100 100

63 54 – – – –

– – 100 100 100 100

37 42 – – – –

– – – – – –

– 4 – – – –

100 100 100 100 100 100

S$250,000 to below S$500,000 Lim Hai Cheok Lim Kim Eng Below S$250,000 Chong Poh Soon Lim Hock Chye Daniel Lim Heng Seng Ngiam Zee Moey Wee Piew Yeo Boon Siah

Remuneration of Key Executives who are not Directors The Group’s top five key executives remuneration for FY2010 are set out below: Remuneration Bands

Salary & Bonus

Profit Sharing

Share Option

Other Benefits

Total

%

%

%

%

%

100 89 35

– – 60

– – –

– 11 5

100 100 100

Below S$250,000 2 executives 1 executive 2 executives

The Company has adopted a remuneration policy for staff comprising a fixed component (in the form of a base salary) and a variable component, which is in the form of a variable bonus that is tied to the Company’s and the individual’s performance. Another element of the variable component is the grant of share options to staff under the Scheme. (All the above remuneration excludes employer’s CPF/EPF contribution portion.)

HOSEN GROUP LTD ANNUAL REPORT 2010 15


CORPORATE GOVERNANCE

Immediate Family Member of Director For FY2010, with the exception of the Executive Directors, there were no employees in the Group who are immediate family members of a Director or the CEO whose remuneration exceeds S$150,000.

AUDIT COMMITTEE The Audit Committee (“AC”) comprises three members, all of whom are Independent Non-Executive Directors, as follows: Wee Piew

(Chairman)

Lim Heng Seng Yeo Boon Siah The Board is of the view that the AC members have adequate accounting and related financial management expertise and experience to discharge the AC’s functions. The key functions of the AC as set out in its terms of reference, include the following: • reviews the audit plans of the external auditors of the Company and the adequacy of the Company’s system of internal controls, the audit reports and management letters issued by the external auditors and the co-operation given by the Company’s Management to the external auditors; • reviews the nature and extent of non-audit services provided by the external auditors; • reviews cost effectiveness and the independence and objectivity of the external auditors; • makes recommendations to the Board on the appointment, re-appointment and removal of external auditors, and to review the remuneration and terms of engagement of the external auditors; • reviews the financial reports so as to ensure the integrity of the financial statements of the Company and focus, in particular, on the changes in accounting policies and practices, major risk areas, significant adjustments resulting from the audit and compliance with financial reporting standards; • reviews announcements of the results, before submission to the Board for approval for release to the SGX-ST; • reviews effectiveness of the Company’s material internal controls, including financial, operational and compliance controls and risk management and review the findings of the internal auditor of the Company; • meets with the external auditors and with internal auditor, separately without the presence of the Management; • reviews interested person transactions in accordance with the requirements as defined in the SGX-ST Rules of Catalist; and • undertakes such other functions, duties, reviews and projects as may be requested by the Board or as may be required by statute or the SGX-ST Rules of Catalist. The AC has explicit authority to investigate any matter within its terms of reference, full access to and co-operation by Management of the Company, and full discretion to invite any Director or executive officer of the Company to attend its meetings. The AC has reasonable resources to enable it to discharge its functions properly. The AC monitors the Company’s compliance with its legal, regulatory and contractual obligations.

16 HOSEN GROUP LTD ANNUAL REPORT 2010


CORPORATE GOVERNANCE

The AC has met with the external auditors and internal auditor to discuss their findings set out in their reports to the AC in relation to the internal controls of the Company. The AC has undertaken a review of all non-audit services provided by the external auditors for FY2010 and is satisfied that such services would not, in the AC’s opinion, affect the independence of the external auditors. The AC has recommended the re-appointment of Messrs BDO LLP as the Company’s auditors at the forthcoming AGM. Annually, the AC meets with the external auditors and internal auditor without the presence of Management.

WHISTLE-BLOWING POLICY AND PROGRAMME (THE “PROGRAMME”) The AC has in place a Programme to allow staff to raise concerns, in confidence, about possible improprieties in matters of financial reporting or other matters. To ensure that independent investigations of such matters are carried out and that appropriate follow-up action is taken, all whistle blowing reports can be sent to any AC member(s). The Programme will be reviewed annually by the Board of Directors of the Company.

INTERNAL CONTROLS AND INTERNAL AUDIT The Board believes in the importance of maintaining a sound system of internal controls to safeguard the shareholders’ investments and the Company’s assets. To achieve this, internal reviews are constantly being undertaken to ensure that the system of internal controls maintained by the Company is sufficient to provide reasonable assurance that the Company’s assets are safeguarded against loss from unauthorised use or disposal, transactions are properly authorised and proper financial records are being maintained. The Board is satisfied that, in the absence of any evidence to the contrary, the system of internal control maintained by the Company, which was in place throughout the financial year and up to the date of this report, provides reasonable, but not absolute, assurance against material financial misstatements or loss, and include the safeguarding of assets, the maintenance of proper accounting records, the reliability of financial information, compliance with appropriate legislation, regulation and best practice, and the identification and containment of business risk. The Board notes that no system of internal control could provide absolute assurance against the occurrence of material errors, poor judgment in decision-making, human error, losses, fraud or other irregularities. The Company has outsourced its internal audit function to an independent accounting firm, UHY Lee Seng Chan & Co. The internal auditor reports its findings directly to the AC. The AC reviews internal auditor’s reports on a yearly basis. The AC also reviews and approves the annual internal audit plans. The AC is satisfied that the internal auditor has the necessary resources to adequately perform its functions. The Internal Auditor has adopted the Standards for the Professional Practice of Internal Auditing set by The Institute of Internal Auditors. To ensure the adequacy of the internal audit function, the AC reviews the internal auditor’s activities annually.

COMMUNICATION WITH SHAREHOLDERS The Company does not practice selective disclosure and the Board is mindful of the obligation to provide timely, effective and fair disclosure of material information to the shareholders.

HOSEN GROUP LTD ANNUAL REPORT 2010 17


CORPORATE GOVERNANCE

Information is communicated to shareholders on a timely basis via SGXNET, with the support by the Management who is accountable to the Board by providing the Board with management accounts that present a balanced and understandable assessment of the Company’s performance, financial position and prospects. The Board provides shareholders with a balanced and understandable assessment of the Company’s performance, financial position and prospects through the Company’s half-year and full-year results announcements, released via SGXNet. Other material information is also released through the SGXNET on a timely basis for dissemination to shareholders and the public in accordance with the requirements of the SGX-ST Rules of Catalist. Annual reports, circulars, and notices of the annual general meetings or extraordinary general meetings are sent to all shareholders of the Company. The notices of general meetings are also advertised in the newspapers. Each item of special business included in the notice of general meeting will be accompanied, where appropriate, by an explanation for the proposed resolution. Issue seeking approval of shareholders, if any, are usually tabled as separate resolutions. The Chairmen of the AC, RC and NC as well as external auditors will be present and available at the AGM to address any queries raised by shareholders. The Company encourages shareholders’ participation at general meetings. Shareholders are given opportunities to express their views and to ask questions or seek clarifications on matters concerning the Group at general meetings. Shareholders can also exercise their right to vote in absentia by the use of proxies.

DEALINGS IN THE COMPANY’S SECURITIES The Company has adopted an internal code governing dealings in securities by the Directors and key officers of the Company and its subsidiaries to provide guidance on dealings in the Company’s securities. In compliance with the SGX-ST Rules of Catalist, the Directors, key officers and staff of the Group have been informed not to deal in the Company’s securities at all times whilst in possession of unpublished material price sensitive information and during the periods commencing one month before the announcement of the Company’s full-year and half-year results until one day after the announcement. The Directors and key officers are also discouraged from dealing in the Company’s securities on shortterm considerations.

INTERESTED PERSON TRANSACTIONS The Company has adopted an internal policy governing procedures for the identification, approval and monitoring of interested person transactions. All interested person transactions are subject to review by the AC. Currently, the Company is not required to make announcement or to have a general mandate from its shareholders relating to interested person transactions, as the aggregate value of the interested person transactions are within the threshold limits set out under Chapter 9 of the SGX-ST Rules of Catalist.

18 HOSEN GROUP LTD ANNUAL REPORT 2010


CORPORATE GOVERNANCE

The aggregate values of interested person transactions entered into during the financial year ended 31 December 2010 were as follows: Name of Interested Person

Aggregate value of all interested person transactions during the financial year under review S$’000

Ampor (Singapore) Pte Ltd (“Ampor”)

708

One of the major shareholders in Ampor is the sister of our Executive Directors, namely Mr Lim Hai Cheok and Ms Lim Kim Eng.

RISK FACTORS AND RISK MANAGEMENT The Group’s risk factors and management are set out in the notes to the financial statements in this Annual Report.

MATERIAL CONTRACTS Save for the service agreements entered into with the Executive Directors, there were no material contracts of the Company, or any of its subsidiaries involving the interests of CEO or any of its Directors or controlling shareholders, during the financial year ended 31 December 2010.

NON-SPONSOR FEE In compliance to Rule 1204(20) of the Rules of Catalist, there was no non-sponsor fee for the year under review.

HOSEN GROUP LTD ANNUAL REPORT 2010 19


FINANCIAL STATEMENTS Report of the Directors 21 Statement by Directors 25 Independent Auditors’ Report 26 Statements of Financial Position 28 Consolidated Statement of Comprehensive Income 29 Statements of Changes in Equity 30 Consolidated Statement of Cash Flows 32 Notes to the Financial Statements 33 Analysis of Shareholdings 82 Notice of Annual General Meeting 84 Proxy Form 89


REPORT OF THE DIRECTORS

The Directors of the Company present their report to the members together with the audited consolidated financial statements of the Group for the financial year ended 31 December 2010 and the statement of financial position of the Company as at 31 December 2010 and the statement of changes in equity of the Company for the financial year ended 31 December 2010.

1.

DIRECTORS

The Directors of the Company in office at the date of this report are:

Lim Hai Cheok

(Chairman and Chief Executive Officer)

Chong Poh Soon

(Executive Director)

Lim Kim Eng

(Executive Director)

Lim Hock Chye Daniel

(Executive Director)

Lim Heng Seng

(Independent Non-Executive Director)

Wee Piew

(Independent Non-Executive Director)

Yeo Boon Siah

(Independent Non-Executive Director)

Ngiam Zee Moey

(Non-Executive Director)

2.

ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES OR DEBENTURES

Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose object is to enable the Directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

3.

DIRECTOR’S INTEREST IN SHARES OR DEBENTURES

According to the register of Directors’ shareholdings kept by the Company for the purposes of Section 164 of the Singapore Companies Act, Cap. 50 (the “Act”), none of the Directors of the Company holding office at the end of the financial year had any interest in the shares or debentures of the Company and its related corporations except as detailed below: Shareholdings registered in name of Directors Balance at 1 January 2010

Balance at 31 December 2010

Shareholdings in which Directors are deemed to have an interest Balance at 1 January 2010

Balance at 31 December 2010

The Company Number of ordinary shares Lim Hai Cheok Chong Poh Soon Lim Kim Eng

50,500,000 61,737,450 10,250,000

50,500,000 64,843,750 13,812,500

76,237,450 65,000,000 4,000,000

79,343,750 65,000,000 4,000,000

HOSEN GROUP LTD ANNUAL REPORT 2010 21


REPORT OF THE DIRECTORS

3.

DIRECTOR’S INTEREST IN SHARES OR DEBENTURES (CONTINUED)

Certain Directors’ holding office as at 31 December 2010 had interest in the warrants by which the Directors were entitled to subscribe for one ordinary share in the capital of the Company for each warrant held, at an exercise price of $0.03 per share. Warrantholdings registered in the name of Directors Balance at 1 January 2010

Warrantholdings in which Directors are deemed to have an interest

Balance at 31 December 2010

Balance at 1 January 2010

Balance at 31 December 2010

The Company Number of warrant to subscribe for ordinary shares Chong Poh Soon Lim Kim Eng Lim Hai Cheok

3,106,300 3,562,500 –

– – –

– – 3,106,300

– – –

By virtue of Section 7 of the Act, Mr. Lim Hai Cheok and Mdm. Chong Poh Soon are deemed to have an interest in all the wholly-owned subsidiaries held by the Company at the beginning and end of the financial year.

In accordance with the continuing listing requirements of the Singapore Exchange Securities Trading Limited (“SGX-ST”), the Directors of the Company state that, according to the register of Directors shareholdings, the Directors’ interests as at 21 January 2011 in the shares of the Company have not changed from those disclosed as at 31 December 2010.

4.

DIRECTORS’ CONTRACTUAL BENEFITS

Since the end of the previous financial year, no Director of the Company has received or become entitled to receive a benefit which is required to be disclosed under Section 201(B) of the Act, 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, except for salaries, bonuses and other benefits as disclosed, in the financial statements. Certain Directors received remuneration from related corporations in their capacity as directors and/or executives of those related corporations as disclosed in Note 29 of the accompanying financial statements.

5.

SHARE OPTIONS

The Company has implemented a share option scheme known as the “Hosen Employee Share Option Scheme” (“ESOS”). The ESOS was approved and adopted by the Shareholders at an Extraordinary General Meeting of the Company held on 5 July 2004. The ESOS is administered by a committee comprising Mr. Lim Heng Seng, Mr. Wee Piew and Mr. Yeo Boon Siah. No share options have been granted under the ESOS.

The ESOS apply to group employees, Executive Directors and Non-Executive Directors, who are not controlling shareholders or their associates.

22 HOSEN GROUP LTD ANNUAL REPORT 2010


REPORT OF THE DIRECTORS

5.

SHARE OPTIONS (CONTINUED)

There were no share options granted by the Company or its subsidiaries during the financial year.

There were no shares issued during the financial year by virtue of the exercise of options to take up unissued shares of the Company or its subsidiaries.

There were no unissued shares under option in the Company or its subsidiaries as at the end of the financial year.

6.

WARRANTS

On 28 June 2007, the Company issued 61,499,987 free detachable warrants in connection with the rights issue to shareholders. Each warrant carries the right to subscribe for one new ordinary share in the capital of the Company at an exercise price of $0.03, exercisable from 28 June 2007 to 25 June 2010.

During the financial year, the Company issued 12,970,646 ordinary shares as a result of the exercise of 12,970,646 (2009: 882,500) warrants. As at 31 December 2009, the number of outstanding warrants was 13,291,787. As at 25 June 2010, 321,141 unconverted warrants were expired and there were no warrants outstanding as at 31 December 2010.

7.

AUDIT COMMITTEE

The Audit Committee comprises the following members, all of whom are Independent Non-Executive Directors. The members of the Audit Committee during the financial year and at the date of this report are:

Wee Piew (Chairman)

Lim Heng Seng

Yeo Boon Siah

The Audit Committee carries out its functions in accordance with Section 201B (5) of the Act and the Code of Corporate Governance, including the review of the following: (a)

the audit plans and results of the internal auditors’ examination and evaluation of the Group’s systems of internal accounting controls;

(b)

the Group’s financial and operating results and accounting policies;

(c)

the financial statements of the Company and the consolidated financial statements of the Group before their submission to the Directors of the Company and external auditors’ report on those financial statements;

(d)

the half-yearly and annual announcements as well as the related press releases on the results and financial position of the Company and the Group;

(e)

the co-operation and assistance given by the management to the Group’s external auditors;

(f)

the re-appointment of the external auditors of the Group; and

(g)

the Interested Person Transactions as defined in Chapter 9 of the Listing Manual of SGX-ST as is required by SGX-ST and ensures that the transactions were on normal commercial terms and not prejudiced to the interests of the members of the Company.

HOSEN GROUP LTD ANNUAL REPORT 2010 23


REPORT OF THE DIRECTORS

7.

AUDIT COMMITTEE (CONTINUED) The Audit Committee confirmed that it has undertaken a review of all non-audit services provided by the external auditors to the Group and is satisfied that the nature and extent of such services would not affect the independence of the external auditors. The Audit Committee has full access to and has the co-operation of the management and has been given the resources required for it to discharge its function properly. It also has full discretion to invite any Director and executive officer to attend its meetings. The external and internal auditors have unrestricted access to the Audit Committee. The Audit Committee has recommended to the Board of Directors the nomination of BDO LLP, for re-appointment as external auditors of the Company at the forthcoming Annual General Meeting.

8.

AUDITORS The auditors, BDO LLP, have expressed their willingness to accept re-appointment.

On behalf of the Board of Directors

Lim Hai Cheok Director

Singapore 25 March 2011

24 HOSEN GROUP LTD ANNUAL REPORT 2010

Chong Poh Soon Director


STATEMENT BY DIRECTORS

In the opinion of the Board of Directors, (a)

the consolidated financial statements of the Group and the statement of financial position and statement of changes in equity of the Company 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 2010, and of the results, changes in equity and cash flows of the Group and changes in equity of the Company for the financial year ended on that date; and

(b)

at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

On behalf of the Board of Directors

Lim Hai Cheok Director

Chong Poh Soon Director

Singapore 25 March 2011

HOSEN GROUP LTD ANNUAL REPORT 2010 25


INDEPENDENT AUDITORS’ REPORT

REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of Hosen Group Ltd. (the “Company”) and its subsidiaries (the “Group”) as set out on pages 28 to 81 which comprise the statements of financial position of the Group and of the Company as at 31 December 2010, and the consolidated statement of comprehensive income, statements of changes in equity of the Group and of the Company and consolidated statement of cash flows for the financial 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, Cap. 50 (the “Act”) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain accountability of assets.

Auditors’ 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 judgement, 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 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.

26 HOSEN GROUP LTD ANNUAL REPORT 2010


INDEPENDENT AUDITORS’ REPORT

Opinion In our opinion, the consolidated financial statements of the Group and the statement of financial position and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2010 and the results, changes in equity and cash flows of the Group and changes in equity of the Company for the financial 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 the subsidiary incorporated in Singapore of which we are the auditors, have been properly kept in accordance with the provisions of the Act.

BDO LLP Public Accountants and Certified Public Accountants

Singapore 25 March 2011

HOSEN GROUP LTD ANNUAL REPORT 2010 27


STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2010

Group

Non-current assets Property, plant and equipment Investments in subsidiaries Available-for-sale financial asset Other receivable Intangible asset Current assets Inventories Financial assets at fair value through profit or loss Trade and other receivables Fixed deposits Cash and bank balances Less: Current liabilities Trade and other payables Bank borrowings Finance lease payables Derivative financial instruments Current income tax payable

2010 $’000

2009 $’000

2010 $’000

2009 $’000

4 5 6 10 7

8,785 – 49 – 41 8,875

9,315 – 49 – 56 9,420

– 9,468 – 8,000 – 17,468

– 9,468 – – – 9,468

8

9,169

12,100

9 10 11 12

21 13,011 1,411 8,965 32,577

22 13,390 8,175 787 34,474

– 9,909 – 314 10,223

– 18,774 – 334 19,108

13 14 15 16

5,735 6,914 45 – 462 13,156 19,421

7,597 7,668 37 2 199 15,503 18,971

627 – – – – 627 9,596

175 – – – – 175 18,933

15 17

121 285 406 27,890

139 376 515 27,876

– – – 27,064

– – – 28,401

18 19 20

28,431 (2,108) (13) 1,580

28,041 (188) (24) 47

28,431 (2,108) – 741

28,041 (188) – 548

27,890

27,876

27,064

28,401

Net current assets Less: Non-current liabilities Finance lease payables Deferred tax liabilities Net assets Capital and reserves Share capital Treasury shares Foreign currency translation account Accumulated profits Equity attributable to owners of the parent

The accompanying notes form an intergral part of these financial statements. 28 HOSEN GROUP LTD ANNUAL REPORT 2010

Company

Note


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

Note

2010 $’000

2009 $’000

21

65,191 (53,464)

62,796 (52,634)

23

11,727 342 (3,094) (4,794) (1,668) (175)

10,162 464 (2,860) (4,377) (1,600) (250)

24 25

2,338 (320)

1,539 (405)

2,018

1,134

Other comprehensive income for the financial year Exchange differences on translating foreign operations Income tax relating to components of other comprehensive income

11 –

(11) –

Other comprehensive income for the financial year, net of tax

11

(11)

Total comprehensive income for the financial year

2,029

1,123

Profit attributable to: Owners of the parent

2,018

1,134

2,029

1,123

0.61 cents

0.33 cents

0.61 cents

0.32 cents

Revenue Cost of sales Gross profit Other income Distribution expenses Administrative expenses Other expenses Finance costs Profit before income tax Income tax expense

22

Profit for the financial year

Total comprehensive income attributable to: Owners of the parent Earnings per share – Basic – Diluted

26

The accompanying notes form an intergral part of these financial statements. HOSEN GROUP LTD ANNUAL REPORT 2010 29


STATEMENTS OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

Equity attributable to owners of the parent

The Group

Note

Share capital

Treasury shares

Foreign currency translation account

$’000

$’000

$’000

28,041

Balance at 1 January 2010 Total comprehensive income for the financial year Dividends

27

Issue of shares

18

– conversion of warrants

(188)

27,876

2,018

2,029

390

(2,108)

Balance at 1 January 2009

27,897

(485)

(485) 390 (1,920)

(13)

1,580

27,890

(13)

(1,087)

26,797

(11)

1,134

1,123

24

24

120

120

(188)

(188)

28,041

(188)

(24)

47

27,876

18

– conversion of warrants – reversal of share issue expenses Purchase of treasury shares

47

28,431

Issue of shares

$’000

11

Balance at 31 December 2010

Total comprehensive income for the financial year

$’000

(1,920)

19

Total

Purchase of treasury shares

(24)

Accumulated profits/ (losses)

19

Balance at 31 December 2009

The accompanying notes form an intergral part of these financial statements. 30 HOSEN GROUP LTD ANNUAL REPORT 2010


STATEMENTS OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

Equity attributable to owners of the parent

The Company

Note

Balance at 1 January 2010 Total comprehensive income for the financial year Dividends

27

Issue of shares

18

– conversion of warrants Purchase of treasury shares

19

Share capital

Treasury shares

Accumulated profits/ (losses)

Total

$’000

$’000

$’000

$’000

28,041

(188)

548

28,401

678

678

(485)

(485)

390

390

(1,920)

(1,920)

Balance at 31 December 2010

28,431

(2,108)

741

27,064

Balance at 1 January 2009

27,897

(2,273)

25,624

2,821

2,821

24

24

120

120

(188)

(188)

(188)

548

28,401

Total comprehensive income for the financial year Issue of shares

– 18

– conversion of warrants – reversal of share issue expenses Purchase of treasury shares Balance at 31 December 2009

19

– 28,041

The accompanying notes form an intergral part of these financial statements. HOSEN GROUP LTD ANNUAL REPORT 2010 31


CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

Note

2010 $’000

2009 $’000

Operating activities: Profit before income tax

2,338

1,539

Adjustments for: Allowance for doubtful trade receivables Write-back of allowance no longer required Allowance for inventory obsolescence Amortisation of intangible asset Depreciation of property, plant and equipment Fair value loss/(gain) on financial assets at fair value through profit or loss Gain on disposal of plant and equipment Interest expense Interest income Plant and equipment written off Foreign exchange gain on forward currency contracts Operating cash flows before working capital changes

250 (6) 236 19 656 1 (43) 175 (11) – (2) 3,613

42 (1) 533 18 482 (8) (102) 250 (13) 6 (32) 2,714

2,695 57 (1,862) 4,503 (66) 11 4,448

(546) 1,660 (784) 3,044 (19) 12 3,037

43 (89) (4) (50)

145 (3,488) (20) (3,363)

390 (46) (1) (1,920) (485) (175) 31,024 (31,329) (2,542)

24 (51) – (188) – (250) 35,225 (34,770) (10)

Working capital changes: Inventories Trade and other receivables Trade and other payables Cash generated from operations Income tax paid Interest received Net cash from operating activities Investing activities Proceeds from disposal of plant and equipment Purchases of property, plant and equipment Purchase of intangible asset Net cash used in investing activities

4

Financing activities Proceeds from issue of shares Repayment of finance lease payables Increase in fixed deposits pledged Purchase of treasury shares Dividends paid Interest paid Proceeds from bank borrowings Repayment of bank borrowings Net cash used in financing activities Net effect of exchange rate changes on consolidation Net change in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year The accompanying notes form an intergral part of these financial statements. 32 HOSEN GROUP LTD ANNUAL REPORT 2010

12

6

(10)

1,862 8,390 10,252

(346) 8,736 8,390


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

These notes form an integral part of and should be read in conjunction with the financial statements.

1.

GENERAL CORPORATE INFORMATION Hosen Group Ltd. (the “Company”) is a public limited company, incorporated and domiciled in Singapore with its principal place of business and registered office at 267 Pandan Loop, Singapore 128439. The Company’s registration number is 200403029E. The principal activity of the Company is investment holding. The principal activities of the subsidiaries are disclosed in Note 5 to the financial statements. The statement of financial position and statement of changes in equity of the Company and the consolidated financial statements of the Company and its subsidiaries (the “Group”) for the financial year ended 31 December 2010 were authorised for issue in accordance with a Directors’ resolution dated 25 March 2011.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1

Basis of preparation of financial statements The financial statements have been drawn up in accordance with the provisions of the Singapore Companies Act, Cap. 50 and Singapore Financial Reporting Standards (“FRS”) including related Interpretations of FRS (“INT FRS”). The financial statements are presented in Singapore dollar and all values are rounded to the nearest thousand ($’000) unless otherwise indicated. The financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below. The individual financial statements of each Group entity are measured and presented in the currency of the primary economic environment in which the entity operates (its functional currency). The consolidated financial statements of the Group and the statement of financial position and statement of changes in equity of the Company are presented in Singapore dollar which is the functional currency of the Company and the presentation currency for the consolidated financial statements. During the financial year, the Group and the Company adopted the new or revised FRS and INT FRS that are relevant to their operations and effective for the current financial year. The adoption of the new or revised FRS and INT FRS did not result in any substantial changes to the Group’s and the Company’s accounting policies and has no material effect on the amounts reported for the current and prior financial years except as discussed below.

HOSEN GROUP LTD ANNUAL REPORT 2010 33


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.1

Basis of preparation of financial statements (Continued) FRS 27 (2009) Consolidated and Separate Financial Statements Changes in the accounting policies resulting from the adoption of FRS 27 (2009) include the following: •

Effects of all transactions with non-controlling interests are to be recorded in equity if there are no changes in control and these transactions will no longer result in goodwill or gains and losses.

In the event where control is lost, any remaining interests in the entity are re-measured to fair value, and a gain or loss is recognised in the profit or loss.

The Group has applied FRS 27 (2009) prospectively to transactions with non-controlling interests from 1 January 2010. There were no transactions with non-controlling interests in the current financial year. Accordingly, the changes do not have any impact on the financial statements for the current financial year.

FRS 103 (2009) Business Combinations Changes in the accounting policies resulting from the adoption of FRS 103 (2009) include the following: •

All considerations given to purchase a business are to be recorded at fair value at the acquisition date, with contingent considerations classified as debt subsequently re-measured through profit or loss if the fair value changes were to take place after the measurement period.

The Group has a choice on an acquisition-by-acquisition basis to measure the non-controlling interests in the acquiree either at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s net assets.

All acquisition-related costs are expensed.

The Group has applied FRS 103 (2009) prospectively to all business combinations taking place from 1 January 2010. Assets and liabilities that arose from business combinations whose acquisition dates are before 1 January 2010 are not adjusted.

34 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.1

Basis of preparation of financial statements (Continued) FRS and INT FRS issued but not yet effective At the date of authorisation of these financial statements, the following FRS and INT FRS were issued but not yet effective: Effective date (Annual periods beginning on or after) FRS 12

: Amendments to FRS 12 Deferred Tax: Recovery of Underlying Assets

1 January 2012

FRS 24

: Related Party Disclosures (Revised)

FRS 32

: Amendment to Financial Instruments: Presentation – Classification of Rights Issues

FRS 101

: Amendments to FRS 101 – Limited Exemption from Comparative FRS 107 Disclosure for First-time Adopters

1 July 2010

: Amendments to FRS 101 Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters

1 July 2011

FRS 107

: Amendments to FRS 107 Disclosures – Transfers of Financial Assets

1 July 2011

INT FRS 114

: Amendments to INT FRS 114 – Prepayments of a Minimum Funding Requirement

1 January 2011

INT FRS 115

: Agreements for the Construction of Real Estate

1 January 2011

INT FRS 119

: Extinguishing Financial Liabilities with Equity Instruments

1 January 2011 1 February 2010

1 July 2010

Consequential amendments were also made to various standards as a result of these new/revised standards. The management anticipates that the adoption of the above FRS and INT FRS in future periods, where applicable, will not have a material impact on the financial statements of the Group and the Company in the period of their initial adoption, except as disclosed below: FRS 24 (2010) Related Party Disclosures FRS 24 (2010) changes certain requirements for related party disclosures for entities under control, joint control or significant influence of a government (“government-related entities”). FRS 24 (2010) also made related party relations symmetrical between each of the related parties and new relationships were included and clarified in the definition of a related party. The Group will apply the amendments to FRS 24 retrospectively for annual periods beginning on or after 1 January 2011 and is currently determining the impact of the changes to the definition of a related party on the related disclosures. As this is a disclosure standard, it will have no impact on the financial position or financial performance of the Group or the Company when implemented in 2011.

HOSEN GROUP LTD ANNUAL REPORT 2010 35


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.2

Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries. Subsidiaries are entities (including special purposes entities) over which the Company has the power to govern the financial operating policies, generally accompanied by a shareholding giving rise to the majority of the voting rights, as to obtain benefits from their activities. Subsidiaries are consolidated from the date on which control is transferred to the Group to the date on which that control ceases. In preparing the consolidated financial statements, intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The financial statements of the subsidiaries are prepared for the same reporting period as that of the Company, using consistent accounting policies. Where necessary, accounting policies of subsidiaries are changed to ensure consistency with the policies adopted by other members of the Group. Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests in the acquiree may be initially measured either at fair value or at the noncontrolling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement basis is made on an acquisition-by-acquisition basis. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the noncontrolling interests having a deficit balance. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investments retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under FRS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or jointly controlled entity. In the Company’s financial statements, investments in subsidiaries are carried at cost less any impairment loss that has been recognised in profit or loss.

36 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.3

Property, plant and equipment Property, plant and equipment are initially recorded at cost less accumulated depreciation and any accumulated impairment losses. The cost of property, plant and equipment includes its purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Dismantlement, removal or restoration costs are included as part of the cost of plant and equipment if the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring or using the plant and equipment. Subsequent expenditure relating to the property, plant and equipment that has already been recognised is added to the carrying amount of the asset when it is probable that the 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 Company, and the cost can be reliably measured. Other subsequent expenditure is recognised as an expense during the financial year in which it is incurred. On disposal of an item of property, plant and equipment, the difference between the net disposal proceeds and its carrying amount is recognised in profit or loss. Depreciation is calculated on a straight-line basis so as to write off the depreciable amount of property, plant and equipment over their estimated useful lives as follows: Years Leasehold land and building Plant and machinery Motor vehicles Office equipment and furnishings Computers Container cabins

60 5 5 5 5 5

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, if there is no certainty that the lessee will obtain ownership by the end of the lease term, the asset shall be fully depreciated over the shorter of the lease term and its useful life. No depreciation is provided for construction-in-progress. Construction-in-progress is transferred to various categories of property, plant and equipment and depreciated in the financial year in which they are available for use. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The residual values, useful life and depreciation method are reviewed, and adjusted as appropriate, at the end of each financial year. Fully depreciated property, plant and equipment are retained in the financial statements until they are no longer in use.

HOSEN GROUP LTD ANNUAL REPORT 2010 37


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.4

Intangible asset

Computer software Computer software is initially capitalised at cost which includes the purchase price (net of any discounts and rebates) and other directly attributable costs of preparing the asset for its intended use. Direct expenditure, which enhances or extends the performance of computer software beyond its specifications and which can be reliably measured, is recognised as a capital improvement and added to the original cost of the software. Costs associated with maintaining the computer software are recognised as an expense as incurred. Computer software is subsequently carried at cost less accumulated amortisation and any impairment losses. Amortisation is calculated on the straight-line method so as to write off the costs of the computer software over their estimated useful lives of five years.

2.5

Impairment of tangible and intangible assets excluding goodwill At the end of each financial year, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount of an asset or cash-generating unit is the higher of its fair value less costs to sell and its value in use. 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. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

2.6

Financial instruments Financial assets and financial liabilities are recognised on the statements of financial position when the Group or the Company becomes a party to the contractual provisions of the instrument.

38 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.6

Financial instruments (Continued) Effective interest method The effective interest method is a method of calculating the amortised cost of a financial instrument and allocating the interest income or expense over the relevant period. The effective interest rate exactly discounts estimated future cash receipts or payments (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial instrument, or where appropriate, a shorter period, to the net carrying amount of the financial instrument. Income and expense are recognised on an effective interest basis for debt instruments other than those financial instruments at fair value through profit or loss. Financial assets All financial assets are recognised on a trade date where the purchase of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. The classification depends on the nature and purpose for which these financial assets were acquired and is determined at the time of initial recognition. Financial assets at fair value through profit or loss (“FVTPL�) Financial assets are classified as FVTPL if the financial asset is either held for trading or is designated as such upon initial recognition. A financial asset is classified as held-for-trading if it has been acquired principally for the purpose of selling in the short term; or if it is part of an identified portfolio of financial instruments with a recent actual pattern of short-term profit-taking and which is managed by the Group; or if it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee contract. A financial asset which is not classified as held-for-trading may be designated as FVTPL upon initial recognition if the financial asset is managed as part of a group of financial instruments, with its performance being evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis. FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset.

HOSEN GROUP LTD ANNUAL REPORT 2010 39


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.6

Financial instruments (Continued) Financial assets (Continued) Loans and receivables Trade and other receivables which have fixed or determinable payments that are not quoted in active market are classified as loans and receivables. Loans and receivables are measured at amortised cost, where applicable, using the effective interest method less impairment. Interest is recognised by applying the effective interest rate method, except for short-term receivables when the recognition of interest would be immaterial. Available-for-sale financial assets (“AFS”) Certain investments held by the Group are classified as AFS if they are not classified in any of the other categories of financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein are recognised directly in the available-for-sale reserve with the exception of impairment losses, interests calculated using the effective interest method and foreign exchange gains and losses. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the available-for-sale reserve is included in profit or loss for the period. Impairment of financial assets Financial assets, other than FVTPL, are assessed for indicators of impairment at the end of each financial year. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amounts of all financial assets are reduced by the impairment loss directly with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss is recognised directly in equity.

40 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.6

Financial instruments (Continued) Financial assets (Continued) Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds receivables. Financial liabilities and equity instruments Classification as debt or equity Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs. When shares recognised as equity are reacquired, the amount of consideration paid is recognised directly in equity. Reacquired shares are classified as treasury shares and presented as a deduction from total equity. No gain or loss is recognised in profit or loss on the purchase, sale issue or cancellation of treasury shares. When treasury shares are subsequently cancelled, the cost of treasury shares are deducted against the share capital account if the shares are purchased out of capital of the Company, or against the retained earnings of the Company if the shares are purchased out of earnings of the Company. Financial liabilities Financial liabilities are classified as other financial liabilities. Other financial liabilities Trade and other payables Trade and other payables are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost, where applicable, using the effective interest rate method, with interest expense recognised on an effective yield basis.

HOSEN GROUP LTD ANNUAL REPORT 2010 41


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.6

Financial instruments (Continued) Financial liabilities and equity instruments (Continued) Borrowings Interest-bearing bank loans and overdrafts are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group’s accounting policy for borrowing costs. Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. Derivative financial instruments The Group enters into forward foreign exchange contracts to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments. The Group does not use derivative financial instrument for speculative purposes. Derivatives are initially recognised at their fair values at the date the derivative contract is entered into and are subsequently re-measured to their fair value at the end of each financial year. Fair value changes on derivatives that do not qualify for hedge accounting are recognised in profit or loss when the changes arise.

2.7

Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value is the estimated selling price at which the inventories can be realised in the ordinary course of business after allowing for the costs of realisation. Allowance is made for obsolete, slow-moving and defective inventories.

2.8

Cash and cash equivalents Cash and cash equivalents comprise cash on hand, cash and deposits with banks and financial institutions. Cash and cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.

2.9

Dividends Equity dividends are recognised when they become legally payable. Interim dividends are recorded in the financial year in which they are declared payable. Final dividends are recorded in the financial year in which the dividends are approved by the shareholders.

2.10

Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is presented, net of rebates, discounts and sales related taxes.

42 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.10

Revenue recognition (Continued) Revenue from the sale of goods is recognised when the Group has transferred to the buyer the significant risks and rewards of ownership of the goods and retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Rental income is recognised on a straight-line basis over the term of the lease. Dividend income is recognised when the shareholders’ right to receive payment has been established. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

2.11

Leases Finance leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the leased assets to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss, unless they are directly attributable to the acquisition, construction of production of qualifying assets, in which case they are capitalised in accordance with the Group’s accounting policy on borrowing costs. Operating leases Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

2.12

Retirement benefit costs Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes, such as the Singapore Central Provident Fund, are dealt with as payments to defined contribution plans where the Group’s obligations under the plans are equivalent to those arising in a defined contribution retirement benefit plan. HOSEN GROUP LTD ANNUAL REPORT 2010 43


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.13

Employee leave entitlement Employee entitlements to annual leave are recognised when they accrue to employees. An accrual is made for estimated liability for unutilised annual leave as a result of services rendered by employees up to the end of the financial year.

2.14

Borrowing costs Borrowing costs are recognised as an expense in profit or loss in the financial year in which they are incurred. Borrowing costs are recognised on a time-proportion basis in profit or loss using the effective interest rate applicable.

2.15

Income tax Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the financial year. Taxable profit differs from profit as reported in profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or tax deductible. The Group’s liability for current tax is calculated using tax rates (and tax laws) that have been enacted or substantively enacted in countries where the Company and subsidiaries operate by the end of the financial year. Deferred tax is recognised on the differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at the end of each financial year and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised based on the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the financial year. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items credited or debited directly to equity, in which case the tax is also recognised directly in equity.

44 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.16

Foreign currencies In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (“foreign currencies”) are recorded at the rates of exchange prevailing on the date of the transaction. At the end of each financial year, monetary items denominated in foreign currencies are re-translated at the rates prevailing at the end of the financial year. Nonmonetary items carried at fair value that are denominated in foreign currencies are re-translated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated. Exchange differences arising on the settlements of monetary items and on re-translating of monetary items are recognised in profit or loss for the financial year. Exchange differences arising on the translation of non-monetary items carried at fair value are recognised in profit or loss for the financial year except for differences arising on the re-translation of non-monetary items in respect of which gains and losses are recognised in other comprehensive income. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations (including comparatives) are expressed in Singapore dollars using exchange rates prevailing at the end of the financial year. Income and expense items (including comparatives) are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised in profit or loss in the period in which the foreign operation is disposed of. On consolidation, exchange differences arising from the translation of the net investment in foreign entities (including monetary items that, in substance, form part of the net investment in foreign entities), and of borrowings and other currency instruments designated as hedges of such investments, are taken to the foreign currency translation reserve.

2.17

Grants Grants are recognised at the fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. Where the grants relate to expenditures, which are not capitalised, the fair value of grants are credited to profit or loss as and when the underlying expenses are included and recognised in profit or loss to match such related expenditures. Where the grant relates to an asset, the fair values of grants are deducted from the cost of the asset in calculating the carrying amount of the asset.

HOSEN GROUP LTD ANNUAL REPORT 2010 45


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.17

Grants (Continued) Government grant – Jobs Credit Scheme The Singapore government introduced a cash grant known as the Jobs Credit Scheme in its Budget for 2009 in a bid to help businesses preserve jobs in the economic downturn. The amounts received for jobs credit are to be paid to eligible employers in 2009 in four payments and the amount an employer can receive would depend on the fulfillment of the conditions as stated in the Scheme. In October 2009, the Government announced that the Jobs Credit Scheme would be extended for half a year with another 2 payments at stepped-down rates in March and June 2010 based on 6% of wages to be paid in March 2010 and 3% of wages to be paid in June 2010. The Group recognises the amounts received for jobs credit at their fair value as other income in the month of receipt of these grants from the government.

2.18

Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the group of executive directors and the chief executive officer who make strategic decisions.

3.

CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group’s accounting policies, which are described in Note 2, management made judgements, estimates and assumptions about the carrying amounts of assets and liabilities that were not readily apparent from other sources. The estimates and associated assumptions were based on historical experience and other factors that were considered to be reasonable under the circumstances. Actual results may differ from these estimates. These estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. 3.1

Critical judgements made in applying the entity’s accounting policies Management is of the opinion that there is no critical judgement (other than those involving estimates) that has a significant effect on the amounts recognised in the financial statements.

46 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

3.

CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED) 3.2

Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the financial year, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (i)

Impairment of investments in subsidiaries At the end of each financial year, an assessment is made on whether there is objective evidence that the investments in subsidiaries are impaired. The management evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its costs and the financial health of and near-term business outlook for the investment, including factors such as industry and sector performance, changes in technology and operational and financing cash flow. The Company’s carrying amount of investments in subsidiaries as at 31 December 2010 was $9,468,000 (2009: $9,468,000).

(ii) Depreciation of property, plant and equipment Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. The management estimates the useful lives of these assets to be within 5 to 60 years. The carrying amount of the Group’s property, plant and equipment as at 31 December 2010 as approximately $8,785,000 (2009: $9,315,000). Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. (iii) Allowance for inventory obsolescence Inventories are stated at the lower of cost and net realisable value. The management primarily determines cost of inventories using the weighted average method. The management estimates the net realisable value of inventories based on assessment of receipt or committed sales prices and provide for excess and obsolete inventories based on historical usage, estimated future demand and related pricing. In determining excess quantities, the management considers recent sales activities, related margin and market positioning of its products. However, factors beyond its contract, such as demand levels, technological advances and pricing competition, could change from period to period. Such factors may require the Group to reduce the value of its inventories. The carrying amount of the Group’s inventories as at 31 December 2010 was approximately $9,169,000 (2009: $12,100,000). (iv) Allowance for doubtful trade receivables and loan The Group and the Company establish allowance for doubtful trade receivables and loan to a third party on a case-by-case basis when it believes the payment of amounts owed is unlikely to occur. In establishing these allowances, the Group and the Company consider its historical experience and changes to its customers’ financial position. If the financial conditions of receivables were to deteriorate, resulting in impairment of their ability to make the required payments, additional allowances may be required. The carrying amounts of the Group’s and the Company’s trade and other receivables as at 31 December 2010 were approximately $13,011,000 (2009: $13,390,000) and $9,909,000 (2009: $18,774,000) respectively.

HOSEN GROUP LTD ANNUAL REPORT 2010 47


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

3.

CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED) 3.2

Key sources of estimation uncertainty (Continued) (v)

Income taxes The Group has exposure to income taxes in numerous jurisdictions. Significant judgement is involved in determining the Group’s and the Company’s provision for income taxes. The Group and the Company recognise expected liabilities for tax based on an estimation of the likely taxes due, which requires significant judgement as to the ultimate tax determination of certain items. Where the actual liability arising from these issues differs from these estimates, such differences will have an impact on income tax and deferred tax provisions in the financial year when such determination is made. The carrying amounts of the Group’s current income tax payable as at 31 December 2010 was approximately $462,000 (2009: $199,000). The carrying amount of the Group’s deferred tax liabilities as at 31 December 2010 was approximately $285,000 (2009: $376,000).

4.

PROPERTY, PLANT AND EQUIPMENT

Group

Leasehold land

Leasehold Plant and building machinery

Motor vehicles

Office equipment and furnishings Computers

Container cabins

Total

$’000

$’000

$’000

$’000

$’000

$’000

$’000

$’000

Cost Balance at 1 January 2010 Additions Disposals Currency realignment

1,104 – – –

7,295 18 – –

397 – – –

1,572 36 (157) 1

866 44 – –

151 19 (1) –

– 8 – –

11,385 125 (158) 1

Balance at 31 December 2010

1,104

7,313

397

1,452

910

169

8

11,353

Accumulated depreciation Balance at 1 January 2010 Depreciation Disposals

397 17 –

694 171 –

68 37 –

711 269 (157)

122 132 –

78 28 (1)

– 2 –

2,070 656 (158)

Balance at 31 December 2010

414

865

105

823

254

105

2

2,568

Carrying amount At 31 December 2010

690

6,448

292

629

656

64

6

8,785

48 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

4.

PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Leasehold land

Leasehold building

Constructionin-progress

Plant and machinery

Motor vehicles

Office equipment and furnishings

$’000

$’000

$’000

$’000

$’000

$’000

Cost Balance at 1 January 2009 Additions Disposals Written off Reclassification Currency realignment

1,104 – – – – –

1,554 – – – 5,741 –

4,044 1,697 – – (5,741) –

47 350 – – – –

1,254 765 (446) – – (1)

309 828 (45) (225) – (1)

157 50 (56) – – –

65 – – (65) – –

8,534 3,690 (547) (290) – (2)

Balance at 31 December 2009

1,104

7,295

397

1,572

866

151

11,385

Accumulated depreciation Balance at 1 January 2009 Depreciation Disposals Written off Currency realignment

389 8 – – –

549 145 – – –

– – – – –

40 28 – – –

935 182 (405) – (1)

288 98 (41) (223) –

112 21 (55) – –

65 – – (65) –

2,378 482 (501) (288) (1)

Balance at 31 December 2009

397

694

68

711

122

78

2,070

Carrying amount At 31 December 2009

707

6,601

329

861

744

73

9,315

Group

Computers

Container cabins

Total

$’000

$’000

$’000

As at the end of the financial year, the Group’s motor vehicles with a net carrying value of approximately $234,000 (2009: $266,000) were purchased under finance lease agreements. Finance lease assets are pledged as securities for the related finance lease payables (Note 15). During the financial year, the Group’s additions to property, plant and equipment were financed as follows: 2010 $’000 Additions to property, plant and equipment Acquired by trade-in Acquired under finance lease agreements Cash payments to acquire property, plant and equipment

2009 $’000

125 – (36)

3,690 (2) (200)

89

3,488

HOSEN GROUP LTD ANNUAL REPORT 2010 49


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

4.

PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Particulars of the property held by the Group are as follows: Location

Description

Tenure

267 Pandan Loop Singapore 128439

Office and warehouse premises with a build-up area of 8,346 sq metres

60 years from 1 October 1989

The Group’s construction-in-progress which was completed in March 2009 was reclassified to leasehold building. The new leasehold building is located at 267 Pandan Loop, Singapore 128439.

5.

INVESTMENTS IN SUBSIDIARIES

Company

Unquoted equity shares, at cost

2010

2009

$’000

$’000

9,468

9,468

Particulars of subsidiaries Name of subsidiary (Country of incorporation)

Held by Company Hock Seng Food Pte Ltd (1) (Singapore) Held by subsidiary Hock Seng Food Pte Ltd Hock Seng Food (M) Sdn Bhd (2) (Malaysia) Hock Seng Food (Shanghai) Co., Ltd. (3) (People’s Republic of China)

50 HOSEN GROUP LTD ANNUAL REPORT 2010

Effective equity held by the Group

Principal activities

2010 %

2009 %

100

100

Import, distribution, wholesale of fast moving consumer goods

100

100

Import, distribution, wholesale of fast moving consumer goods

100

Marketing office cum general wholesale of fast moving consumer goods


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

5.

INVESTMENTS IN SUBSIDIARIES (CONTINUED) Particulars of subsidiaries (Continued) Name of subsidiary (Country of incorporation)

Effective equity held by the Group 2010 %

2009 %

100

Held by subsidiary Hock Seng Food Pte Ltd Hock Seng Distribution Pte Ltd (4) (Singapore)

Principal activities

Liquidated

Notes: Audited by BDO LLP, Singapore Audited by BDO, Malaysia (3) Not audited as there are no operations after incorporation (4) Liquidated (1) (2)

Hock Seng Distribution Pte Ltd The Company’s subsidiary, Hock Seng Distribution Pte Ltd (“HSD”) was placed under members’ voluntary liquidation pursuant to Section 290(1)(b) of the Singapore Companies Act, Cap. 50 on 3 November 2008. The notice for the final meeting had been advertised on 16 February 2009 and the liquidation of HSD was finalised on 16 March 2010. Incorporation of a subsidiary In the current financial year, the Group incorporated a wholly-owned subsidiary, Hock Seng Food (Shanghai) Co., Ltd. (“HSFS”) in the People’s Republic of China (“PRC”) for a cash consideration of US$150,000. HSFS has not commenced operations since the date of incorporation.

6.

AVAILABLE-FOR-SALE FINANCIAL ASSET Group

Unquoted preference share investment, at cost

2010 $’000

2009 $’000

49

49

As the unquoted preference share investment does not have quoted market price in an active market and there are no other available methods to reasonably estimate the fair values, it is not practicable to determine the fair value of the unquoted investment with sufficient reliability. However, the Directors of the Company believe that the carrying amount of the unquoted preference share investment approximates its fair value. Available-for-sale investment is denominated in Singapore dollar.

HOSEN GROUP LTD ANNUAL REPORT 2010 51


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

7.

INTANGIBLE ASSET Computer software Group 2010 $’000

2009 $’000

97 4

77 20

101

97

Accumulated amortisation Balance at beginning of financial year Amortisation for the financial year

41 19

23 18

Balance at end of financial year

60

41

Carrying amount Balance at end of financial year

41

56

Cost Balance at beginning of financial year Additions Balance at end of financial year

Amortisation expense was included in “other expenses” in the consolidated statement of comprehensive income.

8.

INVENTORIES Group

Finished goods and goods for resale Goods-in-transit

2010 $’000

2009 $’000

8,320 849

11,025 1,075

9,169

12,100

The cost of inventories recognised as an expense and included in “cost of sales” in the consolidated statement of comprehensive income amounted to approximately $56,637,000 (2009: $55,763,000). During the financial year, the Group carried out a review of the realisable values of its inventories and the review led to the recognition of an allowance for inventory obsolescence of approximately $236,000 (2009: $533,000) and included in “other expenses” in the consolidated statement of comprehensive income.

52 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

9.

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Group 2010 $’000

2009 $’000

21

22

Quoted equity shares held for trading, at fair value Financial assets at fair value through profit or loss are denominated in Singapore dollar.

10.

TRADE AND OTHER RECEIVABLES (a)

Trade and other receivables – current Group

Company

2010 $’000

2009 $’000

2010 $’000

2009 $’000

10,234 327 2,482

10,920 171 2,070

– – –

– – –

(122)

12,757

13,039

Loan to a third party

2,876

2,876

Allowance for doubtful third party loan

(2,876)

(2,876)

56 185 – – 13

170 96 – – 85

– 5 9,180 720 4

– 10 15,962 2,800 2

13,011

13,390

9,909

18,774

Trade receivables – third parties – a related party – advance payments to suppliers Allowance for doubtful third parties trade receivables

Deposits Prepayments Loan to a subsidiary Dividend receivable from a subsidiary Other receivables

(286)

HOSEN GROUP LTD ANNUAL REPORT 2010 53


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

10.

TRADE AND OTHER RECEIVABLES (CONTINUED) (a)

Trade and other receivables – current (Continued) Movements in allowance for doubtful third party trade receivables: Group 2010 $’000 Balance at beginning of financial year Allowance made during the financial year Bad receivables written off Write-back of allowance no longer required Currency realignment

122 250 (81) (6) 1

Balance at end of financial year

286

2009 $’000 1,146 42 (1,051) (1) (14) 122

Movement in allowance for doubtful third party loan: Group and Company

Balance at beginning of financial year Bad receivables written off Balance at end of financial year

2010 $’000

2009 $’000

2,876 (2,876)

2,876 –

2,876

The trade amounts due from third parties are unsecured, interest-free and repayable within the normal trade credit terms of 30 days (2009: 30 days). The non-trade receivables from third parties are unsecured, interest-free and repayable on demand. The loan to a subsidiary is unsecured and repayable on demand. The loan bears fixed interest rate of 3.8% (2009: 3.8%) per annum. Allowance for doubtful third party trade receivables amounting to approximately $250,000 (2009: $42,000) was recognised in “other expenses” in the consolidated statement of comprehensive income subsequent to a debt recovery assessment performed on receivables. Write-back of allowance for doubtful third party trade receivables no longer required amounting to approximately $6,000 (2009: $1,000) was recognised in “other income” in the consolidated statement of comprehensive income upon collection of these trade receivables.

54 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

10.

TRADE AND OTHER RECEIVABLES (CONTINUED) (a)

Trade and other receivables – current (Continued) Loan to a third party, More Winner Investment Ltd (“More Winner”), a company incorporated in the British Virgin Islands, amounting to $2,876,000 (2009: $2,876,000) was pertaining to the proposed acquisition of 100% equity interest in More Winner. An allowance was provided in the financial year ended 31 December 2008 due to the doubtful recovery of the loan. During the financial year ended 31 December 2010, the loan was deemed to be irrecoverable and subsequently, the loan was fully written off. Trade and other receivables are denominated in the following currencies: Group

Singapore dollar United States dollar Ringgit Malaysia European dollar

(b)

Company

2010 $’000

2009 $’000

2010 $’000

2009 $’000

5,244 3,975 3,750 42

9,077 1,706 2,607 –

9,909 – – –

18,774 – – –

13,011

13,390

9,909

18,774

Other receivable – non-current Company

Other receivable – loan to a subsidiary

2010 $’000

2009 $’000

8,000

The loan to a subsidiary is denominated in Singapore dollar, unsecured and repayable within two years. The loan bears fixed interest rate of 3.8% (2009: 3.8%) per annum. The carrying amount approximates its fair value.

11.

FIXED DEPOSITS Fixed deposits earn interest between 0.19% to 3.0% (2009: 0.04% to 2.5%) per annum and have tenors of approximately 30 to 60 days (2009: 7 to 365 days). As at the end of the financial year, the fixed deposit amounting to approximately $31,000 (2009: $30,000) of the Group is pledged to a bank as security for bank facilities granted to its subsidiary (Note 14).

HOSEN GROUP LTD ANNUAL REPORT 2010 55


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

11.

FIXED DEPOSITS (CONTINUED) Fixed deposits are denominated in the following currencies: Group

Singapore dollar Ringgit Malaysia

12.

2010 $’000

2009 $’000

1,380 31

8,145 30

1,411

8,175

CASH AND BANK BALANCES Cash and bank balances are denominated in the following currencies: Group

Singapore dollar United States dollar Ringgit Malaysia European dollar

Company

2010 $’000

2009 $’000

2010 $’000

2009 $’000

7,688 500 765 12

408 284 81 14

311 3 – –

332 2 – –

8,965

787

314

334

Cash and cash equivalents in the consolidated statement of cash flows comprise the following: Group

Fixed deposits Cash and bank balances Fixed deposits pledged Bank overdrafts

56 HOSEN GROUP LTD ANNUAL REPORT 2010

2010 $’000

2009 $’000

1,411 8,965

8,175 787

10,376 (31) (93)

8,962 (30) (542)

10,252

8,390


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

13.

TRADE AND OTHER PAYABLES Group

Trade payables – third parties – related party – accrued expenses – advance receipts from customers Non-trade payables – Directors of the Company – third parties

Company

2010 $’000

2009 $’000

2010 $’000

2009 $’000

2,746 8 2,576 21

5,333 5 2,000 30

– – 522 –

– – 70 –

105 279

105 124

105 –

105 –

5,735

7,597

627

175

Trade payables are unsecured, non-interest bearing and generally on 30 to 60 days (2009: 30 to 60 days) credit term. The non-trade amounts due to Directors of the Company and third parties are unsecured, interest-free and repayable on demand. Trade and other payables are denominated in the following currencies: Group

Singapore dollar United States dollar Ringgit Malaysia European dollar British pound Others

Company

2010 $’000

2009 $’000

2010 $’000

2009 $’000

3,036 1,494 1,166 9 – 30

6,323 1,068 85 4 64 53

627 – – – – –

175 – – – – –

5,735

7,597

627

175

HOSEN GROUP LTD ANNUAL REPORT 2010 57


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

14.

BANK BORROWINGS Group

Secured Trust receipts Unsecured Bank overdraft Short-term bank loans Trust receipts

2010 $’000

2009 $’000

31

30

93 609 6,181

542 1,417 5,679

6,914

7,668

As at the end of the financial year, the Group has banking facilities as follows: 2010

Bank overdraft Short-term bank loans Foreign exchange contracts Trust receipts

2009

Amounts granted $’000

Amounts utilised $’000

Amounts granted $’000

Amounts utilised $’000

3,886 6,800 12,648 18,947

93 609 731 6,212

3,833 3,400 15,079 14,982

542 1,417 429 5,709

42,281

7,645

37,294

8,097

The weighted average effective interest rates per annum of the borrowings were as follows: Group

Bank overdrafts Short-term bank loans Trust receipts

2010 %

2009 %

6.21 2.02 2.96

2.67 2.70 2.99

Trust receipts are repayable within 120 days (2009: 120 days). Short-term loans are repayable within 1 to 5 months (2009: 1 to 2 months) and are due by January 2011 (2009: January 2010).

58 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

14.

BANK BORROWINGS (CONTINUED) The subsidiaries’ bank overdraft, short-term loans and trust receipts facilities are supported by guarantees given by the Company. As at the end of the financial year, trust receipts amounting to approximately $31,000 (2009: $30,000) of the Group are secured by fixed deposits pledged to a bank (Note 11). Bank borrowings are denominated in the following currencies: Group

Ringgit Malaysia United States dollar Singapore dollar

15.

2010 $’000

2009 $’000

2,487 3,957 470

2,934 629 4,105

6,914

7,668

FINANCE LEASE PAYABLES

Group

Minimum lease payments

2010 Within one financial year After one year but within five financial years

2009 Within one financial year After one year but within five financial years

Present value Future finance of minimum charges lease payments

$’000

$’000

$’000

53 129

(8) (8)

45 121

182

(16)

166

45 151

(8) (12)

37 139

196

(20)

176

The finance lease term was for 5 (2009: 5) years. The average effective interest rate for the finance lease payable was 5.19 to 6.18% (2009: 5.19%) per annum. The Group’s finance lease payables are secured by the lessor’s title to the leased asset. Finance lease payables are denominated in Singapore dollar.

HOSEN GROUP LTD ANNUAL REPORT 2010 59


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

16.

DERIVATIVE FINANCIAL INSTRUMENTS The derivative financial instruments entered into by the Group relate to the forward foreign exchange contracts to hedge the Group’s purchases denominated in United States dollar. Fair value gain arising from the derivative financial instruments of approximately $2,000 (2009: $32,000) is included in “other expenses” in the consolidated statement of comprehensive income.

17.

DEFERRED TAX LIABILITIES Group 2010 $’000

2009 $’000

Balance at beginning of financial year (Credit)/Charge to profit or loss

376 (91)

– 376

Balance at end of financial year

285

376

Deferred tax liabilities of the Group are due to temporary differences arising mainly from accelerated tax depreciation.

18.

SHARE CAPITAL Group and Company

Issued and fully paid: 344,208,200 (2009: 343,385,700) ordinary shares at beginning of financial year Issue of 12,970,646 (2009: 822,500) ordinary shares from conversion of warrants Reversal of share issue expenses 357,178,846 (2009: 344,208,200) ordinary shares at end of financial year

2010 $’000

2009 $’000

28,041

27,897

390 –

24 120

28,431

28,041

The holders of ordinary shares are entitled to receive dividend as and when declared by the Company. All ordinary shares have no par value and carry one vote per share without restriction. During the financial year 2007, the Company issued 123,000,000 ordinary shares at an issue price of $0.05 for each rights share with up to 61,499,987 free detachable warrants. Each warrant carries the right to subscribe for one new ordinary share in the capital of the Company at an exercise price of $0.03 for each new share on the basis of two rights shares with one free detachable warrant for every two existing ordinary shares held by the entitled shareholders. The exercise period commenced on the date of the issue of the warrant which was on 28 June 2007 and the warrant expired on 25 June 2010.

60 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

18.

SHARE CAPITAL (CONTINUED) As at the end of the financial year, there were nil (2009: 13,291,787) outstanding warrants. The Company announced on 27 November 2007 that it had entered into a placement agreement with DBS Vickers Securities (Singapore) Pte Ltd (“Placement Agent”), pursuant to which the Placement Agent will procure subscribers, on a best endeavors basis, for up to an aggregate of 150,000,000 placement share at an issue price of $0.2538 per placement share. The net proceeds of the placement will be used for upgrading and expansion of existing office and warehouse building, working capital, business expansion and potential acquisitions. On 23 July 2008, the Company issued 50,000,000 ordinary shares at a price of $0.138 by way of a private placement, referred to in the preceding paragraph. During the financial year, a sum of $500,000 (2009: $Nil) from the net proceeds of the rights cum warrants issue and private placement was utilised as working capital of the Company and its subsidiary. The balance of approximately $8,100,000 (2009: $8,000,000) from the net proceeds has been placed in fixed deposits and interest bearing current account pending deployment. During the financial year ended 31 December 2009, the share issue costs amounting to $120,000 was reversed from share capital due to the termination of the agreement to place out the balance of 100,000,000 placement shares.

19.

TREASURY SHARES Group and Company 2010 $’000

2009 $’000

Issued and paid up: 1,871,000 (2009: Nil) ordinary shares at beginning of financial year 17,243,000 (2009: 1,871,000) repurchased during the financial year

188 1,920

– 188

19,114,000 (2009: 1,871,000) ordinary shares at end of financial year

2,108

188

The Company acquired 17,243,000 (2009: 1,871,000) of its own shares through purchases on the Singapore Exchange Securities Trading Limited during the financial year by way of on-market purchase. The total amount paid to acquire the shares was approximately $1,920,000 (2009: $188,000) and has been deducted from shareholders’ equity.

HOSEN GROUP LTD ANNUAL REPORT 2010 61


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

20.

FOREIGN CURRENCY TRANSLATION ACCOUNT The foreign currency translation account comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations whose functional currency is different from that of the Group’s presentation currency and is non-distributable.

21.

REVENUE Revenue represents invoiced value of goods sold net of discount and goods and services tax.

22.

OTHER INCOME Group

Rental income Write-back of accrued sales rebate Other income Write-back of allowance for doubtful third party trade receivables no longer required Interest income from banks Gain on disposal of plant and equipment Fair value (loss)/gain on financial assets at fair value through profit or loss Government grant – Jobs credit scheme

2010 $’000

2009 $’000

– 185 65

24 – 128

6 11 43 (1) 33 342

23.

1 13 102 8 188 464

FINANCE COSTS Group

Interest expense – trust receipts – bank overdraft – term loan – finance leases

62 HOSEN GROUP LTD ANNUAL REPORT 2010

2010 $’000

2009 $’000

143 17 5 10

185 28 30 7

175

250


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

24.

PROFIT BEFORE INCOME TAX The above is arrived at after charging/(crediting): Group

Distribution expenses Advertisement Promotion Freight outwards Transport and travelling Delivery outwards Administrative expenses Non-audit fees – other auditors – auditors of the Company Directors’ fees – Directors of the Company Directors’ remuneration – Directors of the Company – directors of the subsidiaries Staff costs – salaries, bonuses and other short-term benefits – employer’s contributions to defined contribution plan Other expenses Depreciation of property, plant and equipment Operating leases – rental of premises Allowance for inventory obsolescence Allowance for doubtful third party trade receivables Foreign exchange loss, net Amortisation of intangible asset Plant and equipment written off Costs in respect of corporate exercise to acquire new shares from a third party Foreign exchange gain on forward currency contracts

2010 $’000

2009 $’000

807 705 410 290 200

426 798 469 311 183

5 6

9 12

120

105

1,149 220

773 18

2,367 242

2,509 278

656 169 236 250 11 19 –

482 238 533 42 96 18 6

36 (2)

(10) (32)

HOSEN GROUP LTD ANNUAL REPORT 2010 63


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

25.

INCOME TAX EXPENSE Group

Current income tax – current financial year – under/(over) provision in prior year – withholding tax Deferred tax – current financial year – (over)/under provision in prior year

2010 $’000

2009 $’000

387 14 10

199 (170) –

411

29

21 (112)

99 277

(91)

376

320

405

Reconciliation of effective income tax rate Group

Profit before income tax Income tax calculated at statutory income tax rate of 17% Tax effect of: – Expenses not deductible for income tax purposes – Income not subject to income tax – Income tax exemption Deferred tax assets not recognised Withholding tax Utilisation of deferred tax assets previously not recognised (Over)/Under provision in prior financial years – current income tax – deferred tax Effect of different income tax rate of subsidiary operating in another jurisdiction Change in unrecognised deferred tax asset Other items

2010 $’000

2009 $’000

2,338

1,539

397

262

119 (57) (26) – 10 (74)

71 – (26) 19 – (21)

14 (112)

(170) 277

59 16 (26)

2 – (9)

320

64 HOSEN GROUP LTD ANNUAL REPORT 2010

405


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

25.

INCOME TAX EXPENSE (CONTINUED) Unrecognised deferred tax assets Group 2010 $’000 Balance at beginning of financial year Utilisation during the financial year Deferred tax assets not recognised in profit or loss Balance at end of financial year

2009 $’000

74 (74) –

76 (21) 19

74

Unrecognised deferred tax assets are attributable to the following: Group

Unutilised tax losses

2010 $’000

2009 $’000

74

The subsidiary in Malaysia has unutilised tax losses carried forward available for set off against future taxable profits amounting to approximately $nil (2009: $294,000) subject to agreement by the tax authority.

26.

EARNINGS PER SHARE Basic earnings per share is calculated by dividing the Group’s profit attributable to owners of the parent by the weighted average number of shares in issue during the financial year. Diluted earnings per share in the financial year was calculated by dividing the Group’s profit attributable to owners of the parent by the weighted average number of shares in issue during the financial year adjusted for the conversion of all dilutive potential shares which arise from the exercise of warrants issued. Group 2010

2009

Earnings per share – Basic

0.61 cents

0.33 cents

– Diluted

0.61 cents

0.32 cents

HOSEN GROUP LTD ANNUAL REPORT 2010 65


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

26.

EARNINGS PER SHARE (CONTINUED) The calculation of the earnings per share is based on: Group 2010 $’000

2009 $’000

2,018

1,134

Weighted average number of fully paid shares in issue (excluding treasury shares) during the financial year applicable to basic earnings per share Effect of dilutive warrants

333,525,380 –

341,774,040 13,761,787

Adjusted weighted average number of fully paid shares in issue (excluding treasury shares) during the financial year applicable to diluted earnings per share

333,525,380

355,535,827

Profit after income tax attributable to owners of the parent

27.

DIVIDENDS Group and Company

First and final tax exempt dividend of 0.138 cents (2009: Nil cents) per ordinary share paid in respect of the previous financial year

2010 $’000

2009 $’000

485

The Directors of the Company propose a final tax exempt dividend of 0.20 cents (2009: 0.138 cents) per share or a total of approximately $676,000 (2009: $485,000) in respect of the current financial year ended 31 December 2010. This dividend is subject to approval by shareholders at the next annual general meeting and has not been recognised as a liability in these financial statements.

66 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

28.

CONTINGENT LIABILITIES AND COMMITMENTS 28.1

Capital commitments As at the end of the financial year, the following capital commitments were contracted but not provided for in the financial statements: Group

Purchases of plant and machinery Investments in subsidiaries

Company

2010 $’000

2009 $’000

2010 $’000

2009 $’000

– –

119 –

– 600

– –

Investments in subsidiaries refer to capital committed to incorporate two wholly-owned subsidiaries after the end of the financial year as disclosed in Note 34 to the financial statements. 28.2

Operating lease commitments

When the Group is a lessee As at the end of the financial year, commitments in respect of non-cancellable operating leases in respect of office premises are as follows:

Future minimum lease payments payable: Within one financial year After one financial year but within five financial years After five financial years

2010 $’000

2009 $’000

394 357 2,472

166 403 2,545

3,223

3,114

The operating lease commitments are based on existing rates. The lease agreements provide a periodic revision of such rates in the future. The lease is for a period of 60 years.

HOSEN GROUP LTD ANNUAL REPORT 2010 67


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

28.

CONTINGENT LIABILITIES AND COMMITMENTS (CONTINUED) 28.3

Forward foreign exchange contracts The Group enters into forward to sell United States dollar and European dollar contracts to manage its currency risk on foreign currency denominated purchases. As at the end of the financial year, the Group’s outstanding forward exchange contracts are as follows: Group 2010

United States dollar European dollar

2009

Notional amount ’000

Weighted average forward rates $’000

Notional amount ’000

Weighted average forward rates $’000

510 40

659 72

305 –

429 –

731

429

Net mark-to-market loss on these outstanding forward contracts of approximately $2,000 was recognised in the previous financial year. No mark-to-market loss was recognised on these outstanding forward contracts in the current financial year as it is insignificant to the Group. 28.4

Contingent liabilities As at the end of the financial year, the Company had contingent liabilities in respect of guarantees given to banks by the Company on behalf of subsidiaries for banking facilities granted amounting to approximately $25,840,000 (2009: $30,457,000) of which $7,645,000 (2009: $8,097,000) was utilised as at the end of the financial year. The Company has issued corporate guarantees to banks for bank facilities granted to its subsidiaries. These guarantees are financial guarantee contract as they require the Company to reimburse the banks if the subsidiaries fail to make principal or interest payments when due in accordance with the term of the facilities drawn. The financial guarantees have not been recognised in the financial statements of the Company as the requirements to reimburse are remote.

29.

SIGNIFICANT RELATED PARTY TRANSACTIONS For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. In addition to the related parties information disclosed elsewhere in the financial statements, the following were significant related party transactions during the financial year.

68 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

29.

SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED) Group

With related party Sales to related party Purchases from related party

2010 $’000

2009 $’000

686 22

522 26

Company

With subsidiaries Loan to subsidiaries Repayment of loan by subsidiaries Interest income received from subsidiaries Management income receivable from subsidiaries Dividend income receivable from a subsidiary

2010 $’000

2009 $’000

– 1,872 290 – 720

200 900 301 120 2,800

Compensation of directors and key management personnel The remuneration of directors and other members of key management during the financial year are as follows: Group

Salaries, bonuses and other short-term benefits Employer’s contributions to defined contribution plan Directors’ fees Analysed into: – Directors of the Company – directors of the subsidiaries – other key management personnel

2010 $’000

2009 $’000

1,514 69 120

866 36 105

1,703

1,007

1,269 220 214

878 18 111

1,703

1,007

The remuneration of directors and key management are determined by the remuneration committee having regard to the performance of individuals and market trends.

HOSEN GROUP LTD ANNUAL REPORT 2010 69


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

30.

SEGMENT INFORMATION Management has determined the operating segments based on the reports reviewed by the chief operating decision maker (Note 2.18). Management considers the business from a business segment perspective. Management manages and monitors the business in these business segments. The Group’s reportable segments are strategic business units that are organised based on their function and targeted customer groups. They are managed separately because each business unit requires different skill sets and marketing strategies. A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Segment information is presented in respect of the Group’s business and geographical segments. The primary format of business segments is based on the Group’s management and internal reporting structure. Management monitors the operating results of the segments separately for the purpose of making decisions about resources to be allocated and of assessing performance. Segment performance is evaluated based on operation profit or loss which is similar to the accounting profit or loss. Income taxes are managed by the management of respective entities within the Group. The accounting policies of the operating segments are the same of those described in the summary of significant accounting policies. There is no asymmetrical allocation to reportable segments. Management evaluates performance on the basis of profit or loss from operation before tax expense not including nonrecurring gains and losses and foreign exchange gains or losses. There is no change from prior periods in the measurement methods used to determine reported segment profit or loss. The Group accounts for intersegment sales and transfer as if the sales or transfers were to third parties, which approximate market prices. These intersegment transactions are eliminated on consolidation. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total costs incurred during the financial year to acquire segment assets that are expected to be used for more than one financial year. The Group is primarily engaged in two reportable segments, namely, house brands and non-house brands. Principal activities of each business segment are as follows: House brands

– Development, trading and distribution of canned seafood, canned fruits and vegetables and canned meat products.

Non-house brands – Importation, distribution, wholesaling and retailing of household consumable goods. Segment revenue and expense are the operating revenue and expense reported in the Group’s consolidated statement of comprehensive income that are directly attributable to a segment and the relevant portion of such revenue and expense that can be allocated on a reasonable basis to a segment.

70 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

30.

SEGMENT INFORMATION (CONTINUED) House brands $’000

Non-house brands $’000

Total $’000

2010 External revenue Inter-segment revenue

34,591 2,562

30,600 721

65,191 3,283

Total revenue

37,153

31,321

68,474

7 (136) (315) (10)

4 (39) (341) (9)

11 (175) (656) (19)

(119) (123) 1,133

(131) (113) 1,756

(250) (236) 2,889

19,332 77

11,467 48

30,799 125

8,474

3,990

12,464

Interest income Interest expense Depreciation of property, plant and equipment Amortisation of intangible assets Other non cash items: Allowance for doubtful third party trade receivables Allowance for inventory obsolescence Segment profit Assets Segment assets Capital expenditure Liabilities Segment liabilities Reconciliations of reportable segment revenues, profit or loss, assets and liabilities Revenues Total revenues for reportable segments Elimination of inter-segment revenues

68,474 (3,283)

Total external revenues

65,191

Profit or loss Total segment profit Unallocated corporate expenses Other expenses

2,889 (318) (233)

Profit before income tax

2,338

Assets Segment assets Elimination of receivables from corporate office Other unallocated assets

30,799 (17,901) 28,554

Total assets

41,452

Liabilities Segment liabilities Other unallocated amounts

12,464 1,098

Total liabilities

13,562 HOSEN GROUP LTD ANNUAL REPORT 2010 71


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

30.

SEGMENT INFORMATION (CONTINUED) House brands $’000

Non-house brands $’000

Total $’000

2009 External revenue Inter-segment revenue

30,350 1,797

32,446 1,068

62,796 2,865

Total revenue

32,147

33,514

65,661

Interest income Interest expense Depreciation of property, plant and equipment Amortisation of intangible assets

6 (156) (211) (8)

7 (94) (271) (10)

13 (250) (482) (18)

Other non cash items: Allowance for doubtful third party trade receivables Allowance for inventory obsolescence Segment profit

(38) (242) 476

(4) (291) 1,454

(42) (533) 1,930

16,175 1,732

18,535 1,958

34,710 3,690

7,700

6,052

13,752

Assets Segment assets Capital expenditure Liabilities Segment liabilities Reconciliations of reportable segment revenues, profit or loss, assets and liabilities Revenues Total revenues for reportable segments Elimination of inter-segment revenues

65,661 (2,865)

Total external revenues

62,796

Profit or loss Total segment profit Unallocated corporate expenses

1,930 (391)

Profit before income tax

1,539

Assets Segment assets Elimination of receivables from corporate office Other unallocated assets

34,710 (18,762) 27,946

Total assets

43,894

Liabilities Segment liabilities Other unallocated amounts

13,752 2,266

Total liabilities

16,018

72 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

30.

SEGMENT INFORMATION (CONTINUED) Geographical information Revenues from external customers and location of non-current assets The revenue information by geographical areas is based on the location of customers. The non-current assets are based on the location of those assets.

Revenue Singapore Malaysia Others *

Non-current assets Singapore Malaysia

2010 $’000

2009 $’000

32,168 13,565 19,458

32,814 11,738 18,244

65,191

62,796

8,820 55

9,390 30

8,875

9,420

Non-current assets consists of property, plant and equipment, available-for-sale financial asset and intangible asset. * “Others” includes countries in Africa, Europe and Asia other than Malaysia and Singapore. There are no customers contributing more than 10 percent to the revenue of the Group.

31.

FINANCIAL INSTRUMENTS AND FINANCIAL RISKS The Group’s activities expose it to credit risks, market risks (including foreign currency risks and interest rates risks) and liquidity risk. The Group’s overall risk management strategy seeks to minimise adverse effects from the volatility of financial markets on the Group’s financial performance. The Board of Directors is responsible for setting the objectives and underlying principles of financial risk management for the Group. The Group’s management then establishes the detailed policies such as risk identification and measurement, exposure limits and hedging strategies, in accordance with the objectives and underlying principles approved by the Board of Directors. 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. If necessary, market risk exposures are measured using sensitivity analysis indicated below.

HOSEN GROUP LTD ANNUAL REPORT 2010 73


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

31.

FINANCIAL INSTRUMENTS AND FINANCIAL RISKS (CONTINUED) 31.1

Credit risks Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in a loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group performs ongoing credit evaluation of its counterparties’ financial condition and generally do not require a collateral. The Group does not have any significant credit exposure to any single counterparty or any group of counterparties having similar characteristics. The Company has significant credit exposure arising from the non-trade amounts due from a subsidiary amounting to approximately $17,180,000 (2009: $15,962,000) as at the end of the financial year. The carrying amount of financial assets recorded in the financial statements, grossed up for any allowances for losses, represents the Group’s maximum exposure to credit risk. The Group and Company do not hold any collateral. The Group’s and Company’s major classes of financial assets are bank deposits and trade receivables. Bank deposits are deposits placed with reputable banks with minimal risk of default. Trade receivables that are neither past due or impaired are substantially companies with good collection track record with the Group. As at end of the financial year, the Group’s trade receivables amounting to approximately $4,000 (2009: $742,000) would have been either past due or impaired if the terms were not renegotiated during the financial year. Analysis of trade receivables: Group

Not past due and not impaired Past due but not impaired *

2010 $’000

2009 $’000

11,834 1,209

11,400 1,761

13,043

13,161

Impaired receivables – individually assessed ** – Customer no longer in operations – Past due more than 12 months and no response to repayment demands

(3)

(67)

(283)

(55)

Allowance for impairment loss

(286)

(122)

Total trade receivables

12,757

* These amounts are stated before any deduction for impairment losses. ** These receivables are not secured by any collateral or credit enhancements.

74 HOSEN GROUP LTD ANNUAL REPORT 2010

13,039


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

31.

FINANCIAL INSTRUMENTS AND FINANCIAL RISKS (CONTINUED) 31.1

Credit risks (Continued) The age analysis of trade receivables which were past due but not impaired are as follows: Group

Past due less than 3 months Past due 3 months to 6 months Past due 6 months to 12 months Past due more than 12 months

31.2

2010 $’000

2009 $’000

1 1,204 4 –

484 535 730 12

1,209

1,761

Market risks Foreign currency risks Foreign currency risk arises from transactions and balances that are denominated in currencies other than the functional currency of the entities within the Group. The currencies giving rise to this risk are primarily United States dollar, Singapore dollar, Ringgit Malaysia, British pound and European dollar. Exposure to foreign currency risk is monitored on an on-going basis to ensure that the net exposure is at an acceptable level and hedging through currency forward exchange contracts is done where appropriate. As at the end of the financial year, the carrying amounts of monetary assets and monetary liabilities denominated in currencies other than the functional currency of the entities within the Group are disclosed in the respective notes to the financial statements. 2010 $’000

2009 $’000

Group Monetary assets United States dollar Ringgit Malaysia European dollar

4,475 1,294 54

2,599 1 14

Monetary liabilities United States dollar British pound Singapore dollar Ringgit Malaysia European dollar

5,451 – 655 45 9

1,697 64 499 27 4

HOSEN GROUP LTD ANNUAL REPORT 2010 75


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

31.

FINANCIAL INSTRUMENTS AND FINANCIAL RISKS (CONTINUED) 31.2

Market risks (Continued) Foreign currency risks (Continued) The Company does not have significant amounts of monetary assets and liabilities denominated in currencies other than its functional currency. Accordingly, the Company is not exposed to significant foreign currency risk. The Company has an investment in a foreign subsidiary, whose net assets are exposed to foreign exchange translation risk. Foreign currency sensitivity analysis The following table details the sensitivity to a 10% increase and decrease in the relevant foreign currencies against the functional currency of the entities within the Group. The 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents the management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the end of the financial year for a 10% (2009: 10%) change in foreign currency rates. Group Profit or Loss 2010 $’000 Singapore dollar strengthens against – United States dollar – British pound – Ringgit Malaysia – European dollar

2009 $’000

(98) – 125 5

90 (6) (3) 1

32

82

(65)

(50)

Ringgit Malaysia strengthens against – Singapore dollar

A 10% (2009: 10%) decrease in the relevant foreign currency against the functional currency of the entities within the Group would have an equal but opposite effect, assuming that all other variables remain constant.

76 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

31.

FINANCIAL INSTRUMENTS AND FINANCIAL RISKS (CONTINUED) 31.2

Market risks (Continued) Interest rate risk The Group’s exposure to market risk for changes in interest rates relates primarily to interest-bearing bank borrowings as shown in Note 14 to the financial statements. The Group’s profit or loss and equity are not affected by the changes in interest rates as the interest bearing instruments carry fixed interest and are measured at amortised cost. The Group’s exposure to interest rates risks is set out in a table below under liquidity risk. Equity price risk The Group is exposed to equity risks arising from equity investments classified as financial assets at fair value through profit or loss. Further details of these equity investments can be found in Note 9 to the financial statements. The Group’s exposure to equity price fluctuations is insignificant. Hence, no sensitivity analysis is disclosed.

31.3

Liquidity risks Liquidity risks refer to the risks in which the Group encounters difficulties in meeting its short-term obligations. Liquidity risks are managed by matching the payment and receipt cycle. The table below analyses the maturity profile of the Group’s and Company’s financial assets and liabilities based on contractual undiscounted cash flows. The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities. The table includes both interest and principal cash flows.

HOSEN GROUP LTD ANNUAL REPORT 2010 77


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

31.

FINANCIAL INSTRUMENTS AND FINANCIAL RISKS (CONTINUED) 31.3

Liquidity risks (Continued) Interest rate risk and contractual maturity analysis Effective interest rate

Less than 1 year

2 to 5 years

Total

%

$’000

$’000

$’000

5,735

5,735

2.02 – 6.21

6,967

129

7,096

12,702

129

12,831

7,597

7,597

2.67 – 2.99

7,713

151

7,864

15,310

151

15,461

The Group Financial liabilities Non-interest bearing Interest bearing, variable interest rate As at 31 December 2010 Non-interest bearing Interest bearing, variable interest rate As at 31 December 2009 The Company Financial liabilities Non-interest bearing as at 31 December 2010

627

627

Non-interest bearing as at 31 December 2009

175

175

The Group’s operations are financed mainly through equity, accumulated profits and bank borrowings. Adequate lines of credit are maintained to ensure the necessary liquidity is available when required. The repayment terms of the bank borrowings are disclosed in Note 14 to the financial statements.

78 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

32. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES Financial instruments carried at fair value Derivative financial instruments comprising the fair value of forward foreign exchange contracts of approximately $Nil (2009: $2,000) is determined using forward exchange market rates at the end of financial year (Level 1 of fair value hierarchy). Financial instruments whose carrying amount approximate fair value The carrying amounts of trade and other receivables, cash and cash equivalents, trade and other payables and bank borrowings approximate their respective fair value due to the relative short term maturity of these financial instruments. As disclosed in Note 9 to the financial statements, the carrying amounts of financial assets at fair value through profit or loss approximate their fair values as they are made reference to their market values.

33.

CAPITAL MANAGEMENT POLICIES AND OBJECTIVES The Group manages its capital to ensure that it is able to continue as a going concern and maintains an optimal capital structure so as to maximise shareholder value. The gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as total liabilities (excluding current income tax payable, derivative financial instruments and deferred tax liabilities) less cash and cash equivalents. Total capital is calculated as equity plus net debt. The Group and the Company are not subject to any externally imposed capital requirements for the financial years ended 31 December 2010 and 2009. The Group’s management reviews the capital structure on a semi-annual basis. As part of this review, management considers the cost of capital and the risks associated with each class of capital. Upon review, the Group will balance its overall capital structure through the payment of dividends and new share issues as well as the issue of new debt or the redemption of existing debt, if necessary. The Group’s overall strategy remains unchanged from the financial year ended 31 December 2009.

HOSEN GROUP LTD ANNUAL REPORT 2010 79


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

33.

CAPITAL MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED) Group 2010 $’000

2009 $’000

2010 $’000

2009 $’000

Net debt/(cash) Total equity

2,439 27,890

6,479 27,876

313 27,064

(159) 28,401

Total capital

30,329

34,355

27,377

28,242

8%

19%

1%

Gearing ratio

34.

Company

EVENTS SUBSEQUENT TO THE REPORTING PERIOD Subsequent to the end of the financial year, a)

the Group incorporated 2 wholly-owned subsidiaries as follows: •

Health Domain Pte. Ltd. was incorporated on 19 January 2011 by the Company in Singapore with a paid-up capital of $1, providing the Group an opportunity to enter into the wholesale, trading, import and export of healthcare, wellness and nutrition food products and beverages. Subsequently on 22 March 2011, the Company invested an additional paid-up capital in cash of $99,999.

Arenas Seafood Pte. Ltd. was incorporated on 21 January 2011 by the Company in Singapore with a paid-up capital of $1, providing the Group an opportunity to enter into the frozen food and related business products. Subsequently on 22 March 2011, the Company invested an additional paid-up capital in cash of $499,999.

b)

The Company purchased 10,754,000 of its own shares for a total consideration of approximately $1.4m by way of on-market purchase. The shares were held as treasury shares.

Earnings per share after adjusting for the above transaction would be 0.63 cents. These earnings per share are calculated by dividing the Group’s profit attributable to owners of the parent of approximately $2,018,000 by the weighted average number of fully paid shares in issue (excluding treasury shares) of 322,771,380.

c)

On 26 January 2011, the Company entered into an option agreement to purchase a factory located at 15 Jalan Tepong, #02-01 Singapore 619336 for a consideration of $515,000 for the use by its newly incorporated subsidiary, Arenas Seafood Pte. Ltd.

80 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2010

35.

COMPARATIVE FIGURES Reclassifications Certain reclassifications have been made to the comparative information in the consolidated statement of comprehensive income to conform with current year’s presentation in order to better reflect the nature of such balances. These reclassifications do not have any impact on the Company’s financial position or results. The following reclassifications were made: 31 December 2009 Consolidated Statement of Comprehensive Income Other expenses Costs in respect of corporate exercise to acquire new shares from a third party

As previously reported $’000

Reclassifications $’000

As reclassified $’000

(1,610)

10

(1,600)

10

(10)

HOSEN GROUP LTD ANNUAL REPORT 2010 81


ANALYSIS OF SHAREHOLDINGS

SHAREHOLDERS’ INFORMATION AS AT 15 MARCH 2011 No of shares issued (Excluding treasury shares ) : 327,310,846 Number/percentage of treasury shares

: 29,868,000 (9.13%)

Class of shares

: ordinary share

Voting rights

: 1 vote per share

Size of Shareholdings 1 - 999 1,000 - 10,000 10,001 - 1,000,000 1,000,001 and Above Total

Number of Shareholders

%

Number of Shares

%

158 317 574 26

14.70 29.49 53.39 2.42

40,290 1,804,807 54,466,253 270,999,496

0.01 0.55 16.64 82.80

1,075

100.00

327,310,846

100.00

SUBSTANTIAL SHAREHOLDERS AS AT 15 MARCH 2011 (EXCLUDING TREASURY SHARES)

Chong Poh Soon Lim Hai Cheok Lim Kim Eng

Direct Interest

%

Deemed Interest

%

64,843,750 50,500,000 16,812,500

19.81 15.43 5.14

65,000,000 79,343,750 1,000,000

19.86 24.24 0.31

(i) Mr Lim Hai Cheok and Mdm Chong Poh Soon are spouses. Both Mr Lim and Mdm Chong are deemed interested in the shares held by their spouse. (ii) Mr Lim Hai Cheok has a beneficial interest held in 14,500,000 shares registered in the name of SBS Nominees Pte Ltd. (iii) Ms Lim Kim Eng has a beneficial interest held in 1,000,000 shares registered in the name of Citibank Consumer Nominees Pte Ltd.

82 HOSEN GROUP LTD ANNUAL REPORT 2010


ANALYSIS OF SHAREHOLDINGS

TOP TWENTY SHAREHOLDERS AS AT 15 MARCH 2011

Chong Poh Soon Lim Hai Cheok Raffles Nominees (Pte) Limited Hong Leong Finance Nominees Pte Ltd Lim Kim Eng SBS Nominees Pte Ltd Kim Eng Securities Pte.Ltd. Chee Sin Kong OCBC Securities Private Ltd Lim Mei Yan Jane Ye Meiying DBS Vickers Securities (S) Pte Ltd Citibank Nominees S’pore Pte Ltd Nomura Singapore Limited Wang Liling Chia Gek Hoong Angeline Chong Yew Kee Poh Leh Din Chan Ah Poh Cheng Wing Kit

NO. OF SHARES

%

64,843,750 50,500,000 43,946,000 19,760,000 16,812,500 14,500,000 12,290,800 5,343,000 5,019,845 4,293,000 3,610,000 3,052,001 3,000,000 3,000,000 2,677,000 2,516,000 2,025,500 2,005,000 1,810,500 1,755,500

19.81 15.43 13.43 6.04 5.14 4.43 3.75 1.63 1.53 1.31 1.10 0.93 0.92 0.92 0.82 0.77 0.62 0.61 0.55 0.54

262,760,396

80.28

PERCENTAGE OF SHAREHOLDING IN PUBLIC’S HANDS As at 15 March 2011, approximately 54.88% of the Company’s shares (excluding treasury shares) are held in the hands of the public. Accordingly, the Company has complied with Rule 723 of the Rules of Catalist.

HOSEN GROUP LTD ANNUAL REPORT 2010 83


NOTICE OF ANNUAL GENERAL MEETING

HOSEN GROUP LTD (Incorporated In Singapore) (Co. Reg. No: 200403029E)

NOTICE IS HEREBY GIVEN that the Annual General Meeting of HOSEN GROUP LTD. (the “Company”) will be held at 267 Pandan Loop Singapore 128439 on Tuesday, 26 April 2011 at 11.30 am for the following purposes:

AS ORDINARY BUSINESS 1.

To receive and adopt the Directors’ Report and the Audited Accounts of the Company for the year ended 31 December 2010 together with the Auditors’ Report thereon.

2.

(Resolution 1) To declare a first and final one-tier tax exempt dividend of 0.2 cent per ordinary share for the year ended 31 December 2010 (2009: 0.138 cent per ordinary share).

3.

(Resolution 2) To re-elect the following Directors retiring by rotation pursuant to Article 104 of the Company’s Articles of Association: Ms Lim Kim Eng

(Resolution 3)

Mr Ngiam Zee Moey

(Resolution 4)

Mr Wee Piew

(Resolution 5)

Mr Yeo Boon Siah

(Resolution 6)

Mr Wee Piew will, upon re-election as a Director of the Company, remain as Chairman of the Audit Committee and will be considered independent for the purposes of Rule 704(7) of the Singapore Exchange Securities Trading Limited (“SGX-ST”) Listing Manual Section B : Rules of Catalist (“Catalist Rules”). Mr Yeo Boon Siah will, upon re-election as a Director of the Company, remain a member of the Audit Committee and will be considered independent for the purposes of Rule 704(7) of the Catalist Rules. 4.

To approve the payment of Directors’ fees of S$120,000 for the year ended 31  December  2010 (2009: S$105,000).

5.

(Resolution 7) To re-appoint BDO LLP as the Company’s Auditors and to authorise the Directors to fix their remuneration.

6.

(Resolution 8) To transact any other ordinary business which may properly be transacted at an Annual General Meeting.

84 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTICE OF ANNUAL GENERAL MEETING

HOSEN GROUP LTD (Incorporated In Singapore) (Co. Reg. No: 200403029E)

AS SPECIAL BUSINESS To consider and if thought fit, to pass the following resolutions as Ordinary Resolutions, with or without any modifications: 7.

Share Issue Mandate That pursuant to Section 161 of the Companies Act, Cap. 50 and Rule 806 of the Catalist Rules, authority be given to the Directors of the Company to issue shares (“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 and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into Shares at any time and upon such terms and conditions and to such persons as the Directors may, in their absolute discretion, deem fit provided that:  (a)

the aggregate number of Shares (including Shares to be issued in pursuance of Instruments made or granted pursuant to this Resolution) does not exceed one hundred percent (100%) of the total number of issued shares (excluding treasury shares) in the capital of the Company at the time of the passing of this Resolution, of which the aggregate number of Shares and convertible securities to be issued other than on a pro-rata basis to all shareholders of the Company shall not exceed fifty percent (50%) of the total number of issued shares (excluding treasury shares) in the capital of the Company;

 (b)

for the purpose of determining the aggregate number of Shares that may be issued under subparagraph (a) above, the total number of issued shares (excluding treasury shares) shall be based on the total number of issued shares (excluding treasury shares) of the Company as at the date of the passing of this Resolution, after adjusting for: (i) 

new shares arising from the conversion or exercise of convertible securities;

(ii)  new shares arising from exercising share options or vesting of share awards outstanding or subsisting at the time this Resolution is passed; and (iii)  any subsequent bonus issue, consolidation or subdivision of Shares; (c)

in exercising the authority conferred by this Resolution, the Company shall comply with the requirements imposed by the SGX-ST from time to time and the provisions of the Catalist Rules for the time being in force (in each case, unless such compliance has been waived by the SGX-ST), all applicable legal requirements under the Companies Act, Cap. 50 and otherwise, the Articles of Association of the Company; and

(d)

unless revoked or varied by the Company in general meeting, such authority shall continue in force until the conclusion of the Company’s next Annual General Meeting 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 Explanatory Note (i)]

(Resolution 9)

HOSEN GROUP LTD ANNUAL REPORT 2010 85


NOTICE OF ANNUAL GENERAL MEETING

HOSEN GROUP LTD (Incorporated In Singapore) (Co. Reg. No: 200403029E)

8.

Authority to allot and issue shares under the Hosen Employee Share Option Scheme That pursuant to Section 161 of the Companies Act, Cap. 50, the Directors be authorised and empowered to allot and issue shares in the capital of the Company to all the holders of options granted by the Company, whether granted during the subsistence of this authority or otherwise, under the Hosen Employee Share Option Scheme (the “Scheme”) upon the exercise of such options and in accordance with the terms and conditions of the Scheme, provided always that the aggregate number of additional ordinary shares to be allotted and issued pursuant to the Scheme shall not exceed fifteen percent (15%) of the total number of issued shares (excluding treasury shares) in the capital of the Company from time to time. [See Explanatory Note (ii)]

9.

(Resolution 10)

Renewal of Share Buy-Back Mandate That: (a)

for the purposes of Sections 76C and 76E of the Companies Act, Cap. 50, the exercise by the Directors of all the powers of the Company: (1)

to purchase or otherwise acquire issued ordinary shares (“Share Buy-Backs”) in the capital of the Company (“Shares”) not exceeding in aggregate the Prescribed Limit (as hereinafter defined), at such price(s) as may be determined by the Directors of the Company from time to time up to the Maximum Price (as hereinafter defined), whether by way of: (i)

on-market Share Buy-Backs (each an “On-market Share Buy-Back”) transacted on the SGX-ST; and/or

(ii) off-market Share Buy-Backs (each an “Off-market Share Buy-Back”) effected otherwise than on the SGX-ST in accordance with any equal access schemes as may be determined or formulated by the Directors of the Company as they consider fit, which schemes shall satisfy all the conditions prescribed by the Companies Act, Cap. 50, and otherwise in accordance with the applicable provisions of the Companies Act, Cap. 50 and the Catalist Rules; and (2)

to deal with the Shares acquired or purchased by the Company under the Share Buy-Backs in accordance with the Articles of Association (as amended or modified from time to time), whether to (i) deem such Shares as cancelled upon acquisition or purchase (ii) hold such Shares as treasury shares; and/or (iii) otherwise deal with such Shares in the manner provided and to the fullest extent permitted under the Companies Act, Cap. 50,

be and is hereby authorised and approved generally and unconditionally (the “Share Buy-Back Mandate”);

86 HOSEN GROUP LTD ANNUAL REPORT 2010


NOTICE OF ANNUAL GENERAL MEETING

HOSEN GROUP LTD (Incorporated In Singapore) (Co. Reg. No: 200403029E)

(b)

unless varied or revoked by the Company in general meeting, the authority conferred on the Directors pursuant to the Share Buy-Back Mandate may be exercised by the Directors at any time and from time to time during the period commencing from the date of the passing of this Resolution and expiring on the earlier of: (i)

the date on which the next Annual General Meeting of the Company is held or required by law to be held;

(ii)

the date on which the Share Buy-Backs are carried out to the full extent mandated; and

(iii) the date on which the authority conferred by the Share Buy-Back Mandate is revoked or varied by the Company in general meeting; (c)

in this Resolution: “Prescribed Limit” means 10% of the total number of Shares as at the date of passing of this Resolution unless the Company has effected a reduction of the share capital of the Company in accordance with the applicable provisions of the Companies Act, Cap. 50, at any time during the Relevant Period, in which event the issued ordinary share capital of the Company shall be taken to be the amount of the issued ordinary share capital of the Company as altered (excluding any treasury shares that may be held by the Company from time to time); “Relevant Period” means the period commencing from the date on which the last Annual General Meeting of the Company was held and expiring on the date the next Annual General Meeting of the Company is held or is required by law to be held, whichever is the earlier, after the date of this Resolution; “Maximum Price” in relation to a Share to be purchased or acquired, means the purchase price (excluding brokerage, commissions, stamp duties, applicable goods and services tax and other related expenses) to be paid for a Share, which shall not exceed: (i)

in the case of an On-market Share Buy-Back, 5% above the average of the closing market prices of the Shares over the last 5 market days on the SGX-ST on which transactions in the Shares were recorded, immediately preceding the day of the On-market Share Buy-Back by the Company, and deemed to be adjusted for any corporate action that occurs after such 5-day period; and

(ii)

in the case of an Off-market Share Buy-Back pursuant to an equal access scheme, 20% above the average of the closing market prices of the Shares over the last 5 market days on the SGX-ST on which transactions in the Shares were recorded, immediately preceding the day on which the Company announces its intention to make an offer for the purchase of Shares from Shareholders, stating the purchase price for each Share and the relevant terms of the equal access scheme for effecting the Off-market Share Buy-Back, and deemed to be adjusted for any corporate action that occurs after such 5-day period; and

(d)

the Directors and/or any of them be and are hereby authorised to complete and do all such acts and things (including executing such documents as may be required) as they and/or he may consider necessary or expedient to give effect to the transactions contemplated by this Resolution.

[See Explanatory Note (iii)]

(Resolution 11)

HOSEN GROUP LTD ANNUAL REPORT 2010 87


NOTICE OF ANNUAL GENERAL MEETING

HOSEN GROUP LTD (Incorporated In Singapore) (Co. Reg. No: 200403029E)

By Order of the Board

Hazel Chia Luang Chew Company Secretary

Singapore 8 April 2011

Explanatory Notes: (i) The Ordinary Resolution 9 proposed in item 7 above, if passed, will empower the Directors from the date of the above Meeting until the date of the next Annual General Meeting, to allot and issue Shares and convertible securities in the Company up to an amount not more than one hundred percent (100%) of the total number of issued shares (excluding treasury shares) in the capital of the Company, of which up to fifty percent (50%) may be issued other than on a pro-rata basis. (ii) The Ordinary Resolution 10 proposed in item 8 above, if passed, will empower the Directors of the Company, to allot and issue shares in the Company of up to a number not exceeding in total fifteen percent (15%) of the total number of issued shares (excluding treasury shares) in the capital of the Company from time to time pursuant to the exercise of the options under the Scheme. (iii) The Ordinary Resolution 11 proposed in item 9 above is to renew the Share Buy-Back Mandate which was originally approved by shareholders on 29 April 2009. Please refer to Appendix 1 to this Notice of Annual General Meeting for details. Notes: 1. A Member entitled to attend and vote at the Annual General Meeting (the “Meeting�) is entitled to appoint not more than two (2) proxies to attend and vote in his/her stead. A proxy need not be a Member of the Company. 2. If the appointor is a corporation, the instrument appointing a proxy must be executed under seal or the hand of its duly authorised officer or attorney. 3. The instrument appointing a proxy must be deposited at the Registered Office of the Company at 267 Pandan Loop Singapore 128439 not less than forty-eight (48) hours before the time appointed for holding the Meeting.

88 HOSEN GROUP LTD ANNUAL REPORT 2010


PROXY FORM

(PLEASE SEE NOTES OVERLEAF BEFORE COMPLETING THIS FORM)

IMPORTANT: 1. For investors who have used their CPF monies to buy HOSEN GROUP LTD.’s shares, this Annual Report is forwarded to them at the request of the CPF Approved Nominees and is sent solely FOR INFORMATION ONLY. 2. This Proxy Form is not valid for use by CPF investors and shall be ineffective for all intents and purposes if used or purported to be used by them. HOSEN GROUP LTD (Incorporated in Singapore) (Co. Reg. No: 200403029E)

3. CPF investors who wish to vote should contact their CPF Approved Nominees.

I/We, ___________________________________________________________________________________________________________________________________ of ______________________________________________________________________________________________________________________________________ being a member/members of HOSEN GROUP LTD (“the Company”), hereby appoint: Name

NRIC/Passport No.

Proportion of Shareholdings No. of Shares %

NRIC/Passport No.

Proportion of Shareholdings No. of Shares %

Address and/or (delete as appropriate) Name Address or failing *him/her, the Chairman of the Meeting as *my/our *proxy/proxies to vote for *me/us on *my/our behalf at the Annual General Meeting (the “Meeting”) of the Company to be held on Tuesday, 26 April 2011 at 11.30 am and at any adjournment thereof. *I/We direct *my/our *proxy/proxies to vote for or against the Resolutions proposed at the Meeting as indicated hereunder. If no specific direction as to voting is given or in the event of any other matter arising at the Meeting and at any adjournment thereof, the *proxy/proxies will vote or abstain from voting at *his/her discretion. The authority herein includes the right to demand or to join in demanding a poll and to vote on a poll. Please indicate your vote “For” or “Against” with a tick [] within the box provided. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Resolutions relating to: Directors’ Report and Audited Accounts for the year ended 31 December 2010 Payment of proposed first & final dividend Re-election of Ms Lim Kim Eng as a Director Re-election of Mr Ngiam Zee Moey as a Director Re-election of Mr Wee Piew as a Director Re-election of Mr Yeo Boon Siah as a Director Approval of Directors’ fees amounting to S$120,000 Re-appointment of BDO LLP as Auditors Share Issue Mandate Authority to allot and issue shares under the Hosen Employee Share Option Scheme Renewal of Share Buy-Back Mandate

For

Against

* Delete where applicable

Dated this __________________ day of _______________ 2011.

Total No. of Shares in:

No. of Shares

(a) CDP Register ________________________________________________________ Signature of Shareholders(s) and, Common Seal of Corporate Shareholder

(b) Register of Members

HOSEN GROUP LTD ANNUAL REPORT 2010 89


PROXY FORM

Notes: 1.

Please insert the total number of Shares held by you. If you have Shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of Shares. If you have Shares registered in your name in the Register of Members, you should insert that number of Shares. If you have Shares entered against your name in the Depository Register and Shares registered in your name in the Register of Members, you should insert the aggregate number of Shares entered against your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to all the Shares held by you.

2.

A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attend and vote in his/her stead. A proxy need not be a member of the Company.

3.

Where a member appoints two proxies, the appointments shall be invalid unless he/she specifies the proportion of his/her shareholding (expressed as a percentage of the whole) to be represented by each proxy.

4.

The instrument appointing a proxy or proxies must be deposited at the registered office of the Company at 267 Pandan Loop Singapore 128439 not less than forty-eight (48) hours before the time appointed for the Meeting.

5.

The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or under the hand of an officer or attorney duly authorised. Where the instrument appointing a proxy or proxies is executed by an attorney on behalf of the appointor, the letter or power of attorney or a duly certified copy thereof must be lodged with the instrument.

6.

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.

General: The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies. In addition, in the case of Shares entered in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have Shares entered against his name in the Depository Register as at forty-eight (48) hours before the time appointed for holding the Meeting, as certified by The Central Depository (Pte) Limited to the Company.

90 HOSEN GROUP LTD ANNUAL REPORT 2010


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HOSEN GROUP LTD ANNUAL REPORT 2010 91


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92 HOSEN GROUP LTD ANNUAL REPORT 2010


CORPORATE INFORMATION

BOARD OF DIRECTORS

SHARE REGISTRAR

Lim Hai Cheok

B.A.C.S. Private Limited

Chairman and Chief Executive Officer

63 Cantonment Road Singapore 089758

Chong Poh Soon Executive Director

Lim Kim Eng Executive Director

Lim Hock Chye Daniel

Tel: (65) 6593 4848 Fax: (65) 6593 4847

AUDITORS

Executive Director

BDO LLP

Lim Heng Seng

Public Accountants and Certified Public Accountants

Independent Non-Executive Director

Wee Piew Independent Non-Executive Director

Yeo Boon Siah

19 Keppel Road #02-01 Jit Poh Building Singapore 089058

Independent Non-Executive Director

Partner-in-charge: Goh Chern Ni

Ngiam Zee Moey

(Appointed since the financial year ended 31 December 2010)

Non-Executive Director

SECRETARY

PRINCIPAL BANKERS

Hazel Chia Luang Chew

Australia & New Zealand Banking Group Ltd

REGISTERED OFFICE

DBS Bank Ltd

267 Pandan Loop, Singapore 128439

Malayan Banking Berhad

Tel: (65) 6595 9222 Fax: (65) 6779 0186

Oversea-Chinese Banking Corporation Bank Ltd

Website: www.hosengroup.com

United Overseas Bank Ltd



Hosen Group Annual Report 2010