far east group limited prospectus.pdf
TRANSCRIPT
This document is important. If you are in any doubt as to the action you should take, you should consult your legal, fi nancial, tax or other professional adviser(s).
Collins Stewart Pte. Limited (the “Sponsor”) has made an application to the Singapore Exchange Securities Trading Limited (the “SGX-ST”) for permission to deal in, and for quotation of, all the ordinary shares (the “Shares”) in the capital of Far East Group Limited (the “Company”) already issued and the new Shares which are the subject of the Placement (the “New Shares”) on Catalist (as defi ned herein). The dealing in and quotation of the Shares will be in Singapore dollars.
Companies listed on Catalist may carry higher investment risk when compared with larger or more established companies listed on the Main Board of the SGX-ST. In particular, companies may list on Catalist without a track record of profi tability and there is no assurance that there will be a liquid market in the shares or units of shares traded on Catalist. You should be aware of the risks of investing in such companies and should make the decision to invest only after careful consideration and, if appropriate, consultation with your professional adviser(s).
The Placement is made in or accompanied by this Offer Document that has been registered by the SGX-ST acting as an agent on behalf of the Monetary Authority of Singapore (the “Authority”). We have not lodged or registered this Offer Document in any other jurisdiction.
Neither the Authority nor the SGX-ST has examined or approved the contents of this Offer Document. Neither the Authority nor the SGX-ST assumes any responsibility for the contents of this Offer Document, including the correctness of any of the statements or opinions made or reports contained in this Offer Document. The SGX-ST does not normally review the application for admission but relies on the Sponsor confi rming that our Company is suitable to be listed and complies with the Catalist Rules. Neither the Authority nor the SGX-ST has in any way considered the merits of the Shares being offered for investment.
The registration of this Offer Document by the SGX-ST does not imply that the Securities and Futures Act (Chapter 289) of Singapore, or any other legal or regulatory requirements, or requirements under the SGX-ST’s listing rules, have been complied with.
Acceptance of applications will be conditional upon the issue of the New Shares and permission being granted by the SGX-ST for the listing and quotation of all our existing issued Shares and the New Shares on Catalist. Monies paid in respect of any application accepted will be returned to you at your own risk, without interest or any share of revenue or benefi t arising therefrom, if the admission and listing do not proceed, and you will not have any claims against us, the Sponsor or the Placement Agent (as defi ned herein).
After the expiration of six months from the date of registration of this Offer Document, no person shall make an offer of securities, or allot, issue or sell any of our Shares, on the basis of this Offer Document, and no offi cer or equivalent person or promoter of our Company will authorise or permit the offer of any of our Shares or the allotment, issue or sale of any of our Shares, on the basis of this Offer Document.
Investing in our Shares involves risks which are described in the “RISK FACTORS” section of this Offer Document.
Our Company is not part of, nor related in any way, to Far East Organization, its subsidiaries or associated companies (the “Far East Organization Group of Companies”). Our Directors and Controlling Shareholder (as defi ned herein) have no direct or indirect relationships with the Far East Organization Group of Companies. Our Group (as defi ned herein) is also not engaged in the same line of business as that of the Far East Organization Group of Companies.
Far East Group Limited(Incorporated in the Republic of Singapore
on 18 March 1964)(Company Registration No.:196400096C)
Placement of 18,800,000
New Shares by way of
placement, at S$0.27 per
Share, payable in full on
application.
COLLINS STEWART PTE. LIMITED(Incorporated in the Republic of Singapore)
(Company Registration Number: 200713620D)
Sponsor and Placement Agent
OFFER DOCUMENT DATED 25 JULY 2011 (Registered by the Singapore Exchange Securities Trading Limited acting as an agent on behalf of the Monetary Authority of Singapore on 25 July 2011) (Registered by the Singapore Exchange Securities Trading Limited acting as an agent on behalf of the Monetary Authority of Singapore on 25 July 2011) (Registered by the Singapore Exchange Securities Trading Limited acting as an agent on behalf of the Monetary Authority of Singapore on 25 July 2011)
Far East Group Limited112 Lavender Street, #04-00Far East Refrigeration BuildingSingapore 338728Tel: (65) 6293 9733 Fax: (65) 6296 5326www.fareastref.com.sg
FAR EAST GROUP LIMITED
A One-StopRefrigeration Systems
Provider
ABOUT USFounded in 1953 as one of the pioneers in the refrigeration and air-conditioning bus iness in S ingapore, Far East Group Limited (formerly known as Far East Refrigeration (Pte.) Limited) is a comprehensive provider of refrigeration and air-conditioning systems and products in the heating, ventilation, air-conditioning andrefrigeration (“HVAC&R”) industry. Our Directors believe that we are one of the leading regional distributors of commercial and light industrial refrigeration systems and products in the South-east Asia region.
Our Group has a broad customer base of more than 1,000 active customers, including distributors, dealers as well as refrigeration and air-conditioning contractors who use our products and services to provide comprehensive refrigeration and air-conditioning systems to end-users, such as supermarkets, cold store distribution centres, food processing and catering facilities, hotels, hospitals, food and beverage establishments, convenient stores, petrol stations, marine vessels, oil rigs and barges.
Besides sourcing and distributing agency products, our Group also manufactures our in-house “Eden” brand of heat exchangers and condensing units. In particular, our products are widely recognised and used by well-known international and regional retail chains such as Carrefour, Metro, Tesco, Giant, Cold Storage and NTUC FairPrice as well as Resorts World Sentosa and Marina Bay Sands.
Headquartered in Singapore, our Group has subsidiaries in Singapore, Malaysia and Hong Kong as well as representative offi ces in Vietnam and Indonesia. We also have approximately 20 distributors and dealers in countries including Malaysia, Thailand, the Philippines, Myanmar, Mauritius, Vietnam, Sri Lanka and Indonesia.
In line with our growth, our Group’s revenue rose from approximately S$29.2 million in FY2008 to approximately S$32.6 million in FY2010, while net profit rose from approximately S$1.0 million in FY2008 to approximately S$4.6 million in FY2010.
COMPETITIVE STRENGTHSOne-stop refrigeration systems provider
Established reputation and track record
Strong business relationships with business partners
Wide distribution network
Strong research and development capabilities
Provide quality products and services at competitive prices
Experienced management team
BUSINESS MODELOur Group’s business activities can be broadly segmented as follows:-• Commercial and light industrial (refrigeration)• Residential and commercial (air-conditioning)• Oil, marine and gas (refrigeration and air-conditioning)
PROSPECTSThe global demand for HVAC&R products is expected to increase in tandem with the economic recovery in the next few years, and barring unforeseen circumstances, the factors that will drive our Group’s growth include:-
Continual growth of the global and regional economies, in particular, that of the Asia Pacifi c region
Growth in the frozen food market
Increased demand for HVAC products due to climate change
Increased awareness of global warming
users, such as supermarkets, cold store distribution centres, food processing and catering facilities, hotels, hospitals, food and beverage establishments, convenient stores, petrol stations, marine vessels, oil rigs and barges.
BUSINESS MODELOur Group’s business activities can be broadly segmented as follows:-• Commercial and light industrial (refrigeration)• Residential and commercial (air-conditioning)• Oil, marine and gas (refrigeration and air-conditioning)
BUSINESS STRATEGIES AND FUTURE PLANSExpansion of sales and distribution network
Expansion and upgrade of existing manufacturing facilities
Research and development of new products
Expansion of business through acquisitions, joint ventures or strategic alliances
CORPORATE INFORMATION ............................................................................................................. 4
DEFINITIONS ...................................................................................................................................... 6
GLOSSARY OF TECHNICAL TERMS ................................................................................................. 14
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ...................................... 16
SELLING RESTRICTIONS .................................................................................................................. 18
DETAILS OF THE PLACEMENT ......................................................................................................... 19
- LISTING ON CATALIST ............................................................................................................. 19
- INDICATIVE TIMETABLE FOR LISTING ................................................................................... 22
OFFER DOCUMENT SUMMARY ........................................................................................................ 23
THE PLACEMENT ............................................................................................................................... 26
PLAN OF DISTRIBUTION ................................................................................................................... 27
USE OF PROCEEDS FROM THE PLACEMENT AND EXPENSES INCURRED .............................. 28
MANAGEMENT AND PLACEMENT ARRANGEMENTS ................................................................... 29
RISK FACTORS ................................................................................................................................... 31
ISSUE STATISTICS ............................................................................................................................. 39
DILUTION ............................................................................................................................................. 41
CAPITALISATION AND INDEBTEDNESS .......................................................................................... 42
DIVIDEND POLICY .............................................................................................................................. 46
SELECTED CONSOLIDATED FINANCIAL INFORMATION .............................................................. 47
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION ........................................................................................................................ 50
- OVERVIEW ................................................................................................................................ 50
- SEASONALITY .......................................................................................................................... 54
- INFLATION ................................................................................................................................. 54
- CHANGE OF ACCOUNTING POLICIES ................................................................................... 54
- REVIEW OF OPERATING RESULTS ........................................................................................ 55
- REVIEW OF FINANCIAL POSITION ......................................................................................... 59
- LIQUIDITY AND CAPITAL RESOURCES .................................................................................. 61
- CAPITAL EXPENDITURES, DIVESTMENTS, COMMITMENTS AND CONTINGENT LIABILITIES ....................................................................................................... 63
- FOREIGN EXCHANGE MANAGEMENT ................................................................................... 64
GENERAL INFORMATION ON OUR GROUP .................................................................................... 66
- SHARE CAPITAL ....................................................................................................................... 66
- OUR GROUP STRUCTURE ...................................................................................................... 69
- OUR SUBSIDIARIES ................................................................................................................. 70
- SHAREHOLDERS .................................................................................................................... 71
- MORATORIUM ........................................................................................................................... 72
1
CONTENTS
HISTORY .............................................................................................................................................. 73
BUSINESS ........................................................................................................................................... 76
- BUSINESS OVERVIEW ............................................................................................................. 76
- OUR PRODUCTS ...................................................................................................................... 77
- OUR BUSINESS MODEL .......................................................................................................... 83
- BUSINESS AND MANUFACTURING PROCESS ...................................................................... 84
- AWARDS AND ACHIEVEMENTS .............................................................................................. 88
- SALES AND MARKETING ......................................................................................................... 88
- DISTRIBUTION CHANNELS ..................................................................................................... 89
- MANUFACTURING FACILITY AND CAPACITY ........................................................................ 89
- QUALITY CONTROL AND SAFETY ASSURANCE .................................................................. 90
- INVENTORY MANAGEMENT .................................................................................................... 91
- OUR MAJOR SUPPLIERS ........................................................................................................ 92
- OUR MAJOR CUSTOMERS ...................................................................................................... 93
- CREDIT MANAGEMENT ........................................................................................................... 94
- PROPERTIES AND FIXED ASSETS ......................................................................................... 96
- RESEARCH AND DEVELOPMENT .......................................................................................... 98
- INTELLECTUAL PROPERTY .................................................................................................... 99
- STAFF TRAINING ...................................................................................................................... 101
- INSURANCE .............................................................................................................................. 102
- COMPETITION .......................................................................................................................... 102
- OUR COMPETITIVE STRENGTHS ........................................................................................... 103
PROSPECTS, BUSINESS STRATEGIES AND FUTURE PLANS ..................................................... 105
- PROSPECTS ............................................................................................................................. 105
- TREND INFORMATION AND ORDER BOOK ........................................................................... 106
- OUR BUSINESS STRATEGIES AND FUTURE PLANS ........................................................... 107
DIRECTORS, EXECUTIVE OFFICERS AND STAFF .......................................................................... 109
- MANAGEMENT REPORTING STRUCTURE ............................................................................ 109
- DIRECTORS ............................................................................................................................. 109
- EXECUTIVE OFFICERS ............................................................................................................ 113
- EMPLOYEES ............................................................................................................................. 115
- REMUNERATION OF DIRECTORS, EXECUTIVE OFFICERS AND RELATED EMPLOYEES .... 116
- SERVICE AGREEMENTS .......................................................................................................... 116
- CORPORATE GOVERNANCE .................................................................................................. 118
2
CONTENTS
INTERESTED PERSON TRANSACTIONS ......................................................................................... 121
- INTERESTED PERSONS ......................................................................................................... 121
- PAST INTERESTED PERSON TRANSACTIONS .................................................................... 122
- PRESENT AND ON-GOING INTERESTED PERSON TRANSACTIONS ................................. 125
- SHAREHOLDERS’ MANDATE ................................................................................................... 131
- OPINION OF THE INDEPENDENT FINANCIAL ADVISER....................................................... 135
- GUIDELINES AND REVIEW PROCEDURES FOR FUTURE INTERESTED PERSON TRANSACTIONS OTHER THAN THOSE COVERED IN THE SHAREHOLDERS’ MANDATE ..... 136
POTENTIAL CONFLICTS OF INTERESTS ........................................................................................ 138
- INTERESTS OF DIRECTORS, CONTROLLING SHAREHOLDER OR THEIR ASSOCIATES ..... 138
- INTERESTS OF EXPERTS ....................................................................................................... 140
- INTERESTS OF THE SPONSOR AND THE PLACEMENT AGENT ......................................... 140
CLEARANCE AND SETTLEMENT ..................................................................................................... 141
GENERAL AND STATUTORY INFORMATION ................................................................................... 142
GOVERNMENT REGULATIONS ......................................................................................................... 147
EXCHANGE CONTROLS .................................................................................................................... 153
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 ................................................................... A-1
APPENDIX B – SUMMARY OF THE CONSTITUTION OF OUR COMPANY ................................... B-1
APPENDIX C – DESCRIPTION OF OUR SHARES .......................................................................... C-1
APPENDIX D – TAXATION ................................................................................................................ D-1
APPENDIX E – TERMS, CONDITIONS AND PROCEDURES FOR APPLICATION ........................ E-1
APPENDIX F – LETTER FROM SAC CAPITAL PRIVATE LIMITED TO THE AUDIT COMMITTEE .... F-1
3
CONTENTS
BOARD OF DIRECTORS : Loh Ee Ming (Non-executive Chairman)Steven Loh (Chief Executive Officer and Executive Director)David Leng (Chief Operating Officer and Executive Director) Karen Loh (Non-executive Director) Hew Koon Chan (Independent Director)Andrew Mak (Independent Director)Tan Hwee Kiong (Independent Director)
COMPANY SECRETARY : Chia Foon Yeow, LLB (Hons)
COMPANY REGISTRATION NUMBER
: 196400096C
REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS
: 112 Lavender Street #04-00Far East Refrigeration BuildingSingapore 338728
SHARE REGISTRAR AND SHARE TRANSFER OFFICE
: Boardroom Corporate & Advisory Services Pte Ltd50 Raffles Place #32-01Singapore Land TowerSingapore 048623
SPONSOR AND PLACEMENT AGENT
: Collins Stewart Pte. Limited77 Robinson Road #21-02Singapore 068896
INDEPENDENT AUDITORS AND REPORTING ACCOUNTANTS
: Ernst & Young LLP1 Raffles QuayNorth Tower, Level 18Singapore 048583(Partner-in-charge: Philip Ling Soon Hwa, a member of the Institute of Certified Public Accountants of Singapore)
SOLICITORS TO THE PLACEMENT AND LEGAL ADVISERS TO OUR COMPANY ON SINGAPORE LAW
: Loo & Partners LLP16 Gemmill LaneSingapore 069254
LEGAL ADVISERS TO OUR COMPANY ON MALAYSIA LAW
: Naqiz and Partners42A Lorong DungunDamansara Heights50490 Kuala LumpurMalaysia
LEGAL ADVISERS TO OUR COMPANY ON HONG KONG LAW
: Pang & Co. in association with Salans LLPSuite 7601A, Level 76, International Commerce Centre1 Austin Road WestKowloon, Hong Kong
LEGAL ADVISERS TO OUR COMPANY ON THE PEOPLE’S REPUBLIC OF CHINA LAW
: Victory Legal GroupUnit J, 14 Floor, Huamin Empire Plaza,No. 726, Yan An West Road,Shanghai 200050The People’s Republic of China
4
CORPORATE INFORMATION
INDEPENDENT FINANCIAL ADVISER
: SAC Capital Private Limited79 Anson Road #15-03Singapore 079906
PRINCIPAL BANKERS : United Overseas Bank LimitedJalan Sultan Branch201 Jalan Sultan #01-06Textile CentreSingapore 199019
DBS Bank Ltd6 Shenton Way #32-02DBS Building Tower OneSingapore 068809
RECEIVING BANKER : The Bank of East Asia, Limited (Singapore Branch)60 Robinson RoadBEA BuildingSingapore 068892
5
CORPORATE INFORMATION
In this Offer Document and the accompanying Application Form, the following definitions apply where the context so admits:-
Group Companies
“Company” or “Far East Group” : Far East Group Limited(formerly known as Far East Refrigeration (Pte.) Limited)
“Edenkool” : Edenkool Pte. Ltd.
“Far East HK” : Far East Refrigeration Limited “Far East JB” : Far East Enterprises (J.B.) Sdn Bhd
“Far East KL” : Far East Enterprises (K.L.) Sdn Bhd
“Far East Kuching” : Far East Refrigeration (Kuching) Sdn. Bhd.
“Far East Maju” : Far East Maju Engineering Works Sdn. Bhd.
“Far East Malaysia” : Far East Refrigeration (M) Sdn Bhd, the holding company of Far East Penang, Far East Maju, Fast East KL, Far East JB, FE&B, Far East Kuching and Safety Enterprises
“Far East Penang” : Far East Enterprises (Penang) Sdn. Bhd.
“FE&B” : F E & B Engineering (M) Sdn. Bhd.
“Green Point” : Green Point (Singapore) Pte. Ltd.
“Group” : Our Company and our subsidiaries (as set out in the “General Information on our Group – Our Subsidiaries” section of this Offer Document)
“RSP” : RSP Systems Pte Ltd
“Safety Enterprises” : Safety Enterprises Sdn. Bhd.
Other Corporations and Agencies
“Angliss Singapore” : Angliss Singapore Pte Ltd
“Authority” : The Monetary Authority of Singapore
“Bitzer” : Bitzer SE, a leading manufacturer of compressors in Germany
“BSI” : British Standards Institution, a leading global provider of standards, management systems, business improvement and regulatory approval information
“CDP” : The Central Depository (Pte) Ltd
“Chinhero Development” : Chinhero Development Limited
“Chun Cheng Fishery” : Chun Cheng Fishery Enterprise Pte Ltd
6
DEFINITIONS
“CIAS” : Changi International Airport Services Pte Ltd
“Collins Stewart”, “Sponsor” or “Placement Agent”
: Collins Stewart Pte. Limited
“CPF” : The Central Provident Fund
“ERM” : Eden Refrigeration Manufacturing (Jiangsu) Co., Ltd.(逸腾远东制冷(江苏)有限公司)
“HSA” : Health Sciences Authority of Singapore
“ISO” : International Organisation of Standardisation
“Old FER HK” : Far East Refrigeration (Hong Kong) Limited
“SAC Capital” or “Independent Financial Adviser”
: SAC Capital Private Limited
“SAIC” : State Administration for Industry & Commerce of the People’s Republic of China(中华人民共和国国家工商行政管理总局)
“SCCS” : Securities Clearing & Computer Services (Pte) Ltd
“SGX-ST” : Singapore Exchange Securities Trading Limited
“SER” : Shanghai Eden Refrigeration Co., Ltd.(上海逸腾制冷设备有限公司)
“SERM” : Shanghai Eden Refrigeration Manufacturing Co., Ltd.(上海爱腾冷冻机械有限公司)
“SIPO” : State Intellectual Property Office of the People’s Republic of China(中华人民共和国国家知识产权局)
“UPL” : Universal Pte. Ltd.
“Ziehl-Abegg” : Ziehl-Abegg AG
General
“Acquisition Options” : Options granted by UPL and SER to our Company pursuant to which we have the options to acquire their respective equity interests in, or the assets, businesses and undertakings of, the Regional Affiliates as described in the “Interested Person Transactions – Present and On-going Interested Person Transactions” section of this Offer Document
“Adjusted EPS” : The EPS of our Group based on the audited consolidated profit for the year in FY2010, adjusted for a non-recurring income of approximately S$1,062,000 in relation to gain on disposal of investment properties
7
DEFINITIONS
“Adjusted NTA” The NTA of our Group based on the audited consolidated financial position of our Group as at 31 December 2010, adjusted for the issuance of 8,312 new Shares (before the Sub-Division) for a total cash consideration of approximately S$1,187,452 pursuant to the Pre-IPO Investment, subsequent to 31 December 2010
“Application Form” : The printed application form to be used for the purpose of the Placement and which form part of this Offer Document
“Application List” : The list of applications for subscription of the New Shares
“Articles” or “Articles of Association”
: The articles of association of our Company, as amended, supplemented or modified from time to time
“ASEAN” : The Association of South-east Asian Nations
“Associate” : (a) in relation to any director, chief executive officer, substantial shareholder or controlling shareholder (being an individual) means:-
(i) his immediate family;
(ii) the trustees, acting in their capacity as such trustees, of any trust of which he or his immediate family is a beneficiary or, in the case of a discretionary trust, is a discretionary object; or
(iii) any company in which he and his immediate family together (directly or indirectly) have interests in voting shares of an aggregate of not less than 30% of the total votes attached to all voting shares; and
(b) in relation to a substantial shareholder or a controlling shareholder (being a company) means any other company which is its subsidiary or holding company or is a fellow subsidiary of any such holding company or one in the equity of which it and/or such other company or companies taken together (directly or indirectly) have an interest of 30% or more
“Associated Company” : In relation to a corporation, means:-
(a) any corporation in which the corporation or its subsidiary has, or the corporation and its subsidiary together have, a direct interest of not less than 20% but not more than 50% of the aggregate of the total votes attached to all voting shares in the corporation; or
(b) any corporation, other than a subsidiary of the corporation or a corporation which is an associated company by virtue of paragraph (a), the policies of which the corporation or its subsidiary, or the corporation together with its subsidiary, is able to control or influence materially
“Audit Committee” : The audit committee of our Company as at the date of this Offer Document, unless otherwise stated
8
DEFINITIONS
“Board” or “Board of Directors” : The board of Directors of our Company as at the date of this Offer Document, unless otherwise stated
“business trust” : Has the same meaning as in Section 2 of the Business Trusts Act (Chapter 31A) of Singapore
“Catalist” : The sponsor-supervised listing platform of the SGX-ST
“Catalist Rules” : Any or all of the rules in the SGX-ST Listing Manual Section B: Rules of Catalist, as the case may be
“CEO” : Chief executive officer
“Companies Act” : The Companies Act (Chapter 50) of Singapore, as amended, modified or supplemented from time to time
“Controlling Shareholder” : A person who:-
(a) has an interest in our Shares of an aggregate of not less than 15% or more of the total votes attached to our Shares; or
(b) in fact exercises control over our Company.
“COO” : Chief operating officer
“Director” : A director of our Company as at the date of this Offer Document, unless otherwise stated
“entity” : Includes a corporation, an unincorporated association, a partnership and the government of any state, but does not include a trust
“EPS” : Earnings per Share
“Executive Director” : An executive director of our Company as at the date of this Offer Document, unless otherwise stated
“Executive Officer” : A key executive of our Group as at the date of this Offer Document, including any key executive who makes or participates in making decisions that affect the whole or substantial part of our business or has the capacity to make decisions which affect significantly our financial standing, unless otherwise stated
“Exposure Period” : The minimum period of 14 calendar days (unless extended by the SGX-ST) following the lodgement of this Offer Document by the Sponsor with the SGX-ST acting as an agent on behalf of the Authority, during which this Offer Document is exposed for public comment
“FY” : Financial year ended or, as the case may be, ending 31 December
“GDP” : Gross domestic product
9
DEFINITIONS
“GST” : Goods & Services Tax
“Hong Kong” : The Hong Kong Special Administrative Region of the PRC
“IB” : Internet Banking
“Independent Director” : A non-executive independent Director of our Company as at the date of this Offer Document, unless otherwise stated
“Indochina” : Countries in the Indochina region, namely Cambodia, Laos, Vietnam and Myanmar
“IPO” : Initial public offering
“IP Licence Agreement” : The intellectual properties licence agreement dated 27 June 2011 entered into between our Company and the Regional Affiliates for the use of trade marks and patents, details as described in the “Interested Person Transactions – Present and On-going Interested Person Transactions” section of this Offer Document
“Latest Practicable Date” : 20 June 2011, being the latest practicable date for the purposes of lodgement of this Offer Document with the SGX-ST acting as an agent on behalf of the Authority
“Macau” : The Macau Special Administrative Region of the PRC
“Maju Facility” : Our manufacturing facility located at Lot 1998/D Jalan Perusahaan 3, Taman Industri Selesa Jaya, 43300 Balakong, Seri Kembangan, Selangor Darul Ehsan, Malaysia
“Management Agreement” : The full sponsorship and management agreement dated 25 July 2011 entered into between our Company and Collins Stewart pursuant to which Collins Stewart agreed to manage and sponsor the Placement, details as described in the “Management and Placement Arrangements” section of this Offer Document
“Market Day” : A day on which the SGX-ST is open for trading in securities
“NAV” : Net asset value
“New Shares” : The 18,800,000 new Shares in respect of which our Company invites application to subscribe for pursuant to the Placement, subject to and on the terms and conditions of this Offer Document
“Nominating Committee” : The nominating committee of our Company as at the date of this Offer Document, unless otherwise stated
“Non-executive Director” : A non-executive and non-independent Director of our Company as at the date of this Offer Document, unless otherwise stated
“NTA” : Net tangible assets
“Offer Document” : This offer document dated 25 July 2011 issued by our Company in respect of the Placement
10
DEFINITIONS
“PBT” : Profit before tax
“PER” : Price earnings ratio
“period under review” : The period which comprises FY2008, FY2009 and FY2010
“Placement” : The placement of the Placement Shares by the Placement Agent on behalf of our Company for subscription at the Placement Price, subject to and on the terms and conditions of this Offer Document
“Placement Agreement” : The placement agreement dated 25 July 2011 entered into between our Company and Collins Stewart pursuant to which Collins Stewart agreed to subscribe and/or procure subscribers for the Placement Shares, details as described in the “Management and Placement Arrangements” section of this Offer Document
“Placement Price” : S$0.27 for each Placement Share
“Placement Shares” : The 18,800,000 New Shares which are the subject of the Placement
“PRC” : The People’s Republic of China, excluding Hong Kong, Macau and Taiwan, for the purpose of this Offer Document and for geographical reference only
“Pre-IPO Investment” : The pre-IPO investment by the Pre-IPO Investors in our Company as described in the “General Information on our Group – Share Capital” section of this Offer Document
“Pre-IPO Investors” : David Leng, Sam Cheung and Richard Chung
“Regional Affiliates” : SER, SERM and ERM
“Registration” : The registration of this Offer Document in its final form by the SGX-ST acting as an agent on behalf of the Authority
“Remuneration Committee” : The remuneration committee of our Company as at the date of this Offer Document, unless otherwise stated
“SEA” : South-east Asia
“Securities Account” : The securities account maintained by a Depositor with CDP but does not include a securities sub-account
“Service Agreements” : The service agreements entered into between our Company and our Executive Directors, Steven Loh and David Leng, as described in the “Directors, Executive Officers and Staff – Service Agreements” section of this Offer Document
“SFA” or “Securities and Futures Act”
: The Securities and Futures Act (Chapter 289) of Singapore, as amended, modified or supplemented from time to time
11
DEFINITIONS
“SGXNET” : The corporate announcement system maintained by the SGX-ST for the submission of announcements by listed companies
“Shareholders” : Registered holders of Shares, except where the registered holder is CDP, the term “Shareholders” shall, in relation to such Shares, mean the Depositors whose Securities Accounts are credited with Shares
“Shares” : Ordinary shares in the capital of our Company
“Sub-Division” : The sub-division of every one (1) Share into 600 Shares as described in the “General Information on our Group – Share Capital” section of this Offer Document
“Substantial Shareholder” : A person who has an interest in the voting shares of our Company, the total votes attached to which is not less than 5% of the total votes attached to all the voting shares in our Company
Currencies, Units and Others
“HK$” : Hong Kong dollars, the lawful currency of Hong Kong
“JPY” : Japanese Yen, the lawful currency of Japan
“RM” : Malaysia ringgit, the lawful currency of Malaysia
“RMB” : Renminbi, the lawful currency of the PRC
“S$” and “cents” : Singapore dollars and cents respectively, the lawful currency of Singapore
“sqft” : Square feet
“US$” : United States dollars, the lawful currency of the United States of America
“€” : Euro, the lawful currency of the European Monetary Union
“%” or “per cent.” : Per centum
“N.A.” : Not applicable
12
DEFINITIONS
For the purpose of this Offer Document, the following persons named in the second column below are also known by the names set out in the first column:-
Name used in this Offer Document Name in National Registration Identity Card (NRIC)/Passport
Andrew Mak : Mak Yen-Chen Andrew
David Leng : Leng Chee Keong
Karen Loh : Loh Pui Lai
Loh Ee Ming : Loh Ah Peng @ Loh Ee Ming
Richard Chung : Chung Kong Poh
Sam Cheung : Cheung Wai Sum
Sharon Loh : Loh Pui-Pui Sharon
Steven Loh : Loh Mun Yew
The expressions “Depositor”, “Depository Agent” and “Depository Register” shall have the meanings ascribed to them respectively in Section 130A of the Companies Act.
Words importing the singular shall, where applicable, include the plural and vice versa and words importing the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. References to persons shall include corporations.
Any reference in this Offer Document and the Application Form to any statute or enactment is a reference to that statute or enactment as for the time being amended or re-enacted. Any word defined under the Companies Act, the SFA or any statutory modification thereof and used in this Offer Document and the Application Form shall, where applicable, have the meaning assigned to it under the Companies Act, the SFA or any statutory modification thereof, as the case may be.
Any reference in this Offer Document and the Application Form to Shares being allotted to an applicant includes allotment to CDP for the account of that Applicant.
Any reference to a time of day in this Offer Document shall be a reference to Singapore time unless otherwise stated.
References in this Offer Document to “we”, “our”, and “us” refer to our Group.
Any discrepancies in the tables included herein between the listed amounts and the totals thereof are due to rounding. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.
Certain names with Chinese characters have been translated into English names. Such translations are provided solely for the convenience of investors and may not have been registered with the relevant PRC authorities and as such, should not be construed as representations that the English names actually represent the Chinese characters.
13
DEFINITIONS
To facilitate a better understanding of the business of our Group, the following glossary provides an explanation of some of the technical terms and abbreviations (which would not be treated as being definitive of their meanings) used in this Offer Document relating to our business. The terms and abbreviations and their assigned meanings may not correspond to standard industry or common meanings, as the case may be, or usage of these terms.
“Agency products” : Refrigeration and air-conditioning products that we represent and distribute, such as compressors, condensers, controllers, valves, copper pipes and insulation materials.
“Brine cooler” : A heat exchange cooler designed to use brine as a medium for heat transfer. Brine is a heat transfer fluid that remains in the liquid state throughout the heat transfer cycle.
“CNC” : Computer Numerical Control, which refers to the automation of machine tools that are operated by abstractly programmed commands encoded on a storage medium, as opposed to manually controlled via handwheels or levers, or mechanically automated via cams alone.
“Condenser” : A heat exchanger that generally rejects all heat from the system. The hot and high-pressure refrigerant gas is discharged from the compressor to the condenser, which rejects the heat from the gas to some cooler medium. Thus, the cool refrigerant condenses back to the liquid state and drains from the condenser to continue in the system cycle.
“Condensing unit” : A packaged assembly unit that consists of the condenser, compressor, electrical controls, receiver, valves and other related products.
“Compressor” : A pumping device used in a heat transfer system (air-conditioning and refrigeration) to compress low-pressure, low-volume refrigerant gas into high-pressure, high-temperature refrigerant gas and circulates it through the system in a continuous cycle.
“Custom coil” : A heat exchanger coil that is designed and manufactured to the customers’ specifications for a specific application.
“EMS” : Energy Management System, which comprises various electronics, electrical components and intelligent software algorithms to improve efficiency and reduce energy consumption within the system.
“ERP” : Enterprise Resourcing Planning, a computer network system that uses a database of information that is company-wide accessible. It covers all functions of a business such as purchasing, manufacturing, distribution, and inventory management.
“Evaporator” or “Unit cooler” : A heat exchange device or unit with a fan that draws air across the coil to be cooled. This is achieved through the evaporative process of the refrigerant whereby heat is extracted from the air causing it to be cooled and subsequently circulated.
“G4” : Generation 4, the latest generation of our “Eden” brand of heat exchangers.
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GLOSSARY OF TECHNICAL TERMS
“Green Program” : An initiative by our Group to drive the industry towards a more environmentally friendly approach to systems and products design. It is intended to promote environmental awareness among product designers, system designers and business owners.
“HACCP” : Hazard Analysis and Critical Control Point system certification, an internationally recognised award granted to food and beverage companies that meet the prescribed food safety and hygiene standards, methodology and guidelines defined by CODEX. CODEX is a collection of internationally adopted food standards to protect the health of consumers and to ensure fair practices in the food trade, established by the Codex Alimentarius Commission which implements the Joint United Nations Food and Agricultural Organisation and World Health Organisation (FAO/WHO) Food Standards Programme.
“Heat exchanger” : A device built for efficient heat transfer from one medium to another. It involves devices such as condenser and evaporator. Heat transfer occurs in a heat exchanger when a fluid changes from a liquid to a vapour (evaporator) and a vapour to a liquid (condenser).
“HVAC” : Heating, ventilation and air-conditioning.
“HVAC&R” : Heating, ventilation, air-conditioning and refrigeration.
“ISO9000” : A series of international standards primarily concerned with quality management and quality assurance.
“ISO9001:2000” : A constituent part of the ISO9000 series which specifies the requirements for a quality management system for any organisation that needs to demonstrate its ability to consistently provide products that meet customer and applicable requirements aim to enhance customer satisfaction.
“ISO9001:2008” : A constituent part of the ISO9000 series developed in order to introduce clarifications to the existing requirements of the ISO9001:2000.
“Montreal Protocol” : The Montreal Protocol on Substances that Deplete the Ozone Layer, an international treaty designed to protect the ozone layer by phasing out the production of numerous substances believed to be responsible for ozone depletion.
“Pipe insulation” : A thermal insulation unit used to prevent heat loss and heat gain from pipes, to save energy, minimise condensation and improve effectiveness of thermal systems.
“PVC trunking” : A material made of polyvinyl chloride (PVC) used to enclose copper pipes in refrigeration and air-conditioning applications.
“Refrigerant” : A medium used for heat transfer involving the removal of heat through the latent heat processes which is a reversible phase change from gas to liquid.
15
GLOSSARY OF TECHNICAL TERMS
All statements contained in this Offer Document, statements made in press releases and oral statements that may be made by us or our Directors, Executive Officers or employees acting on our behalf, that are not statements of historical fact, constitute “forward-looking statements”. You can identify some of these forward-looking statements by terms such as “expect”, “believe”, “plan”, “intend”, “estimate”, “anticipate”, “may”, “will”, “would” and “could” or similar words. However, you should note that these words are not the exclusive means of identifying forward-looking statements. All statements regarding our expected financial position, business strategies, plans and prospects are forward-looking statements.
These forward-looking statements, including without limitation, statements as to:-
(a) our revenue and profitability;
(b) expected growth in demand;
(c) expected industry trends;
(d) anticipated expansion plans; and
(e) other matters discussed in this Offer Document regarding matters that are not historical fact,
are only predictions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expected, expressed or implied by these forward-looking statements. These risks, uncertainties and other factors include, among others:-
(a) changes in political, social, economic and stock or securities market conditions and the regulatory environment in Singapore and other countries in which we conduct business;
(b) changes in currency exchange or interest rates;
(c) the risk that we may be unable to realise our anticipated growth strategies and expected internal growth;
(d) changes in the availability and prices of raw materials which we require to operate our business;
(e) changes in customer preferences;
(f) changes in competitive conditions and our ability to compete under such conditions;
(g) changes in our future capital needs and the availability of financing and capital to fund such needs;
(h) other factors beyond our control; and
(i) the factors described in the “Risk Factors” section of this Offer Document.
All forward-looking statements made by or attributable to us, or persons acting on our behalf, contained in this Offer Document are expressly qualified in their entirety by such factors.
Given the risks and uncertainties that may cause our actual future results, performance or achievements to be materially different from that expected, expressed or implied by the forward-looking statements in this Offer Document, undue reliance must not be placed on these statements which apply only as at the date of this Offer Document. None of our Company, the Sponsor and the Placement Agent or any other person represents or warrants that our Group’s actual future results, performance or achievements will be as discussed in those statements. Further, our Company, the Sponsor and the Placement Agent disclaim any responsibility to update any of those forward-looking statements to reflect future developments, events or circumstances for any reason, even if new information becomes available or other events occur in the future.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of the risks faced by us. We, and the Sponsor and the Placement Agent disclaim any responsibility to update any of those forward-looking statements or publicly announce any revisions to those forward-looking statements to reflect future developments, events or circumstances. We are, however, subject to the provisions of the SFA and the Catalist Rules regarding corporate disclosure. In particular, pursuant to Section 241 of the SFA, if after the Registration but before the close of the Placement, our Company becomes aware of (a) a false or misleading statement or matter in the Offer Document; (b) an omission from the Offer Document of any information that should have been included in it under Section 243 of the SFA; or (c) a new circumstance that has arisen since the Registration and would have been required by Section 243 of the SFA to be included in the Offer Document if it had arisen before the Offer Document was lodged and that is materially adverse from the point of view of an investor, our Company may lodge a supplementary or replacement offer document with the SGX-ST acting as an agent on behalf of the Authority.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Offer Document does not constitute an offer, solicitation or invitation to subscribe for our Shares in any jurisdiction in which such offer, solicitation or invitation is unlawful or is not authorised or to any person to whom it is unlawful to make such offer, solicitation or invitation. No action has been or will be taken under the requirements of the legislation or regulations of, or of the legal or regulatory authorities of, any jurisdiction, except for the lodgement and/or registration of this Offer Document in Singapore in order to permit a public offering of the New Shares and the public distribution of this Offer Document in Singapore. The distribution of this Offer Document and the offering of the Shares in certain jurisdictions may be restricted by the relevant laws in such jurisdictions. Persons who may come into possession of this Offer Document are required by our Company, and the Sponsor and the Placement Agent to inform themselves about, and to observe and comply with, any such restrictions at their own expense and without liability to our Company, and the Sponsor and the Placement Agent.
Persons to whom a copy of this Offer Document has been issued shall not circulate to any other person, reproduce or otherwise distribute this Offer Document or any information herein for any purpose whatsoever nor permit or cause the same to occur.
18
SELLING RESTRICTIONS
LISTING ON CATALIST
The Sponsor has made an application to the SGX-ST for permission to deal in, and for quotation of, all our Shares already issued and the New Shares which are the subject of the Placement on Catalist. The dealing in and quotation of the Shares will be in S$.
Companies listed on Catalist may carry higher investment risk when compared with larger or more established companies listed on the Main Board of the SGX-ST. In particular, companies may list on Catalist without a track record of profitability and there is no assurance that there will be a liquid market in the shares or units of shares traded on Catalist. You should be aware of the risks of investing in such companies and should make the decision to invest only after careful consideration and, if appropriate, consultation with your professional adviser(s).
The Placement is made in or accompanied by this Offer Document that has been registered by the SGX-ST acting as an agent on behalf of the Authority. We have not lodged or registered this Offer Document in any other jurisdiction.
Neither the Authority nor the SGX-ST has examined or approved the contents of this Offer Document. Neither the Authority nor the SGX-ST assumes any responsibility for the contents of this Offer Document, including the correctness of any of the statements or opinions made or reports contained in this Offer Document. The SGX-ST does not normally review the application for admission but relies on the Sponsor confirming that our Company is suitable to be listed and complies with the Catalist Rules. Neither the Authority nor the SGX-ST has in any way considered the merits of the Shares being offered for investment.
The Registration does not imply that the SFA, or any other legal or regulatory requirements, or requirements under the SGX-ST’s listing rules, have been complied with.
Acceptance of applications will be conditional upon the issue of the New Shares and permission being granted by the SGX-ST for the listing and quotation of all our existing issued Shares and the New Shares on Catalist. Monies paid in respect of any application accepted will be returned to you at your own risk, without interest or any share of revenue or other benefit arising therefrom, if the admission and listing do not proceed, and you will not have any claims against us or the Sponsor and the Placement Agent.
After the expiration of six months from the date of Registration, no person shall make an offer of securities, or allot, issue or sell any of our Shares, on the basis of this Offer Document; and no officer or equivalent person or promoter of our Company will authorise or permit the offer of any of our Shares or the allotment, issue or sale of any of our Shares, on the basis of this Offer Document.
We are subject to the provisions of the SFA and the Catalist Rules regarding corporate disclosure. In particular, pursuant to Section 241 of the SFA, if after the Registration but before the close of the Placement, we become aware of:-
(a) a false or misleading statement or matter in the Offer Document;
(b) an omission from the Offer Document of any information that should have been included in it under Section 243 of the SFA; or
(c) a new circumstance that has arisen since the Offer Document was lodged with the SGX-ST would have been required by Section 243 of the SFA to be included in the Offer Document if it had arisen before this Offer Document was lodged,
that is materially adverse from the point of view of an investor, we may lodge a supplementary or replacement offer document with the SGX-ST acting as an agent on behalf of the Authority.
In the event that a supplementary or replacement offer document is lodged with the SGX-ST, the Placement shall be kept open for at least 14 days after the lodgement of such supplementary or replacement offer document.
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DETAILS OF THE PLACEMENT
Where prior to the lodgement of the supplementary or replacement offer document, applications have been made under this Offer Document to subscribe for the New Shares and:-
(a) where the New Shares have not been issued to the applicants, our Company shall either:-
(i) within two days (excluding any Saturday, Sunday or public holiday) from the date of lodgement of the supplementary or replacement offer document, give the applicants notice in writing of how to obtain, or arrange to receive, a copy of the supplementary or replacement offer document, and provide the applicants with an option to withdraw their applications and take all reasonable steps to make available within a reasonable period the supplementary or replacement offer document to the applicants who have indicated that they wish to obtain, or who have arranged to receive, a copy of the supplementary or replacement offer document; or
(ii) within seven days from the date of lodgement of the supplementary or replacement offer document, give the applicants the supplementary or replacement offer document, as the case may be, and provide the applicants with an option to withdraw their applications; or
(iii) treat the applications as withdrawn and cancelled, in which case the applications shall be deemed to have been withdrawn and cancelled, and our Company shall, within seven days from the date of lodgement of the supplementary or replacement offer document, return all monies paid in respect of any application, without interest or a share of revenue or other benefit arising therefrom; or
(b) where the New Shares have been issued to the applicants, our Company shall either:-
(i) within two days (excluding any Saturday, Sunday or public holiday) from the date of lodgement of the supplementary or replacement offer document, give the applicants notice in writing of how to obtain, or arrange to receive, a copy of the supplementary or replacement offer document, and provide the applicants with an option to withdraw their applications and take all reasonable steps to make available within a reasonable period the supplementary or replacement offer document to the applicants who have indicated that they wish to obtain, or have arranged to receive, a copy of the supplementary or replacement offer document;
(ii) within seven days from the date of lodgement of the supplementary or replacement offer document, give the applicants the supplementary or replacement offer document, as the case may be, and provide the applicants with an option to return to our Company the New Shares, which they do not wish to retain title in; or
(iii) treat the issue of the New Shares as void, in which case the issue shall be deemed void and our Company shall within seven days from the date of lodgement of the supplementary or replacement offer document, return all monies paid in respect of any application, without interest or a share of revenue or other benefit arising therefrom.
An applicant who wishes to exercise his option under paragraph (a)(i) or (a)(ii) to withdraw his application shall, within 14 days from the date of lodgement of the supplementary or replacement offer document, notify our Company of this, whereupon our Company shall, within seven days from the receipt of such notification, return the application monies without interest or any share of revenue or other benefit arising therefrom and at his own risk, and he will not have any claim against our Company, the Sponsor or the Placement Agent.
An applicant who wishes to exercise his option under paragraph (b)(i) or (b)(ii) to return the New Shares issued to him shall, within 14 days from the date of lodgement of the supplementary or replacement offer document, notify our Company of this and return all documents, if any, purporting to be evidence of title to those New Shares to our Company, whereupon our Company shall, within seven days from the receipt of such notification and documents, if any, pay to him all monies paid by him for those Shares, without interest or any share of revenue or other benefit arising therefrom and at his own risk, and the issue of those Shares shall be deemed to be void, and he will not have any claim against our Company, the Sponsor or the Placement Agent.
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DETAILS OF THE PLACEMENT
This Offer Document has been seen and approved by our Directors and they individually and collectively accept full responsibility for the accuracy of the information given in this Offer Document and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, the facts stated and all expressions of opinion, intention and expectation in this Offer Document are fair and accurate in all material respects as at the date of this Offer Document and that there are no material facts the omission of which would make any statements in this Offer Document misleading, and that this Offer Document constitutes full and true disclosure of all material facts about the Placement and our Group.
Neither our Company, the Sponsor and the Placement Agent nor any other parties involved in the Placement is making any representation to any person regarding the legality of an investment by such person under any investment or other laws or regulations. No information in this Offer Document should be considered as being business, legal or tax advice regarding an investment in our Shares. Each prospective investor should consult his own professional or other advisers for business, legal or tax advice regarding an investment in our Shares.
No person has been or is authorised to give any information or to make any representation not contained in this Offer Document in connection with the Placement and, if given or made, such information or representation must not be relied upon as having been authorised by us, the Sponsor and the Placement Agent. Neither the delivery of this Offer Document and the Application Form nor any documents relating to the Placement, nor the Placement shall, under any circumstances, constitute a continuing representation or create any suggestion or implication that there has been no change in our affairs or in the statements of fact or information contained in this Offer Document since the date of this Offer Document. Where such changes occur and are material or are required to be disclosed by law, the SGX-ST and/or any other regulatory or supervisory body or agency, we may make an announcement of the same to the SGX-ST and the public and if required, we may lodge a supplementary or replacement offer document with the SGX-ST and will comply with the requirements of the SFA and/or any other requirements of the SGX-ST. All applicants should take note of any such announcements and/or supplementary or replacement offer document, and, upon the release of such an announcement and/or supplementary or replacement offer document, shall be deemed to have notice of such changes.
Save as expressly stated in this Offer Document, nothing herein is, or may be relied upon as, a promise or representation as to our future performance or policies. The New Shares are offered for subscription solely on the basis of the information contained and representations made in this Offer Document.
This Offer Document has been prepared solely for the purpose of the Placement and may not be relied upon by any persons other than the applicants in connection with their application for the New Shares or for any other purpose.
This Offer Document does not constitute an offer, solicitation or invitation to subscribe for the New Shares in any jurisdiction in which such offer, solicitation or invitation is unlawful or unauthorised nor does it constitute an offer, solicitation or invitation to any person to whom it is unlawful to make such offer, solicitation or invitation.
Copies of this Offer Document and the Application Form may be obtained on request, subject to availability during office hours, from:-
Collins Stewart Pte. Limited77 Robinson Road #21-02
Singapore 068896
An electronic copy of this Offer Document is also available on the SGX-ST website at http://www.sgxcatalist.com.
The Application List will open immediately upon the Registration and will remain open until 12.00 noon on 4 August 2011 or for such further period or periods as our Directors may, in consultation with the Sponsor and the Placement Agent, in their absolute discretion decide, subject to any limitation under all applicable laws. In the event a supplementary offer document or replacement offer document is lodged with the SGX-ST, the Application List will remain open for at least 14 days after the lodgement of the supplementary or replacement offer document.
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DETAILS OF THE PLACEMENT
Details of the procedures for application of the New Shares are set out in Appendix E – “Terms, Conditions and Procedures for Application” of this Offer Document.
INDICATIVE TIMETABLE FOR LISTING
An indicative timetable for the Placement and trading in our Shares is set out below for your reference:-
Indicative date/time Event
4 August 2011, at 12.00 noon Close of Application List
8 August 2011, at 9.00 a.m. Commence trading on a “ready” basis
12 August 2011 Settlement date for all trades done on a “ready” basis
The above timetable is only indicative as it assumes that the date of closing of the Application List is 4 August 2011, the date of admission of our Company to Catalist is 8 August 2011, the SGX-ST’s shareholding spread requirement will be complied with and the New Shares will be issued and fully paid-up prior to 8 August 2011.
The above timetable and procedures may be subject to such modification as the SGX-ST may, in its absolute discretion, decide, including the commencement date of trading on a "ready" basis.
In the event of any changes in the closure of the Application List or the time period during which the Placement is open, we will publicly announce the same:-
(a) through an SGXNET announcement to be posted on the internet at the SGX-ST website http://www.sgx.com; and
(b) in a major English language newspaper in Singapore such as The Straits Times and/or The Business Times.
We will provide details of the results of the Placement (including the level of subscription for the New Shares), as soon as it is practicable after the closure of the Application List through the channels described in (a) and (b) above.
Investors should consult the SGX-ST’s announcement on “ready” trading date on the Internet (at the SGX-ST website http://www.sgx.com) or newspapers, or check with their brokers on the date on which trading on a “ready” basis will commence.
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DETAILS OF THE PLACEMENT
The following summary highlights certain information found in greater detail elsewhere in this Offer Document and should be read in conjunction with the full text of this Offer Document. As it is a summary, it does not contain all the information that potential investors should consider before investing in our Shares. We urge potential investors to read this entire Offer Document carefully, especially the matters set out in the “Risk Factors” section of this Offer Document, before deciding to invest in our Shares.
OVERVIEW OF OUR GROUP
Our Company was incorporated in Singapore on 18 March 1964 under the Companies Act as a private limited company under the name of “Far East Refrigeration (Pte.) Limited”. On 18 March 2011, the name of our Company was changed to “Far East Group Pte. Ltd.”. Our Company was converted to the public limited company and the name of our Company was changed to “Far East Group Limited” in connection therewith on 25 July 2011.
OUR BUSINESS
We are a comprehensive provider of refrigeration and air-conditioning systems and products in the HVAC&R industry, principally engaged in the sourcing and distribution of a wide range of agency products as well as the manufacturing and distribution of heat exchangers and condensing units under our own brand “Eden”. Our Directors believe that we are one of the leading regional distributors of commercial and light industrial refrigeration systems and products in the SEA region.
Our head office is based in Singapore and we have subsidiaries in Singapore, Malaysia and Hong Kong, as well as representative offices in Vietnam and Indonesia.
Please refer to the “Business – Business Overview” section of this Offer Document for further details.
OUR COMPETITIVE STRENGTHS
Our Directors believe that our key competitive strengths are as follows:-
(i) we are a one-stop refrigeration systems provider;
(ii) we have an established reputation and track record;
(iii) we have established strong business relationships with our business partners;
(iv) we have a wide distribution network;
(v) we have strong research and development capabilities;
(vi) we provide quality products and services at competitive prices; and
(vii) we have an experienced management team.
Please refer to the “Business – Our Competitive Strengths” section of this Offer Document for further details.
OUR BUSINESS STRATEGIES AND FUTURE PLANS
Our business strategies and future plans for the growth and expansion of our business are as follows:-
(i) expansion of our sales and distribution network;
(ii) expansion and upgrade of existing manufacturing facilities;
(iii) research and development of new products; and
(iv) expansion of our business through acquisitions, joint ventures or strategic alliances.
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OFFER DOCUMENT SUMMARY
Please refer to the “Prospects, Business Strategies and Future Plans – Our Business Strategies and Future Plans” section of this Offer Document for further details.
WHERE YOU CAN FIND US
Our registered office and principal place of business is at 112 Lavender Street, #04-00, Far East Refrigeration Building, Singapore 338728. Our telephone number is (65) 6293 9733 and our facsimile number is (65) 6296 5326. Our main warehouse and workshop is located at 5 Third Lok Yang Road, Singapore 628000 and our manufacturing facility is located at Lot 1998/D Jalan Perusahaan 3, Taman Industri Selesa Jaya, 43300 Balakong, Seri Kembangan, Selangor Darul Ehsan, Malaysia. Our internet address is http://www.fareastref.com.sg. Information contained in our website does not constitute part of this Offer Document.
SUMMARY OF OUR FINANCIAL INFORMATION
The following tables represent a summary of the financial highlights of our Group and should be read in conjunction with the “Selected Consolidated Financial Information” and “Management’s Discussion and Analysis of Results of Operations and Financial Position” sections, as well as the “Independent Auditors’ Report on the Audited Consolidated Financial Statements of Far East Group Limited and Subsidiary Companies for the Financial Years Ended 31 December 2008, 2009 and 2010” set out in the Appendix A of this Offer Document.
Selected items from the operating results of our Group
Audited (S$’000) FY2008 FY2009 FY2010
Turnover 29,191 26,805 32,616Gross profit 7,103 7,187 10,719Profit before tax 1,358 1,639 5,449 (3)
Profit for the year 964 1,342 4,553 (3),(4)
Profit attributable to equity holders of the Company 933 1,312 4,506 (3),(4)
Non-controlling interests 31 30 47EPS(1) (cents) 1.7 2.4 8.4 (4)
EPS (fully diluted) (2) (cents) 1.3 1.8 6.2 (4)
Adjusted EPS(1) (cents) 6.4 (4)
Adjusted EPS (fully diluted)(2) (cents) 4.8 (4)
Notes:-
(1) For comparative purposes, the EPS for the period under review has been computed based on the profit attributable to equity holders of our Company and the pre-Placement share capital of 53,520,000 Shares. The Adjusted EPS in FY2010 has been computed based on the profit attributable to equity holders of our Company, adjusted for non-recurring income of approximately S$1,062,000 in relation to gain on disposal of investment properties, and the pre-Placement share capital of 53,520,000 Shares.
(2) For comparative purposes, the fully diluted EPS for the period under review has been computed based on the profit attributable to equity holders of our Company and the post-Placement share capital of 72,320,000 Shares. The Adjusted EPS in FY2010 has been computed based on the profit attributable to equity holders of our Company, adjusted for non-recurring income of approximately S$1,062,000 in relation to gain on disposal of investment properties, and the post-Placement share capital of 72,320,000 Shares.
(3) Includes non-recurring income of approximately S$1,062,000 in relation to gain on disposal of investment properties. For illustration purposes, had such non-recurring income been excluded, our profit before tax, profit for the year and profit attributable to equity holders of our Company would have been approximately S$4,387,000, S$3,491,000 and S$3,444,000 respectively.
(4) Had the Service Agreements been in place since the beginning of FY2010, (i) the profit for the year and profit attributable to equity holders of our Company in FY2010 would have been approximately S$4,210,000 and S$4,163,000 respectively; (ii) the EPS and fully diluted EPS would have been 7.8 cents and 5.8 cents respectively; and (iii) the Adjusted EPS and fully diluted Adjusted EPS would have been 5.8 cents and 4.3 cents respectively.
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OFFER DOCUMENT SUMMARY
Selected items from the consolidated financial position of our Group
(S$’000)Audited as at
31 December 2010
ASSETSCurrent assets 20,311Non-current assets 7,799
28,110
LIABILITIESCurrent liabilities 11,751Non-current liabilities 2,985
14,736
Net assets 13,374
EQUITYEquity attributable to equity holders of the Company 13,218Non-controlling interests 156
Total equity 13,374
NTA per Share(1) (cents) 24.7Adjusted NTA per Share(1) (cents) 26.9
Note:-
(1) The NTA per share and Adjusted NTA per Share as at 31 December 2010 have been computed based on our pre-Placement share capital of 53,520,000 Shares.
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OFFER DOCUMENT SUMMARY
Issue size : Placement in respect of 18,800,000 New Shares.
The New Shares will, upon issue and allotment, rank pari passu in all respects with the existing issued Shares.
Placement Price : S$0.27 for each New Share.
The Placement : The Placement comprises an offering by the Placement Agent on behalf of our Company of 18,800,000 Placement Shares at the Placement Price, subject to and on the terms and conditions of this Offer Document.
Purpose of the Placement : Our Directors consider that the listing of our Company and the quotation of our Shares on Catalist will enhance our public image locally and overseas and enable us to tap the capital markets for the expansion of our operations.
The Placement will also provide members of the public with an opportunity to participate in the equity of our Company. In addition, the proceeds of the Placement will provide us with additional capital to finance our business expansion.
Listing status : Prior to the Placement, there had been no public market for our Shares. Our Shares will be quoted in S$ on Catalist, subject to admission of our Company to Catalist and permission to deal in, and for quotation of, our Shares being granted by the SGX-ST.
Risk factors : Investing in our Shares involves risks which are described in the “Risk Factors” section of this Offer Document.
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THE PLACEMENT
The Placement
The Placement is for 18,800,000 Placement Shares offered in Singapore by way of Placement, managed and sponsored by Collins Stewart.
Prior to the Placement, there has been no public market for our Shares. The Placement Price was determined by our Company in consultation with the Sponsor and the Placement Agent, taking into consideration, amongst other things, prevailing market conditions and the estimated market demand for the New Shares, determined through a book-building process. The Placement Price is the same for all Placement Shares and is payable in full on application.
Pursuant to the Management Agreement, we have appointed Collins Stewart and Collins Stewart has agreed to manage and sponsor the Placement. Please refer to the “Management and Placement Arrangements” section of this Offer Document for further details on the Management Agreement.
Placement Shares
Pursuant to the Placement Agreement, Collins Stewart has agreed to subscribe for and/or procure subscribers for the Placement Shares for a placement commission of 3.25% of the Placement Price for each Placement Share, payable by our Company. Collins Stewart may, at its absolute discretion, appoint one or more sub-placement agents for the Placement Shares. Please refer to the “Management and Placement Arrangements” section of this Offer Document for further details on the Placement Agreement.
Subscribers of the Placement Shares may be required to pay a brokerage of up to 1.0% of the Placement Price (plus GST thereon, if applicable) to the Placement Agent or any sub-placement agent that may be appointed by the Placement Agent.
The Placement Shares are reserved for placement to members of the public and institutional investors in Singapore at the Placement Price. Application for the Placement Shares may only be made by way of Placement Shares Application Form. The terms, conditions and procedures for the application and acceptance are set out in Appendix E – “Terms, Conditions and Procedures for Application” of this Offer Document.
None of our Directors or Substantial Shareholders intends to subscribe for the Placement Shares.
To the best of our knowledge and belief, as at the date of this Offer Document, we are not aware of any person who intends to subscribe for more than 5% of the New Shares. However, through a book-building process to assess market demand for our Shares, there may be person(s) who may indicate an interest to subscribe for Shares amounting to more than 5% of the New Shares. If such person(s) were to make an application for more than 5% of the New Shares pursuant to the Placement and are subsequently allotted such number of Shares, we will make the necessary announcements at an appropriate time. The final allotment of Shares will be in accordance with the shareholding spread and distribution guidelines as set out in Rule 406 of the Catalist Rules.
No Shares shall be issued and allotted and/or allocated on the basis of this Offer Document later than six months after the date of Registration.
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PLAN OF DISTRIBUTION
The estimated net proceeds raised from the Placement, after deducting estimated expenses of approximately S$1.6 million, are approximately S$3.5 million.
The following table sets out the breakdown of the intended uses of net proceeds from the Placement and the estimated expenses related to the Placement.
Amount(S$’000)
As a % of gross proceeds from the
Placement
(a) Expansion of our sales and distribution network 600 11.8
(b) Expansion and upgrade of existing manufacturing facilities 400 7.9
(c) Research and development of new products 300 5.9
(d) General working capital 2,200 43.3
Net proceeds 3,500 68.9
Expenses(1)
Listing and processing fees 43 0.8Professional fees 1,014 20.0Placement commission and brokerage(2) 165 3.3Miscellaneous expenses 354 7.0
Gross proceeds from the Placement 5,076 100.0
Notes:-
(1) Of the total estimated listing expenses of approximately S$1.6 million, S$440,000 will be capitalised against share capital and the balance of the estimated listing expenses will be charged to the profit or loss.
(2) Based on a placement commission of 3.25% of the Placement Price for each Placement Share.
Further details of our use of proceeds may be found in the “Prospects, Business Strategies and Future Plans – Our Business Strategies and Future Plans” section of this Offer Document.
In the event that the amount set aside to meet our Company’s portion of the estimated expenses listed above is in excess of the actual expenses incurred in connection with the Placement, such excess amount will be applied towards our general working capital purpose.
Pending the deployment of the net proceeds as aforesaid, the funds will be placed in short-term deposits with financial institutions, used to invest in short-term money market instruments and/or used for general working capital requirements as our Directors may deem appropriate.
In the event that any part of our proposed uses of the net proceeds from the issue of the New Shares does not materialise or proceed as planned, our Directors will carefully evaluate the situation and may reallocate the intended funding to other purposes and/or hold such funds on short-term deposits for so long as our Directors deem it to be in the interest of our Company and our Shareholders, taken as a whole. Any change in the use of the net proceeds will be subject to Shareholders’ approval and the listing rules of the SGX-ST and appropriate announcements will be made by our Company on the SGXNET.
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USE OF PROCEEDS FROM THE PLACEMENT AND EXPENSES INCURRED
Pursuant to the Management Agreement, our Company appointed Collins Stewart to manage and sponsor the Placement. Collins Stewart will receive a management fee from our Company for such services rendered.
Pursuant to the Placement Agreement, Collins Stewart agreed to subscribe for and/or procure subscribers for the Placement Shares at the Placement Price at a placement commission of 3.25% of the aggregate Placement Price for each Placement Share, payable by our Company. Collins Stewart may, at its absolute discretion, appoint one or more sub-placement agents for the Placement.
Subscribers of the Placement Shares may be required to pay a brokerage of up to 1.0% of the Placement Price (plus GST thereon, if applicable) to the Placement Agent.
Save as aforesaid, no commission, discount or brokerage, has been paid or other special terms granted by our Company within the two years preceding the date of this Offer Document or is payable to any Director, promoter, expert, proposed Director or any other person for subscribing or agreeing to subscribe or procuring or agreeing to procure subscriptions for any shares in, or debentures of, our Company or our subsidiaries.
If there shall have been, since the date of the Management Agreement and prior to or on the close of the Application List:-
(i) any breach of the warranties or undertakings in the Management Agreement which comes to the knowledge of Collins Stewart; or
(ii) any occurrence of certain specified events which comes to the knowledge of Collins Stewart; or
(iii) any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise) of our Company and/or any of our subsidiaries; or
(iv) any introduction or prospective introduction of or any change or prospective change in any legislation, regulation, order, notice, policy, rule, guideline or directive (whether or not having the force of law) and including, without limitation, any directive, notice or request issued by the Authority, the Securities Industry Council of Singapore or the SGX-ST or relevant authorities elsewhere, in the interpretation or application thereof by any court, government body, regulatory authority or other competent authority in Singapore or elsewhere; or
(v) any change, or any development involving a prospective change, in local, national or international, financial (including stock market, foreign exchange market, inter-bank market or interest rates or money market), political, industrial, economic, legal or monetary conditions, taxation or exchange controls (including without limitation, the imposition of any moratorium, suspension or material restriction on trading in securities generally on the SGX-ST due to exceptional financial circumstances or otherwise material adverse changes in foreign exchange controls in Singapore or overseas, or any combination of any such changes or developments or crisis, or any material deterioration of any such conditions); or
(vi) any imminent threat or occurrence of any local, national or international outbreak or escalation of hostilities, insurrection, terrorist attacks or armed conflict (whether or not involving financial markets in any jurisdiction); or
(vii) any regional or local outbreak of disease that may have an adverse effect on the financial markets; or
(viii) any other occurrence of any nature whatsoever,
which has resulted or is in the reasonable opinion of Collins Stewart, (i) results or is likely to result in a material adverse fluctuation or adverse conditions in the stock market in Singapore or elsewhere; or (ii) is likely to materially prejudice the success of the Placement; or (iii) makes it impracticable, inadvisable, inexpedient or uncommercial to proceed with any of the transactions contemplated in the Management Agreement; or (iv) is likely to have a material adverse effect on the business, trading position, operations
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MANAGEMENT AND PLACEMENT ARRANGEMENTS
or prospects of our Group and/or any of our subsidiaries or of our Group as a whole; or (v) results or is likely to result in the issue of a notice of refusal to an admission of our Company to Catalist by the SGX-ST to the Sponsor at any point prior to the listing of our Shares pursuant to the SFA; (vi) or makes it uncommercial or otherwise contrary to observe or perform the terms of the Management Agreement, the Sponsor may at any time prior to the close of the Application List rescind or terminate the Management Agreement.
The Sponsor may terminate the Management Agreement if:-
(a) at any time up to the close of the Application List, a notice of refusal to an admission of our Company to Catalist is issued by the SGX-ST to the Sponsor; or
(b) at any time after the Registration but before the close of the Application List, our Company fails and/or neglects to lodge a supplementary or replacement Offer Document (as the case may be) if we become aware of:-
(i) a false or misleading statement in this Offer Document;
(ii) an omission from this Offer Document of any information that should have been included in it under Section 243 of the SFA; or
(iii) a new circumstance that has arisen since this Offer Document was lodged with the SGX-ST acting as an agent on behalf of the Authority and would have been required by Section 243 of the SFA to be included in the Offer Document if it had arisen before this Offer Document was lodged,
that is materially adverse from the point of view of an investor; or
(c) the Shares have not been admitted to the Official List of the SGX-ST on or before 8 August 2011 (or such other date as our Company and the Sponsor may agree).
The obligations under the Placement Agreement are conditional upon the Management Agreement not being determined or rescinded pursuant to the provisions of the Management Agreement. In the case of the non-fulfilment of any of the conditions in the Management Agreement or the release or discharge of the Sponsor from its obligations under or pursuant to the Management Agreement, the Placement Agreement shall be terminated and the parties shall be released from their respective obligations under the Placement Agreement.
In the event that the Management Agreement and/or the Placement Agreement is terminated, our Company reserves the right, at our absolute discretion, to cancel the Placement.
Save as disclosed above, we do not have any material relationship with the Sponsor and the Placement Agent.
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MANAGEMENT AND PLACEMENT ARRANGEMENTS
An investment in our Shares involves significant risks. Prospective investors should carefully consider and evaluate the following considerations and all other information contained in this Offer Document, including our consolidated financial statements and related notes, before deciding to invest in our Shares. Some of the following risk factors relate principally to the industry in which our Group operates and the business of our Group in general. Other considerations relate principally to general economic and political conditions and the securities market and ownership of our Shares, including possible future sales of Shares. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.
Our business, results of operations, financial condition and prospects could be materially and adversely affected by any of these risks. In such cases, the trading price of our Shares could decline due to any of these risks and investors may lose all or part of their investment in our Shares.
This Offer Document also contains forward-looking statements that involve risks and uncertainties. The actual results of our operations could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this Offer Document. Please refer to the “Cautionary Note Regarding Forward-Looking Statements” section of this Offer Document for further details.
Before deciding to invest in our Shares, you should seek professional advice from your advisers about your particular circumstances. To the best of our Directors’ knowledge and belief, all the risk factors that are material to investors in making an informed judgement have been set out below.
RISKS RELATING TO OUR INDUSTRY AND BUSINESS
Our continued success is dependent on our management team and skilled personnel
Our Group is dependent on the continued employment and performance of our Executive Directors and Executive Officers. Our management team is led by experienced personnel who have extensive experience in our industry and possess in-depth knowledge and know-how of our business. Our management team is guided by Loh Ee Ming (our Non-executive Chairman) and headed by Steven Loh (our CEO and Executive Director), who each has more than 60 and 20 years experience in the HVAC&R industry respectively and have been instrumental in formulating our business strategies and spearheading the growth of our business operations. They are assisted by David Leng (our COO (Sales and Marketing) and Executive Director) and our Executive Officers, Allan Ward, Richard Chung, and Tan Su Kim, each of whom is experienced in his respective field and has qualified knowledge and/or expertise in running our day-to-day operations. The loss of any of our key management staff for any reason without suitable and timely replacements, and the inability to attract, train and retain qualified management personnel will adversely affect our operations, revenue and profits. Please refer to the “Directors, Executive Officers and Staff” section of this Offer Document for more details on the qualifications and working experience of our Executive Directors and Executive Officers.
In addition, having a team of experienced and skilled managers and technical personnel is essential to our business operations. Our industry and business require our managers and technical personnel, such as engineers and technicians to be skilled and experienced in their respective disciplines. However, owing to the specialised nature of our work, there is a limited supply of adequately skilled personnel in our industry. Hence, our continued success depends largely on our ability to attract and retain skilled employees. To the extent that we lose any of our skilled personnel for whatever reasons without suitable or timely replacements and/or we are unable to recruit the required number of suitably skilled personnel, either locally or from overseas, to meet our operational and business needs, our revenue and profitability may be negatively affected. We may also have to pay substantial wages to attract and retain the required personnel, and this may have an adverse impact on our operating margins.
We are dependent on our corporate name and reputation
We believe that we have an established corporate name and reputation, and are widely recognised by peers, customers and suppliers in our industry. We consider our corporate name and reputation to be vital in promoting recognition, customer loyalty and suppliers’ confidence. Hence, should there be any negative publicity against our Group, or should there be any major defects found in our products and projects,
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RISK FACTORS
which our Group is involved in, our corporate image and reputation will be adversely affected and our customers may lose confidence in our products and services. This will adversely affect our business and financial performance.
We are dependent on a major supplier
Bitzer is one of our major suppliers who supplies us with compressors, condensers, receivers and relevant spare parts. Purchases from Bitzer had accounted for approximately 36.2%, 26.2% and 28.9% of our Group’s purchases in FY2008, FY2009 and FY2010 respectively. For further details of our major suppliers, please refer to the “Business – Our Major Suppliers” section of this Offer Document.
Our Directors believe that we depend significantly on our relationship with Bitzer. As we do not enter into long-term contract with Bitzer, there is no assurance that it will continue to fulfil our requirements and expectations in terms of cost and product quality, nor is there assurance that we will be able to continue to source for products from Bitzer. In addition, should we fail to maintain good relationship with Bitzer, or there is a prolonged lead time in delivery, or it fails to deliver our products on time, and we are unable to source these products of similar quality from alternative suppliers on a timely basis, our business and/or delivery timeline to our customers will be affected. This in turn may adversely affect our reputation if our customers lose confidence in our products and services, and our revenue and profitability may be adversely affected.
We are susceptible to fluctuations in the prices of our agency products and raw materials
Our agency products comprise mainly compressors, condensers, controllers, valves and copper pipes, and these accounted for 83.9%, 85.9% and 90.0% of our total cost of sales in FY2008, FY2009 and FY2010 respectively. The prices of such products which we can secure from our suppliers are influenced by factors including the volume of our purchases and the general market conditions affecting such products.
The key raw materials used in the manufacturing of our “Eden” brand of heat exchangers are mainly copper pipes, galvanised sheets, aluminium sheets and fan sets. These raw materials accounted for 14.2%, 12.0% and 8.2% of our total cost of sales in FY2008, FY2009 and FY2010 respectively. We are susceptible to fluctuations in the prices of such raw materials as these are commodities and their prices are subject to the changes in global demand and supply conditions.
In the event that the prices of our agency products and raw materials fluctuate adversely against us and we are unable to pass on the price increases to our customers, or find alternative sources of agency products and raw materials of comparable quantity at acceptable prices, our financial performance will be adversely affected.
We are exposed to credit risks of our customers
We typically grant credit terms of 30 to 90 days to our customers and based on our experience in FY2008, FY2009 and FY2010, our customers typically made payment within the credit period. However, we may be exposed to payment delays and/or defaults by our customers. In FY2008, FY2009 and FY2010, our average trade debtors turnover days were 86 days, 73 days and 62 days respectively. Please refer to the “Business - Credit Management” section of this Offer Document for the reasons for the fluctuations in the average trade debtors turnover days over the period under review.
Any deterioration in the financial positions of our Group’s customers may materially or adversely affect our profits and cash flow as these customers may default on their payments to us. We cannot assure you that the risks of default by our customers will not increase in the future or that we will not experience cash flow problems as a result of such defaults. Should these events develop into actual events, our operations and profitability will be adversely affected.
We are exposed to disputes and claims in relation to defects in workmanship and non-compliance to contract specifications
Disputes and claims in relation to defects in workmanship and non-compliance to contract specifications are common in our industry. There can be no assurance that any future disputes and claims will not result in undue delays in payment by our customers or in protracted litigation, which will have a negative
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RISK FACTORS
impact on our financial performance and corporate reputation. In addition, we may incur additional costs in rectifying alleged defects. Such additional costs may have an adverse effect on our overall financial performance.
We are dependent on our research and development capabilities
We strongly believe that our research and development capabilities are instrumental to our business and provide us with a competitive edge over our competitors. Hence, we place a great emphasis on research and development, in particular, in improving the efficiency and effectiveness of our products, and developing cost-effective and environmentally friendly technology to meet the changing market needs of the HVAC&R industry. Thus, in the event that our research and development capabilities are restricted by the availability of our financial resources and/or research and development personnel, our business and financial performance may be adversely impacted.
On the other hand, there is no assurance that the results of our research and development will be commercially successful. In the event that our newly developed products cannot be broadly accepted by our customers, our investment in research and development may not yield returns which match our expectations, and this would adversely affect our profitability and prospects.
Our business may be affected by competition from existing industry players and new entrants
We operate in a competitive environment and we are subject to competition from existing industry players and new entrants. Our success depends on our ability to compete effectively against our existing and potential competitors on, amongst others, technological know-how, quality of products and services, price, track record, reputation and timely delivery. There can be no assurance that we will be able to compete successfully in the future. In the event that our competitors are able to provide products and services of comparable or better quality at competitive prices, our business and financial performance will be adversely affected.
We are subject to intellectual property risks
We rely on our registered trade marks and patents, for business operations. In particular, we rely on our patents to protect some of our proprietary designs and functions and we consider our patents to be vital in maintaining our competitveness. Please refer to the “Business – Intellectual Property” section of this Offer Document for further details on our trade marks and patents. Though our trade marks and patents are registered, we are susceptible to third parties’ infringement of our intellectual property rights, and there is no assurance that third parties will not copy or otherwise obtain and use our intellectual property rights without authorisation.
Should we fail or be unable to assert our rights over such intellectual property, there may be an adverse impact on our business and marketing plans. Adequate protection of our intellectual property is vital to our business. In enforcing our rights against third parties’ infringements of our intellectual property rights, we may incur substantial time, resources and costs in any intellectual property infringement claims initiated by us and there is no assurance that we will be able to stop or prevent such infringement completely. Hence, our business, reputation, financial condition and results of operations may be adversely affected if we are unable to protect our intellectual property rights effectively.
In addition, some of our proprietary know-how and technical knowledge and technical expertise may not be patentable. Although we have stringent controls for maintaining confidentiality, there is no assurance that there will be no unauthorised disclosure of our proprietary information, or that our competitors will not copy them. In the event that our proprietary know-how and technical expertise are replicated by our competitors, there can be no assurance that we would be able to detect such unauthorised replications. Hence, our business and financial performance may be adversely affected if we are unable to protect our intellectual property rights effectively.
We cannot be certain that our systems, technologies and processes do not infringe valid patents or intellectual property rights held by third parties. We may unknowingly infringe intellectual property rights of third parties, in which case, we may have to incur substantial costs and resources in defending suits that may be brought against us for alleged infringement of intellectual property owned by third parties. In
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RISK FACTORS
addition, should we fail to defend against the suits brought against us, we will have to discontinue utilising our systems, technologies and processes in our business and/or may be required to pay substantial monetary damages. This will adversely affect our operations and business.
In addition, the approvals from the Trademark Office of the SAIC and the SIPO for the applications of the transfers of trade marks and patents from SER to our Company are currently pending. Please refer to the “Business – Intellectual Property” section of this Offer Document for further details. There is no assurance that the aforementioned approvals will be granted. Hence, in the event that the registration of the transfer of the trade marks is not successful, or we fail to renew the registration of our trade marks upon expiry, or the validity of our registered patents expire, we may not be able to prevent third parties from using our trade marks and/or patents, which may adversely affect our reputation, brand image, financial condition and results of operations.
Further, pursuant to to the IP Licence Agreement (please refer to the “Interested Person Transactions – Present and On-going Interested Person Transactions” section of this Offer Document), the Regional Affiliates shall be entitled to use certain of our trade marks and patents for their manufacture, distribution, promotion and sale of “Eden” brand of heat exchangers and condensing units in the PRC as well as sale of these products to our Group. In the event that there are any major complaints or defects on the Regional Affiliates’ products and/or services, or adverse publicity on the Regional Affiliates and trade marks due to circumstances beyond our control, our reputation will be adversely affected and our customers may lose confidence in our products and services, thereby adversely affecting our revenue and profitability.
We are exposed to foreign exchange risks
Foreign exchange risks arise mainly from a mismatch between the currency of our sales and the currency of our purchases. We may also suffer foreign currency losses if there are significant adverse fluctuations in currency exchange rates between the time of our purchases and payments in foreign currencies and the time of our sales and receipts. This may adversely affect our financial results.
In addition, as our reporting currency is in S$, the financial statements of our subsidiaries in Malaysia and Hong Kong will need to be translated to S$ for consolidation purposes. As such, any material fluctuations in foreign exchange rates will result in translation gains or losses on consolidation. Any such translation gains or losses will be recorded as translation reserves or deficits as part of our Shareholders’ equity.
At present, while we do not have any formal policy for hedging against foreign exchange exposure, we do use forward contracts to manage our foreign exchange risks from time to time. Typically, we do not purchase forward currency contracts of amounts greater than our existing purchase commitments. We will continue to monitor our foreign exchange exposure and may continue to employ forward currency contracts to manage our foreign exchange exposure should the need arise. Prior to implementing any formal hedging policies, we will seek the approval of our Board on the policy and put in place adequate procedures which shall be reviewed and approved by our Audit Committee. Thereafter, all hedging transactions entered into by our Group will be in accordance with set policies and procedures. Please refer to the “Management’s Discussion and Analysis of Results of Operations and Financial Position – Foreign Exchange Management” section of this Offer Document for further details.
We may face uncertainties in the expansion of our business
As described in the “Prospects, Business Strategies and Future Plans – Our Business Strategies and Future Plans” section of this Offer Document, our growth strategies include expansion of our sales and distribution network, expansion and upgrade of existing manufacturing facilities and research and development of new products, which will require substantial capital expenditures as well as financial and management resources. The success of our expansion plans depends on many factors, some of which are not within our control. Thus, there is no assurance that our expenditures in pursuing our growth strategies and expansion plans or any such plans our Group may engage in the future will result in successful implementation. While we have planned our expansion based on our current outlook of the regional and global markets, we cannot be sure that such expansion plans will yield a sufficient level of revenue or returns. If we are unsuccessful in materialising our business growth strategies and expansion plans and fail to generate a sufficient level of revenue or returns after such expenditure, our business, results of operations and financial position will be adversely affected.
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RISK FACTORS
We may need further financing for future growth
We may come across other potential business opportunities that we deem favourable for our Group’s future growth and prospects. Under such circumstances, we may need to obtain additional equity or debt financing. Additional equity financing may lead to a dilution in the interests of our Shareholders. Additional debt financing may restrict our ability to pay dividends. Such financing may increase our vulnerability to adverse economic conditions and also require us to set aside cash for interest and principal repayments. Hence, our growth prospects may be limited due to a reduction in funds for capital expenditure, working capital and other general corporate purposes, thus restricting our flexibility to plan for, or react to, changes in our business and our industry. In addition, there is no assurance that we will be able to obtain additional financing on terms that are acceptable to us, or at all.
We may not be able to keep pace with the changes in the technologies of our products due to market and/or regulatory demands
Our industry is characterised by rapid and significant changes in, and changes in the applications of, technology. We may need to modify our product specifications and/or introduce new technologies into our products to keep abreast with market and/or regulatory demands, such as changes in our customers’ preferences and/or implementation of new guidelines relating to the use of our systems and products. Hence, the development of new technologies and/or introduction of new, or changes in, industry standards, government regulations and industry guidelines may adversely affect the demand for certain of our existing systems and products, or render certain of our systems and products obsolete.
For instance, pursuant to the Montreal Protocol, the R-22 refrigerant (a non-environmentally friendly but widely used refrigerant throughout the world) is expected to be phased out by 2015, with R-410A and R-507 as the viable alternative refrigerants for air-conditioning and refrigeration applications respectively. However, with the introduction of the R-410A and R-507 refrigerants, adjustments and alterations to current refrigeration and air-conditioning systems and products are required to replace and retrofit those that are non-conforming, thereby increasing costs to manufacturers. In addition, it may render some of the current air-conditioning and refrigeration systems and products obsolete.
Hence, it is essential that we continue to keep abreast of technological developments in order to anticipate changes in technology and regulatory standards so as to ensure that our systems and products are current, and continue to develop and introduce new and enhanced systems and products on a timely basis. In the event that we are unable to keep up with such technological changes or cater to our customers’ specifications and requirements, we may not be able to maintain our competitive edge and our business will be adversely affected.
The outbreak of communicable diseases, if uncontrolled, could affect our business
An outbreak or resurgence of communicable diseases (such as the avian influenza), if uncontrolled, may potentially affect our business and operations. In addition, if any of the employees in our manufacturing facilities or the facilities of our suppliers and/or customers is infected with communicable diseases, we may experience disruptions to our projects’ progress as we, our suppliers and our customers may be required to temporarily stop activities for quarantine purposes. Accordingly, these disruptions to our business and operations may result in a negative impact on our financial performance.
Our insurance coverage may not be adequate
We have general insurance coverage in respect of our business and employees, including insurance coverage against burglary and fire on our fixed assets and inventories, as well as work injury, hospitalisation, surgical and medical insurance for our employees. However, in the event that such claims exceed the coverage of the insurance policies which we have taken up, we may be liable for the shortfall between amounts claimed and amounts insured. We are not insured against the loss of key personnel, business interruption and product liability. If the events outlined above were to occur, our business, financial performance and financial position may be materially and adversely affected. Please refer to the “Business – Insurance” section of this Offer Document for more details.
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RISK FACTORS
Fire, flood or other natural calamities may disrupt our operations and adversely affect our financial position, results of operations and profitability
Our manufacturing facility is located in Selangor, Malaysia. Natural calamities, such as fire, earthquake, flood or other natural disasters, resulting in significant damage to our manufacturing facility, major disruptions to our manufacturing processes and damages to the infrastructure which affect the transport of raw materials and products to and from our manufacturing facility, will have significant adverse effects on our business, financial condition and results of operations. While we consider our insurance policies in respect of loss and/or damage to our manufacturing equipment and facilities as well as inventories to be adequate, such insurance may not be sufficient to cover all our potential losses. In the event that such losses exceed the insurance coverage or is not covered by the insurance policies we have taken up, we may be liable for the shortfall of the amounts claimed and will sustain financial losses, and may also incur additional costs in the event of increased insurance premiums payable in future.
We may experience industry-related accidents that may expose us to liability claims
Due to the nature of our business operations, we are subject to the risks of our employees or third parties being involved with accidents while on or near our premises or job sites, which may lead to serious human injuries or in more severe cases, loss of human lives. Any significant accident, even for which we may not be responsible or found to be at fault, may expose us to claims and liabilities which may result in significant legal costs and damages, drawing on our resources including time and money. In addition, although we maintain work injury compensation insurance policy, in the event that claims made against us arising from accidents are in excess of our insurance coverage, and/or the insurance claims are contested by the insurance companies or the affected persons, we will be required to pay for such compensation and our insurance premiums will be increased in the future. This will adversely affect the corporate image and financial performance of our Group.
We are exposed to prepayment risks to our suppliers
We make prepayments to certain suppliers in order to secure raw materials and products on better terms. However, should such suppliers experience financial difficulties or disruptions to their businesses and fail to deliver to us raw materials and products despite prepayments already having been made, or should there be any disruption in or shortage of supply or reduction of allocation of raw materials and products to us from our suppliers for any reason, we may be unable to recover the prepayments made to our suppliers and may have to undertake contingency measures to source for alternative suppliers. There is no assurance that such contingency measures will be sufficient to meet our project needs or that we will be able to do so at comparable costs. If contingency measures are inadequate or the related costs are higher, our business operations and financial performance will be adversely affected.
We are subject to any adverse change in the political, economic, regulatory or social conditions in the countries that we operate in or in which we intend to expand our business
We are governed by the laws, regulations and government policies in each of the countries that we operate in or in which we intend to expand our business and operations. Our business and future growth is dependent on the political, economic, regulatory and social conditions in these countries. Any economic downturn or changes in policies implemented by the governments in these countries, currency and interest rate fluctuations, capital controls or capital restrictions, labour laws, changes in environmental protection laws and regulations, duties and taxations and limitations on imports and exports could materially and adversely affect our operations, financial performance and future growth.
Our operations may suffer a material adverse impact if there is a non-renewal of our licences and certificates
We have obtained all requisite licences and certificates for our current business operations. However, some of these licences are subject to periodic review and renewal by the relevant government authorities and the standards of compliance required in relation thereto may from time to time be subject to changes. Non-renewal of or the rejection of new applications for our licences and certificates will have a material adverse effect on our operations and profitability.
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RISKS RELATING TO AN INVESTMENT IN OUR SHARES
Investments in securities quoted on Catalist involve a higher degree of risk and can be less liquid than shares quoted on the Main Board of the SGX-ST
An application has been made for our Shares to be listed for quotation on Catalist, a listing platform designed primarily for fast-growing and emerging or smaller companies to which a higher investment risk tends to be attached as compared to larger or more established companies. An investment in shares quoted on Catalist may carry higher risk than an investment in shares quoted on the Main Board of the SGX-ST. Catalist was newly formed in December 2007 and the future success and liquidity in the market of our own Shares cannot be guaranteed.
Our Controlling Shareholder, UPL and its Associates will retain significant control of our Group after the Placement which will allow it to influence the outcome of decisions requiring approvals from Shareholders
Upon completion of the Placement, our Controlling Shareholder, UPL and its Associates (namely, Steven Loh and Sam Cheung) will beneficially own in aggregate 65.6% of our Company’s post-Placement share capital. As a result, our Controlling Shareholder and its Associates, if they act together, will be able to exercise significant influence over matters requiring Shareholders’ approval, including the election of Directors and the approval of significant corporate transactions, and will have veto power with respect to any Shareholders’ action or approval requiring a majority vote. Such concentration of ownership may also have the effect of delaying, preventing or deterring a change in control of our Group even if such change may be beneficial to our minority Shareholders.
Future sale of our Shares could adversely affect the Share price
Any future sale of Shares can have a downward pressure on our Share price. The sale of a significant amount of Shares in the public market after the Placement, or the perception that such sales may occur, could adversely affect the market price of our Shares. These factors also affect our ability to sell additional equity securities, if any. Except as otherwise described in the “General Information on our Group – Moratorium” section of this Offer Document, there will be no restriction imposed on our Shareholders to dispose of their shareholdings.
Our Share price may fluctuate following the Placement
The market price of our Shares may fluctuate significantly and rapidly after the Placement as a result of, among others, the following factors, some of which are beyond our control:-
(i) variations in our operating results;
(ii) changes in our assets and liabilities;
(iii) the success or failure of our management team in implementing our business strategies and future plans;
(iv) gain or loss of an important business relationship or contract;
(v) changes in analysts’ estimates of our financial performance or investors’ interests;
(vi) announcements by us of significant acquisitions, strategic alliances or joint ventures;
(vii) fluctuations in stock market prices and volume;
(viii) our involvement in material litigation or other legal proceedings;
(ix) additions or departures of key personnel; and
(x) material changes or uncertainty in the political, economic and regulatory environment in the markets that we operate.
These fluctuations may be exaggerated if the trading volume of our Shares is low.
37
RISK FACTORS
New investors will face immediate dilution and may experience future dilution
Our Placement Price of S$0.27 is higher than our Adjusted NTA per Share, after adjusting for the net proceeds from the issue of New Shares, of approximately 24.8 cents. If we were liquidated immediately following the Placement, each investor subscribing for the New Shares pursuant to the Placement would receive less than the price he paid for his Shares. Please refer to the “Dilution” section of this Offer Document for further details.
There has been no prior market for our Shares
Prior to the Placement, there has been no public market for our Shares. Although we have made an application to the SGX-ST to list our Shares on Catalist, there is no assurance that an active trading market for our Shares will develop, or if it develops, be sustained. There is no assurance that the market price for our Shares will not decline below the Placement Price. The market price of our Shares could be subject to significant fluctuations due to various external factors and events including the liquidity of our Shares in the market, difference between our actual financial or operating results and those expected by investors and analysts, the general market conditions and broad market fluctuations.
Negative publicity, including those relating to any of our Directors, Controlling Shareholder and Executive Officers may adversely affect our Share price
Negative publicity or announcement relating to any of our Directors, Controlling Shareholder and Executive Officers may adversely affect the market’s perception of our Group or the Share performance of our Company, whether or not it is justifiable, thereby adversely affecting our Share price.
38
RISK FACTORS
PLACEMENT PRICE 27.0 cents
Adjusted NTA
Adjusted NTA per Share as at 31 December 2010:-
(a) before adjusting for the estimated net proceeds from the issue of the New Shares and based on our Company’s pre-Placement share capital of 53,520,000 Shares
26.9 cents
(b) after adjusting for the estimated net proceeds from the issue of the New Shares and based on our Company’s post-Placement share capital of 72,320,000 Shares
24.8 cents
Premium of Placement Price per Share over the Adjusted NTA per Share as at 31 December 2010:-
(a) before adjusting for the estimated net proceeds from the issue of the New Shares and based on our Company’s pre-Placement share capital of 53,520,000 Shares
0.4%
(b) after adjusting for the estimated net proceeds from the issue of the New Shares and based on our Company’s post-Placement share capital of 72,320,000 Shares
8.9%
Adjusted EPS
Adjusted EPS of our Group in FY2010 based on our Company’s pre-Placement share capital of 53,520,000 Shares
6.4 cents
Adjusted EPS of our Group in FY2010 based on our Company’s pre-Placement share capital of 53,520,000 Shares had the Service Agreements been effected for FY2010
5.8 cents
PER
PER based on the Adjusted EPS of our Group in FY2010 based on our Company’s pre-Placement share capital of 53,520,000 Shares
4.2 times
PER based on the Adjusted EPS of our Group in FY2010 based on our Company’s pre-Placement share capital of 53,520,000 Shares had the Service Agreements been effected for FY2010
4.7 times
NET OPERATING CASH FLOW(1)
Net operating cash flow per Share of our Group for FY2010 based on our Company’s pre-Placement share capital of 53,520,000 Shares
9.2 cents
Net operating cash flow per Share of our Group for FY2010 based on our Company’s pre-Placement share capital of 53,520,000 Shares had the Service Agreements been effected for FY2010
8.6 cents
39
ISSUE STATISTICS
PRICE TO NET OPERATING CASH FLOW RATIO
Ratio of Placement Price to net operating cash flow per Share for FY2010 2.9 times
Ratio of Placement Price to net operating cash flow per Share had the Service Agreements been effected for FY2010
3.1 times
MARKET CAPITALISATION
Market capitalisation based on the Placement Price and post-Placement share capital of 72,320,000 Shares
S$19.5 million
Note:-
(1) Net operating cash flow is defined as profit for the year attributable to Shareholders with depreciation expense added back.
40
ISSUE STATISTICS
Dilution is the amount by which the Placement Price paid by the applicants of our New Shares (“New Investors”) exceeds our Adjusted NTA per Share immediately after the Placement. Our Adjusted NTA per Share as at 31 December 2010, before adjusting for the estimated net proceeds due to our Company from the Placement and based on the pre-Placement issued and paid-up share capital of 53,520,000 Shares was 26.9 cents per Share.
Pursuant to the Placement in respect of 18,800,000 New Shares at the Placement Price, our Adjusted NTA per Share as at 31 December 2010, after adjusting for the estimated net proceeds from the Placement and based on the post-Placement issued and paid-up share capital of 72,320,000 Shares would have been 24.8 cents. This represents an immediate decrease in Adjusted NTA per Share of 2.1 cents to our existing Shareholders and an immediate dilution in Adjusted NTA per Share of 2.2 cents or approximately 8.1% to our New Investors.
The following table illustrates the dilution on a per Share basis:-
Cents
Placement Price 27.0
Adjusted NTA per Share as at 31 December 2010, based on the pre-Placement share capital of 53,520,000 Shares
26.9
Decrease in Adjusted NTA per Share attributable to existing shareholders (2.1)
Adjusted NTA per Share after the Placement(1) 24.8
Dilution in Adjusted NTA per Share to New Investors 2.2
Note:-
(1) The computed Adjusted NTA per Share does not take into account our actual financial performance from 1 January 2011 up to the Latest Practicable Date and the interim dividend of S$2.0 million declared in February 2011 in respect of FY2011. Depending on our actual financial results, our Adjusted NTA per Share may be higher or lower than the computed Adjusted NTA per Share.
The following table summarises the average effective cost per Share paid by our Director and the Pre-IPO Investors for Shares acquired by them (adjusted for Sub-Division) during the period of three years prior to the date of lodgement of this Offer Document and by our new investors pursuant to the Placement:-
Number of Shares
Total consideration
Average effective cash cost per
Share(S$) (cents)
DirectorDavid Leng 367,200(1) 87,430 23.8
Pre-IPO Investors (excluding David Leng)Sam Cheung 4,200,000 1,000,020 23.8Richard Chung 420,000 100,002 23.8
New investors 18,800,000 5,076,000 27.0
Note:-
(1) This relates to Shares acquired by David Leng pursuant to the Pre-IPO Investment.
Save as disclosed above and in the “General Information on our Group – Share Capital” section of this Offer Document, none of our Directors, Substantial Shareholders or their Associates have acquired any Shares during the period of three years prior to the date of lodgement of this Offer Document.
41
DILUTION
The following table, which should be read in conjunction with the “Independent Auditors’ Report on the Audited Consolidated Financial Statements of Far East Group Limited and Subsidiary Companies for the Financial Years Ended 31 December 2008, 2009 and 2010” set out in the Appendix A and the “Management’s Discussion and Analysis of Results of Operations and Financial Position” section of this Offer Document, shows our cash and cash equivalents as well as capitalisation and indebtedness as at 31 May 2011:-
(i) based on unaudited consolidated balance sheet of our Group as at 31 May 2011; and
(ii) as adjusted for the estimated net proceeds from the Placement, after deducting estimated expenses related to the Placement.
($’000) As at 31 May 2011As adjusted for the
net proceeds from the Placement
Cash and cash equivalentsCash and bank balances 3,141 6,641Fixed deposits 36 36
3,177 6,677
IndebtednessCurrent- Trust receipts and bills payable, secured and guaranteed 4,426 4,426- Finance lease obligations, secured but non-guaranteed 18 18- Loans from shareholders and directors, non-secured and
non-guaranteed480 480
- Bank borrowings, secured and guaranteed 175 175- Bank borrowings, unsecured but guaranteed 127 127
5,226 5,226
Non-current- Finance lease obligations, secured but non-guaranteed 51 51- Loans from shareholders and directors, non-secured and
non-guaranteed791 791
- Bank borrowings, secured and guaranteed 1,669 1,669
2,511 2,511
Total indebtedness 7,737 7,737
Total shareholders’ equity 12,620 16,120
Total capitalisation and indebtedness 20,357 23,857
As at the Latest Practicable Date, the amount owing by our Company to Loh Ee Ming amounted to approximately S$1.2 million, which is on an unsecured and interest-free basis. This amount is currently being repaid in monthly repayments of S$40,000. Pursuant to an undertaking by Loh Ee Ming, our Company shall have the right to renegotiate such monthly repayment arrangement in the event our Audit Committee is of the view that our Group is not in the financial position to make such monthly repayments, taking into account our working capital and gearing position. Please refer to the “Interested Person Transactions – Present and On-going Interested Person Transactions” section of this Offer Document for more details.
42
CAPITALISATION AND INDEBTEDNESS
BORROWINGS
As at the Latest Practicable Date, our total banking facilities (utilised and unutilised) are as follows:-
Financial institution
Type of facility/tenure
Amount of facilities granted(’000)
Amount outstanding
as at the Latest
Practicable Date(’000)
Interest rate(%)
Facilities used by Security
Singapore
United Overseas Bank Limited
Term loan (commencing on 1 October 2003 and expiring on 30 September 2028)
S$1,599 S$1,489 5.25 Far East Group
(i) Mortgage over the property at 112, Lavender Street, Far East Refrigeration Building, Singapore 338728; and
(ii) joint and several guarantees by Loh Ee Ming, Steven Loh and Lim Keng Ann.
Overdraft S$1,000 – Prime(1) + 0.25
Trade facilities S$6,000 S$1,049 COF(2) + 2.50
DBS Bank Ltd
Term loan (commencing on 1 March 2009 and expiring on 28 February 2014)
S$600 S$340 2.35 Far East Group
(i) Joint and several guarantees by Loh Ee Ming, Steven Loh and Sharon Loh; and
(ii) mortgage over the property at 5 Third Lok Yang Road, Singapore 628000.
Overdraft S$600 – Prime(1) + 0.75
Trade facilities S$2,000 S$1,839 Prime(1) + 0.50
Bridging loan (commencing on 1 May 2009 and expiring on 28 February 2012)
S$1,000 S$27 5.00
Standard Chartered Bank
Overdraft S$100 – Prime(1) + 0.25 Far East Group
Joint and several guarantees by Loh Ee Ming, Steven Loh, David Leng, Lim Keng Ann and Sharon Loh.
Trade facilities S$1,200 S$611 COF(2) + 3.00
RHB Bank Berhad
Trade facilities S$800 S$418 COF(2) + 2.50 Far East Group
Joint and several guarantees by Loh Ee Ming, Steven Loh, David Leng and Sharon Loh.
Short term revolving credit
S$100 S$100 COF(2) + 2.50
43
CAPITALISATION AND INDEBTEDNESS
Financial institution
Type of facility/tenure
Amount of facilities granted(’000)
Amount outstanding
as at the Latest
Practicable Date(’000)
Interest rate(%)
Facilities used by Security
CIMB Bank Berhad, Singapore Branch
Trade facilities and overdraft
S$500 – COF(2) + 2.50
Prime(1) + 0.50
Far East Group
Joint and several guarantees by Loh Ee Ming, Steven Loh and David Leng.
Malaysia
United Overseas Bank (Malaysia) Berhad
Trade facilities
Overdraft
RM2,000
RM1,000
RM810
–
BLR(3) + 1.25
BLR(3) + 1.00
Far East Maju
(i) Mortgage over a detached two-storey office building and one-storey factory at Lot 1998/D Jalan Perusahaan 3, Taman Industri Selesa Jaya, 43300 Balakong, Seri Kembangan, Selangor Darul Ehsan, Malaysia;
(ii) personal guarantee by Dato Hee Ching@Hei Wah; and
(iii) joint and several guarantees by Loh Ee Ming and Steven Loh.
OCBC Bank (Malaysia) Berhad
Trade facilities
Overdraft
RM600
RM400
–
–
BLR(3) + 0.50
BLR(3) + 0.75
Far East KL
(i) Deed of assignment over two units of shop lots at No. 1-1, 1-1A and 1-1B, Jalan Kalong, Off Jalan Sungai Besi, 55200 Kuala Lumpur, Malaysia; and
(ii) joint and several guarantees by Loh Ee Ming, Steven Loh, Dato Hee Ching@Hei Wah and Au Yong Peng Kwan.
CIMB Bank Berhad
Overdraft RM140 – BLR(3) + 2.00 Far East Penang
(i) A legal charge of RM190,000 over the property at 60 Lebuh Noordin, 10300 Pulau Pinang, Malaysia; and
(ii) joint and several guarantees by Loh Ee Ming, Dato Hee Ching@Hei Wah and Steven Loh.
44
CAPITALISATION AND INDEBTEDNESS
Financial institution
Type of facility/tenure
Amount of facilities granted(’000)
Amount outstanding
as at the Latest
Practicable Date(’000)
Interest rate(%)
Facilities used by Security
Hong Kong
DBS Bank (Hong Kong) Limited
Overdraft and trade facilities
HK$4,000 HK$1,458 Prime(1) (overdraft)
Standard rate quoted by
banks (trade facilities)
Far East HK
(i) All monies charge on cash deposit duly executed by the borrower in favor of the bank in an amount of not less than HK$2,500,000, together with all interests accrued thereon;
(ii) mortgage over the property at Flat B, 1st floor, Tung On Court, 17, 19 and 21 Tung On Street, Kowloon, Hong Kong;
(iii) joint and several guarantees by Loh Ee Ming, Steven Loh and Karen Loh; and
(iv) corporate guarantee by Far East Group.
Notes:-
(1) Prime rate refers to the respective banks’ prime rates.
(2) COF refers to the respective banks’ cost of funds.
(3) BLR refers to base lending rate of Malaysia.
As at the Latest Practicable Date, our total banking facilities amounted to approximately S$17.8 million equivalent, comprising utilised facilities of approximately S$6.4 million and unutilised facilities of approximately S$11.4 million. To the best of our Directors’ knowledge, we are not in breach of any of the terms and conditions or covenants associated with any credit arrangement or bank loan which could materially affect our financial position and results or business operations, or the investments of our Shareholders.
As set out in the table above, certain of our Interested Persons had provided joint and several personal guarantees to secure banking facilities granted by banks to our Group. Please refer to the “Interested Person Transactions – Present and On-going Interested Person Transactions: Provision of personal guarantees by certain Interested Persons” section of this Offer Document for further details.
45
CAPITALISATION AND INDEBTEDNESS
Our Company and some of our subsidiaries had declared and/or paid dividends in respect of FY2008, FY2009, FY2010 and FY2011 as follows:-
FY2008 FY2009 FY2010 FY2011(1)
Our CompanyFar East Group – – S$2,000,000 S$2,000,000(2)
Our SubsidiariesFar East KL RM1,477,000 – RM276,000 RM355,000Far East Maju RM575,500 – RM369,070 RM1,917,800Safety Enterprises RM189,000 – RM50,000 RM1,336,000FE&B RM162,200 – RM40,000 RM106,800Far East Penang RM57,400 – – –Far East Malaysia – – RM760,000 RM4,028,000Far East Kuching – – RM10,000 –RSP – S$14,000 – –
Notes:-
(1) The dividends declared and/or paid in FY2011 are interim dividends.
(2) As at the date of this Offer Document, S$2.0 million of dividends declared by our Company in FY2011 remain outstanding. We intend to repay 50% of such amounts outstanding in FY2011, and the remaining 50% in FY2012, using internally generated funds.
Save as disclosed above, neither our Company nor any of our subsidiaries has declared any dividend during the period under review and up to the Latest Practicable Date.
We currently do not have a formal dividend policy. However, we intend to recommend and distribute dividends of at least 20% of our net profit attributable to Shareholders for each of FY2011 and FY2012 (“Proposed Dividends”), subject to the factors outlined below. Investors should note that the foregoing statement on the Proposed Dividends is merely a statement of our present intention and shall not constitute a legally binding obligation on our Company or legally binding statement in respect of our future dividends which may be subject to modification (including reduction or non-declaration thereof) in our Directors’ sole and absolute discretion. Investors should not treat the Proposed Dividends as an indication of our Group’s future dividend policy. No inference should or can be made from any of the foregoing statements as to our actual future profitability or ability to pay dividends.
There can be no assurance that dividends will be paid in the future or of the amount or timing of any dividends that will be paid in the future. The form, frequency and amount of future dividends on our Shares will depend on our earnings and financial position, including the level of our cash and retained earnings, our results of operations, our capital needs, our plans for expansion and any restriction on payment of dividends imposed on us by our financing arrangements (if any) and other factors as our Directors may deem appropriate. We may declare dividends by ordinary resolution of our Shareholders at a general meeting, but will not pay dividends in excess of the amount recommended by our Board. Our Directors may also declare an interim dividend without seeking Shareholders’ approval.
Information relating to taxes payable on dividends is set out in Appendix D – “Taxation” of this Offer Document.
46
DIVIDEND POLICY
The following summary financial information of our Group should be read in conjunction with the full text of this Offer Document, including the “Independent Auditors’ Report on the Audited Consolidated Financial Statements of Far East Group Limited and Subsidiary Companies for the Financial Years Ended 31 December 2008, 2009 and 2010” as set out in Appendix A of this Offer Document and the “Management’s Discussion and Analysis of Results of Operations and Financial Position” section of this Offer Document.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Audited
(S$’000) FY2008 FY2009 FY2010
Turnover 29,191 26,805 32,616Cost of sales (22,088) (19,618) (21,897)
Gross profit 7,103 7,187 10,719
Other operating income 603 713 1,453Distribution and selling expenses (2,291) (2,077) (2,654)Administrative expenses (3,284) (3,484) (3,556)Other operating expenses (159) (216) (225)Financial expenses (623) (487) (302)Interest income 9 3 14
Profit before tax 1,358 1,639 5,449(3)
Tax expense (394) (297) (896)
Profit for the year 964 1,342 4,553(3),(4)
Exchange differences on translating foreign operations (321) (215) 124
Total comprehensive income for the year 643 1,127 4,677(3)
Profit attributable to:-Equity holders of the Company 933 1,312 4,506(3),(4)
Non-controlling interests 31 30 47
964 1,342 4,553
EPS(1) (cents) 1.7 2.4 8.4(4)
EPS (fully diluted)(2) (cents) 1.3 1.8 6.2(4)
Adjusted EPS(1) (cents) 6.4(4)
Adjusted EPS (fully diluted)(2) (cents) 4.8(4)
Notes:-
(1) For comparative purposes, the EPS for the period under review has been computed based on the profit attributable to equity holders of our Company and the pre-Placement share capital of 53,520,000 Shares. The Adjusted EPS in FY2010 has been computed based on the profit attributable to equity holders of our Company, adjusted for non-recurring income of approximately S$1,062,000 in relation to gain on disposal of investment properties, and the pre-Placement share capital of 53,520,000 Shares.
(2) For comparative purposes, the fully diluted EPS for the period under review has been computed based on the profit attributable to equity holders of our Company and the post-Placement share capital of 72,320,000 Shares. The Adjusted EPS in FY2010 has been computed based on the profit attributable to equity holders of our Company, adjusted for non-recurring income of approximately S$1,062,000 in relation to gain on disposal of investment properties, and the post-Placement share capital of 72,320,000 Shares.
47
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(3) Includes non-recurring income of approximately S$1,062,000 in relation to gain on disposal of investment properties. For illustration purposes, had such non-recurring income been excluded, our profit before tax, profit for the year and profit attributable to equity holders of our Company would have been approximately S$4,387,000, S$3,491,000 and S$3,444,000 respectively.
(4) Had the Service Agreements been in place since the beginning of FY2010, (i) the profit for the year and profit attributable to equity holders of our Company in FY2010 would have been approximately S$4,210,000 and S$4,163,000 respectively; (ii) the EPS and fully diluted EPS would have been 7.8 cents and 5.8 cents respectively; and (iii) the Adjusted EPS and fully diluted Adjusted EPS would have been 5.8 cents and 4.3 cents respectively.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited(S$’000) As at 31 December
2010
ASSETS
Non-current assetsFixed assetsUnquoted investmentsDeferred tax assetsOther receivables
7,51889
17418
7,799
Current assetsInventoriesTrade debtorsOther receivablesDepositsPrepaymentsDue from affiliated companies (trade)Tax recoverableFixed depositsCash and bank balances
8,2006,647
137101
1,253217
61,4002,350
20,311
LIABILITIES
Current liabilitiesTrade payablesGross amount due to customers for contract work-in-progressTrust receipts and bills payable (secured)Other creditorsAccruals and other liabilitiesProvision for warrantyDividends payableDue to affiliated company (trade)Due to affiliated company (non-trade)Provision for income taxFinance lease obligations (current)Loan from shareholders and directors (current)Term loans (current)Bank overdrafts (secured)
1,495593
3,424768
1,74950
1,63625511159718
55044857
11,751
Non-current liabilitiesDeferred tax liabilitiesFinance lease obligations (non-current)Loan from shareholders and directors (non-current)Term loans (non-current)
15258
1,0321,743
2,985
Net assets 13,374
48
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Audited(S$’000) As at 31 December
2010
EQUITYShare capitalAccumulated profitsCapital reservesTranslation reserve
8,1355,812
322(1,051)
Equity attributable to equity holders of the Company 13,218Non-controlling interests 156
Total equity 13,374
NTA per Share(1) (cents) 24.7
Adjusted NTA 14,405Adjusted NTA per Share(1) (cents) 26.9
Note:-
(1) The NTA per share and Adjusted NTA per Share as at 31 December 2010 have been computed based on our pre-Placement share capital of 53,520,000 Shares.
49
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following discussion of our results of our operations and financial position should be read in conjunction with the “Independent Auditors’ Report on the Audited Consolidated Financial Statements of Far East Group Limited and Subsidiary Companies for the Financial Years Ended 31 December 2008, 2009 and 2010” as set out in Appendix A of this Offer Document. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ significantly from those projected in the forward-looking statements include, but are not limited to, those discussed below and elsewhere in this Offer Document, particularly in the “Risk Factors” section of this Offer Document. Under no circumstances should the inclusion of such forward-looking statements herein be regarded as a representation, warranty or prediction with respect to the accuracy of the underlying assumptions by our Company, the Sponsor or the Placement Agent or any other person. Investors are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. Please refer to the “Cautionery Note Regarding Forward-Looking Statements” section of this Offer Document.
OVERVIEW
We are a comprehensive provider of refrigeration and air-conditioning systems and products in the HVAC&R industry, principally engaged in the sourcing and distribution of a wide range of agency products as well as the manufacturing and distribution of heat exchangers and condensing units under our own brand “Eden”. Our Directors believe that we are one of the leading regional distributors of commercial and light industrial refrigeration systems and products in the SEA region.
We have subsidiaries in Singapore, Malaysia and Hong Kong. In addition, we have set up a new representative office in Vietnam and Indonesia in October 2010 and May 2011 respectively. Our Company and subsidiaries in Singapore focus primarily on the business opportunities arising from Singapore and other SEA countries. Our subsidiaries in Malaysia operate as retail and distribution offices covering the Malaysian market whilst our subsidiary in Hong Kong serves as a business platform to the Hong Kong and PRC markets. Our unquoted investment in the PRC relates to a trading company principally engaged in the sourcing and distribution of refrigeration and air-conditioning parts in the PRC market. Our representative office in Vietnam serves as our Group’s gateway into the Indochina market (including Vietnam, Cambodia, Laos and Myanmar) and our representative office in Indonesia covers the Indonesia market.
Our head office is currently located at 112 Lavender Street, Far East Refrigeration Building, Singapore 338728, occupying an estimated gross floor area of 20,839 sqft. Our main warehouse and workshop is located at 5 Third Lok Yang Road, Singapore 628000, occupying an estimated gross floor area of 25,112 sqft. Our manufacturing activities are undertaken by Far East Maju at Lot 1998/D Jalan Perusahaan 3, Taman Industri Selesa Jaya, 43300 Balakong, Seri Kembangan, Selangor Darul Ehsan, Malaysia, with an estimated gross floor area of approximately 39,719 sqft. Please refer to “Business – Properties and Fixed Assets” section of this Offer Document for further details on our manufacturing facility.
We have a broad customer base of more than 1,000 active customers, of which 50% are repeat customers who have purchased from us for five years or more. Our customers include distributors, dealers and refrigeration and air-conditioning contractors. As at the Latest Practicable Date, we have appointed approximately 20 dealers and distributors with a wide business and distribution network in their respective countries, including Malaysia, Thailand, the Philippines, Myanmar, Mauritius, Vietnam, Sri Lanka and Indonesia. We also provide design and technical services to our dealers and distributors in connection with the sale of our products. Please refer to the “Business – Distribution Channels” section of this Offer Document for further details.
Revenue
Our revenue is derived from three main business segments, namely (a) commercial and light industrial (refrigeration); (b) residential and commercial (air-conditioning); and (c) oil, marine and gas (refrigeration and air-conditioning). Please refer to the “Business – Our Business Model” section of this Offer Document for further details on our business segments.
50
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
Commercial and light industrial (refrigeration) is our core business segment, and contributed to approximately 70.8%, 73.4% and 72.8% of our total revenue in FY2008, FY2009 and FY2010 respectively. Revenue generated from our residential and commercial (air-conditioning) business segment accounted for approximately 18.5%, 17.5% and 19.0% of our total revenue in FY2008, FY2009 and FY2010 respectively, whereas revenue generated from our oil, marine and gas (refrigeration and air-conditioning) business segment accounted for approximately 10.7%, 9.1% and 8.2% of our total revenue in the respective years.
Our revenue is mainly generated from Singapore, Malaysia and Indonesia, which accounted for approximately 81.2%, 80.8% and 81.1% of our total revenue in FY2008, FY2009 and FY2010 respectively. We also derive revenue from Hong Kong, Macau, the PRC, Vietnam, Myanmar, and other countries (including the Philippines, Thailand, Mauritius and Sri Lanka).
Revenue is recognised when goods are delivered and accepted by our customers. Our revenue is mainly denominated in S$, RM and HK$.
The key factors that affect our revenue include:-
(a) General economic and/or socio-political environment. Our ability to secure new contracts and projects may be affected by general economic and/or socio-political environment in the countries where our Group and customers operate in, in particular, Asia. Any changes in the economic and/or socio-political environment, in particular, in countries where we operate, mainly Singapore, Malaysia and Indonesia, may lead to changes in, amongst other things, the level of customers demand as well as an eventual impact on the demand for our products and services.
(b) Changes in regulatory codes and practices in relation to refrigeration and air-conditioning which will affect the type of products that our customers buy from us. For instance, new regulatory codes and practices may be imposed pursuant to any food infections and/or scares which will in turn affect the type of and level of demand for our products and services.
(c) Supply and pricing of products that we distribute, which are dependent on the terms that we are able to secure from our suppliers. In our negotiation with our customers, we will take into consideration, inter alia, the general market pricing of such products and adjust our selling prices accordingly, and this will affect our revenue.
(d) Supply and pricing of raw materials. Our key raw materials used in the manufacturing of our “Eden” brand of heat exchangers are mainly copper pipes, galvanised sheets, aluminum sheets and fan sets. The pricing of such raw materials is largely determined by actual prevailing commodity pricing based on global demand and supply conditions.
(e) Availability of equivalent and competitive products through other distribution channels. Our revenue is dependent on our ability to maintain our market position and pricing of our products. Our selling prices may be affected if competition intensifies and our competitors adopt aggressive pricing strategies in order to gain market share or with the entrance of new players.
(f) Our ability to develop new and more energy-efficient “Eden” brand of products.
(g) Fluctuations in foreign currencies. During the period under review, approximately 6% to 12% of our total revenue was denominated in US$, which is not the functional currency of our Company or subsidiaries. Fluctuations in US$ will affect our revenue, and the weakening of US$ against our functional currency in S$, RM or HK$, as the case may be, will affect our revenue in an adverse manner.
Please refer to the “Risk Factors” section of this Offer Document for other factors which may affect our revenue.
51
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
Cost of sales
Our cost of sales accounted for approximately 75.7%, 73.2% and 67.1% of our revenue in FY2008, FY2009 and FY2010 respectively.
Our cost of sales comprise cost of products, direct labour costs and overhead costs. The breakdown of our cost of sales, as a percentage of total cost of sales, is as follows:-
As a percentage of total cost of sales (%) FY2008 FY2009 FY2010
Cost of products 98.0 97.9 98.1Direct labour 0.9 1.0 1.0Overheads 1.1 1.1 0.9
Total 100.0 100.0 100.0
Our cost of products comprises mainly cost of agency products as well as cost of raw materials used in the manufacture of our “Eden” brand of heat exchangers (mainly copper pipes, galvanised sheets, aluminum sheets and fan sets). Cost of products also includes other incidental costs of our purchases, such as inward freight charges which accounted for approximately 1.2% to 2.0% of our cost of sales during the period under review. Our cost of products as a percentage of cost of sales remained relatively stable at approximately 98% during the period under review.
Direct labour costs comprise mainly salaries and other related costs of our manufacturing staff. Our direct labour costs remained relatively stable at approximately 1.0% of our cost of sales during the period under review.
Our overhead costs comprise mainly depreciation of plant and machinery, replacement of tools and parts of our plant and machinery, and factory maintenance costs. Our overhead costs remained relatively stable at approximately 1.0% during the period under review.
The main factors affecting our cost of sales include:-
(a) Cost of products. We purchase agency products for distribution to our customers, and these comprise mainly compressors, condensers, controllers, valves, as well as copper pipes. The prices of such products which we can secure from our suppliers are influenced by the general market conditions affecting such products.
(b) Cost of raw materials. Our raw materials comprise mainly copper pipes, galvanised sheets, aluminum sheets and fan sets used in the manufacture of our “Eden” brand of heat exchangers. The costs of these raw materials accounted for more than 60% of our total cost of raw materials during the period under review. The prices of these raw materials are primarily dependent on actual prevailing commodity pricing based on global demand and supply conditions.
(c) Fluctuations in foreign currencies. Our purchases are mainly denominated in US$ and €, which accounted for more than 80% of our total purchases. Fluctuations in these currencies will affect our cost of sales, and the strengthening of these currencies against our functional currencies in S$, RM or HK$, as the case may be, will affect our cost of sales in an adverse manner.
(d) Fluctuations in freight charges. We purchase our agency products and raw materials mainly from overseas suppliers, which accounted for more than 80% of our total purchases during the period under review. Inward freight charges accounted for approximately 1.2% to 2.0% of our cost of sales during the period under review. Increase in freight rates due to increasing oil prices will affect our cost of sales.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
Other operating income
Other operating income relates mainly to rental income from our office space at the 2nd and 3rd floors of our property at 112 Lavender Street, commission income in relation to referral of business from us to the Regional Affiliates, namely SER and SERM, dividend income from unquoted investments, job credit grants from the Singapore government under the Jobs Credit Scheme and gain on disposal of investment properties.
Distribution and selling expenses
Distribution and selling expenses accounted for approximately 7.8%, 7.7% and 8.1% of our total revenue in FY2008, FY2009 and FY2010 respectively. The breakdown of our distribution and selling expenses for the period under review is as follows:-
As a percentage of total distribution and selling expenses (%) FY2008 FY2009 FY2010
Salaries and related costs 64.7 72.5 71.6Travelling and entertainment 18.5 13.3 12.2Outward freight charges 4.5 3.9 4.4Running costs of vehicles 4.4 3.4 2.9Others 7.9 6.9 8.9
Total 100.0 100.0 100.0
Distribution and selling expenses comprise mainly salaries and related costs of our sales and marketing staff, travelling and entertainment expenses, outward freight charges, running costs of vehicles, and other expenses such as advertising and promotion expenses. Such expenses are affected by the number of sales and marketing staff employed and the level of marketing efforts undertaken by us.
Administrative expenses
Administrative expenses accounted for approximately 11.3%, 13.0% and 10.9% of our total revenue in FY2008, FY2009 and FY2010 respectively. The breakdown of our administrative expenses for the period under review is as follows:-
As a percentage of total administrative expenses (%) FY2008 FY2009 FY2010
Salaries and related costs 51.4 53.4 51.7Directors fee 4.4 4.4 4.9Legal and professional fees 11.8 12.2 13.1Rental expenses 4.4 5.4 7.8Depreciation charges 6.5 6.1 5.2Telephone and utilities charges 5.7 5.3 5.8Others 15.8 13.2 11.5
Total 100.0 100.0 100.0
Administrative expenses comprise mainly salaries and related expenses paid to our directors, finance and administrative staff, directors fees, legal and professional fees, rental of premises, depreciation costs of fixed assets, telephone and utilities charges as well as other expenses such as insurance, office maintenance, property tax and office expenses.
Other operating expenses
Other operating expenses comprise mainly net foreign exchange losses, one-off licence fee paid to a supplier, loss on disposal of investment in a subsidiary company in Hong Kong and loss on disposal of an unquoted investment. Our other operating expenses remained relatively stable at S$0.2 million during the period under review.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
Financial expenses
Financial expenses accounted for approximately 2.1%, 1.8% and 0.9% of our total revenue in FY2008, FY2009 and FY2010 respectively. Financial expenses relate mainly to interest charges on bank loans, bills payable, bank overdrafts and finance lease obligations.
Interest income
Interest income relates to income received from our bank balances and accounted for approximately 0.03%, 0.01% and 0.04% of our total revenue in FY2008, FY2009 and FY2010 respectively.
Tax expense
Our Company and subsidiaries are subject to income tax at the applicable statutory tax rates in Singapore, Malaysia and Hong Kong as the case may be. The applicable tax rates in Malaysia was 26% in FY2008 and 25% in FY2009 and FY2010, whereas the applicable tax rates in Singapore was 18% in FY2008 and 17% in FY2009 and FY2010. Our subsidiary in Hong Kong had no taxable income during the period under review.
Deferred taxation is provided on all timing differences arising from the tax bases of assets and liabilities and their carrying amounts in the financial statements. Our overall effective income tax rates for the period under review are as follows:-
FY2008 FY2009 FY2010
Income tax expense (S$’000) 394 297 896Profit before tax (S$’000) 1,358 1,639 5,449Effective tax rate (%) 29.0 18.1 16.4
Our effective tax rate decreased from 29.0% in FY2008 to 18.1% in FY2009. The higher effective tax rate in FY2008 was mainly due to an under-provision of deferred tax in prior years taken up in FY2008 and certain of our expenses not deductible for tax purposes. Our effective tax rate decreased from 18.1% in FY2009 to 16.4% in FY2010 mainly due to the utilisation of tax losses in one of our subsidiaries.
SEASONALITY
Our business is generally not subject to any significant seasonal fluctuations.
INFLATION
We do not consider the impact of inflation on our financial performance during the period under review to be significant.
CHANGE OF ACCOUNTING POLICIES
Our accounting policies have been consistently applied by our Group for the period under review, except for the changes in accounting policies arising from adoption of new and revised financial reporting standards as detailed in Section 2.2 of Appendix A – “Independent Auditors’ Report on the Audited Consolidated Financial Statements of Far East Group Limited and Subsidiary Companies for the Financial Years Ended 31 December 2008, 2009 and 2010” of this Offer Document.
The adoption of new and revised standards resulted in changes to certain accounting policies but did not impact on the financial position or performance of our Group.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
REVIEW OF OPERATING RESULTS
For the purpose of discussion, we have segmented our revenue and gross profit by business segments and geographical markets for the period under review. The following review of past performance should be read in conjunction with the “Independent Auditors’ Report on the Audited Consolidated Financial Statements of Far East Group Limited and Subsidiary Companies for the Financial Years Ended 31 December 2008, 2009 and 2010” as set out in Appendix A of this Offer Document.
Review of past performance by business segments
FY2008 FY2009 FY2010 Revenue S$’000 % S$’000 % S$’000 %
Commercial and light industrial (refrigeration) 20,642 70.8 19,662 73.4 23,733 72.8
Residential and commercial (air-conditioning) 5,414 18.5 4,704 17.5 6,194 19.0
Oil, marine and gas (refrigeration and air-conditioning) 3,135 10.7 2,439 9.1 2,689 8.2
29,191 100.0 26,805 100.0 32,616 100.0
FY2008 FY2009 FY2010 Gross profit S$’000 % S$’000 % S$’000 %
Commercial and light industrial (refrigeration) 4,876 68.7 5,431 75.6 7,990 74.5
Residential and commercial (air-conditioning) 1,182 16.6 928 12.9 1,648 15.4
Oil, marine and gas (refrigeration and air-conditioning) 1,045 14.7 828 11.5 1,081 10.1
7,103 100.0 7,187 100.0 10,719 100.0
Gross profit margin (%) FY2008 FY2009 FY2010
Commercial and light industrial (refrigeration) 23.6 27.6 33.7
Residential and commercial (air-conditioning) 21.8 19.7 26.6
Oil, marine and gas (refrigeration and air-conditioning) 33.3 33.9 40.2
Average 24.3 26.8 32.9
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
Review of past performance by geographical markets
We have segmented our geographical markets in accordance with the location of customers based on our invoices. While it is possible to segment our revenue by geographical locations of our customers, the allocation of cost of sales cannot be done in a similar manner with reasonable accuracy as we primarily use the same resources for the manufacture and supply of our products for various markets. We do not track the allocation of our cost of sales by geographical locations of our customers and any attempt to match these expenses to revenue in the various geographical locations is not meaningful.
FY2008 FY2009 FY2010 Revenue S$’000 % S$’000 % S$’000 %
Singapore 12,250 42.0 11,083 41.4 13,756 42.2Malaysia 7,808 26.7 7,572 28.2 8,872 27.2Indonesia 3,632 12.5 2,996 11.2 3,810 11.7Hong Kong / PRC(1) 1,643 5.6 2,127 7.9 3,383 10.4Indochina(2) 1,645 5.6 810 3.0 922 2.8Others(3) 2,213 7.6 2,217 8.3 1,873 5.7
29,191 100.0 26,805 100.0 32,616 100.0
Notes:-
(1) Includes sales to Macau.
(2) Relates to sales to Vietnam, Myanmar and Cambodia.
(3) Includes sales to Phillipines, Thailand, Mauritius and Sri Lanka.
FY2009 vs FY2008
Revenue
Our revenue decreased by 8.2% or S$2.4 million, from approximately S$29.2 million in FY2008 to approximately S$26.8 million in FY2009.
The decrease in revenue was attributable to the decreased sales from all of our business segments, with a decline of S$1.0 million from our commercial and light industrial (refrigeration) business segment, S$0.7 million from our residential and commercial (air-conditioning) business segment and S$0.7 million from our oil, marine and gas (refrigeration and air-conditioning) business segment. The decline in revenue was mainly attributable to the lower customer demand due to the global economic and financial crisis in FY2009. In addition, one of our key customers in the oil, marine and gas (refrigeration and air-conditioning) business segment had shifted its operations out of Singapore and this partly contributed to the decline in revenue in FY2009.
The decline in revenue in FY2009 was attributable to decreased sales of S$1.2 million from Singapore, S$0.2 million from Malaysia, and S$0.6 million from Indonesia as compared to FY2008, as a result of the lower customer demand due to the global economic and financial crisis in FY2009. The decline in revenue generated from Singapore was also attributable to the abovementioned shifting of operations by one of our key customers out of Singapore.
Gross profit
Our gross profit increased marginally by 1.2% or S$0.1 million, from approximately S$7.1 million in FY2008 to approximately S$7.2 million in FY2009, despite a 8.2% decline in our revenue.
Our gross profit margin improved by 2.5 percentage points, from 24.3% in FY2008 to 26.8% in FY2009. The improvement of our gross profit margin was mainly due to increased gross profit margins of our commercial and light industrial (refrigeration) as well as oil, marine and gas (refrigeration and air-conditioning) business segments, which were partially offset by the lower gross profit margin of our residential and commercial (air-conditioning) business segment.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
The gross profit margin of our commercial and light industrial (refrigeration) business segment improved by 4.0 percentage points, from 23.6% in FY2008 to 27.6% in FY2009. This was mainly due to the following:-
(i) a decrease in provision for stock obsolescence (which was recognised as an expense in cost of sales) in FY2009 as compared to FY2008, which had contributed to an improvement in gross profit margin of approximately 1.6%; and
(ii) an increase in average selling price of our products as we had introduced new series of refrigeration products in FY2009 which had commanded higher margins.
Notwithstanding the aforementioned positive impact of the inventory write-down, the gross profit margin of our residential and commercial (air-conditioning) business segment declined by 2.1 percentage points, from 21.8% in FY2008 to 19.7% in FY2009. This was mainly due to the relatively high average cost of our copper stock which we were unable to effectively pass on to our customers as this business segment is relatively more competitive.
In the case of our oil, marine and gas (refrigeration and air-conditioning) business segment, the positive impact of the inventory write-down was partially offset by more competitive pricing strategy in order to capture market share in FY2009. As a result, the gross profit margin of this business segment improved only marginally by 0.6 percentage points, from 33.3% in FY2008 to 33.9% in FY2009.
Other operating income
Other operating income increased by 18.1% or S$0.1 million, from approximately S$0.6 million in FY2008 to approximately S$0.7 million in FY2009, which was mainly attributable to an increase of approximately S$0.2 million in commission income and S$0.1 million in jobs credit grants. The increase in other operating income was partially reduced by a gain of approximately S$0.2 million in FY2008 in relation to write-off of a long outstanding unclaimed debt, and there was no such item in FY2009.
Distribution and selling expenses
Distribution and selling expenses decreased by 9.3% or S$0.2 million, from approximately S$2.3 million in FY2008 to approximately S$2.1 million in FY2009, mainly due to a decrease of S$0.1 million in travelling and entertainment expenses in FY2009 as we participated in fewer exhibitions due to the sluggish economic conditions in the year.
Administrative expenses
Administrative expenses increased by 6.1% or S$0.2 million, from approximately S$3.3 million in FY2008 to approximately S$3.5 million in FY2009, mainly due to an increase of approximately S$0.2 million in salaries and related costs with the addition of five new staff at Edenkool, a new subsidiary in Singapore.
Financial expenses
Our financial expenses decreased by 21.8% or S$0.1 million, from approximately S$0.6 million in FY2008 to approximately S$0.5 million in FY2009. This was mainly due to a decrease in interest rates on our bank borrowings, coupled with a lower utilisation of bank overdrafts and trade facilities in FY2009.
Profit before tax
Profit before tax increased by 20.7% or S$0.2 million, from approximately S$1.4 million in FY2008 to approximately S$1.6 million in FY2009. The increase was due to an increase in gross profit and other operating income, decrease in distribution and selling expenses as well as financial expenses, partially offset by an increase in administrative expenses.
Tax expense
Our income tax expenses were S$0.4 million and S$0.3 million, with effective tax rates of 29.0% and 18.1% in FY2008 and FY2009 respectively.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
FY2010 vs FY2009
Our revenue increased by 21.6% or S$5.8 million, from approximately S$26.8 million in FY2009 to approximately S$32.6 million in FY2010.
The increase in revenue was attributable to increased sale from all our three business segments, with an increase of S$4.1 million from our commercial and light industrial (refrigeration) business segment, S$1.5 million from our residential and commercial (air-conditioning) business segment and S$0.3 million from our oil, marine and gas (refrigeration and air-conditioning) business segment. The increase in revenue was attributable to new customers secured in FY2010 as a result of our intensified marketing efforts and improved general economic conditions in the year.
The increase in revenue in FY2010 was attributable to increased sale of S$2.7 million from Singapore, S$1.3 million from Malaysia, S$0.8 million from Indonesia and S$1.3 million from Hong Kong and the PRC, as compared to FY2009. This was mainly due to our intensified marketing efforts and the improvement in general economic conditions in FY2010.
Gross profit
Our gross profit increased by 49.1% or S$3.5 million, from approximately S$7.2 million in FY2009 to approximately S$10.7 million in FY2010.
Our gross profit margin improved by 6.1 percentage points, from 26.8% in FY2009 to 32.9% in FY2010, due to an overall improvement in gross profit margins from all our three business segments, mainly attributable to the following factors:-
(i) we recorded a write-back of provision for stock obsolescence in FY2010 as compared to a provision for stock obsolescence in FY2009, which contributed to an improvement in gross profit margin of approximately 5.6%; and
(ii) favourable currency exchange rates of our purchases which were mainly in US$ and €. The average exchange rate of US$ weakened against S$ by 6.9%, from S$1.00:US$0.6881 in FY2009 to S$1.00:US$0.7355 in FY2010. The average exchange rate of S$ and € weakened by 13.0%, from S$1.00:€0.4935 in FY2009 to S$1.00:€0.5575 in FY2010.
Other operating income
Other operating income increased by 103.9% or S$0.7 million, from approximately S$0.7 million in FY2009 to approximately S$1.5 million in FY2010. This was mainly attributable to a gain of approximately S$1.1 million on disposal of investment properties, partially offset by a decrease of approximately S$0.1 million in jobs credit grants and S$0.1 million in dividend income from an unquoted investment in FY2010.
Distribution and selling expenses
Distribution and selling expenses increased by 27.8% or S$0.6 million, from approximately S$2.1 million in FY2009 to approximately S$2.7 million in FY2010. This was mainly due to an increase of S$0.4 million in salaries and related costs in FY2010 as we rewarded our staff with higher increment and bonuses in the year.
Administrative expenses
Administrative expenses increased by 2.1% or S$0.1 million, from approximately S$3.5 million in FY2009 to approximately S$3.6 million in FY2010.
Financial expenses
Our financial expenses decreased by 38.0% or S$0.2 million, from approximately S$0.5 million in FY2009 to approximately S$0.3 million in FY2010. This was mainly due to a decrease in interest rates on our bank borrowings, coupled with a lower utilisation of bank borrowings and trade facilities in FY2010.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
Profit before tax
Profit before tax increased by 232.5% or S$3.8 million, from approximately S$1.6 million in FY2009 to approximately S$5.4 million in FY2010. The increase was due to an increase in gross profit and other operating income, as well as decrease in financial expenses, partially offset by an increase in distribution and selling expenses and administrative expenses.
Tax expense
Our income tax expenses were S$0.3 million and S$0.9 million, with effective tax rates of 18.1% and 16.4% in FY2009 and FY2010 respectively.
REVIEW OF FINANCIAL POSITION
Non-current assets
Our non-current assets comprise fixed assets, unquoted investments, deferred tax assets and other receivables. Non-current assets amounted to S$8.0 million, S$7.9 million and S$7.8 million as at 31 December 2008, 31 December 2009 and 31 December 2010 respectively, representing 28.0%, 32.5% and 27.7% of our total assets respectively.
As at 31 December 2010, the net book value of our fixed assets amounted to S$7.5 million, or 26.7% of our total assets, comprising mainly freehold land of S$2.8 million, buildings of S$3.2 million, leasehold land and buildings of S$0.3 million, plant and machinery of S$0.1 million, motor vehicles of S$0.3 million, renovations of S$0.4 million as well as office equipment, furniture and fittings of S$0.3 million. Our unquoted investment amounted to approximately S$89,000 which relates to our investment in the PRC. Deferred tax assets amounted to approximately S$0.2 million and other receivables amounted to approximately S$18,000 as at 31 December 2010.
Current assets
Current assets comprise mainly inventories, trade debtors, other receivables, deposits, prepayments, amount due from affiliated companies (trade), fixed deposits as well as cash and bank balances. Current assets amounted to S$20.6 million, S$16.5 million and S$20.3 million as at 31 December 2008, 31 December 2009 and 31 December 2010 respectively, representing 72.0%, 67.5% and 72.3% of our total assets as at the respective dates.
As at 31 December 2010, inventories and trade debtors were the largest components of our current assets, accounting for 40.4% and 32.7% of our current assets respectively. Our inventories comprise finished goods, finished goods-in-transit, raw materials and work-in-progress. Inventories are recorded net of inventories written down. Trade debtors are recorded net of allowance for doubtful debts. Other receivables amounted to 0.7% of our current assets as at 31 December 2010 and comprise mainly sundry debtors. Deposits amounted to approximately S$0.1 million as at 31 December 2010, representing 0.5% of our current assets. These relate to deposits made for utilities and rental. Prepayments amounted to approximately S$1.3 million as at 31 December 2010, representing 6.2% of our current assets. These relate to prepayment of rental for our Indonesian office, advance payments to our suppliers and other prepayments for computer maintenance and professional fees. Amount due from affiliated companies (trade) amounted to approximately S$0.2 million as at 31 December 2010, representing 1.1% of our current assets. These relate to outstanding amount due for trade transactions with SER and SERM. The remaining balance of current assets comprises fixed deposits of approximately S$1.4 million and cash and bank balances of approximately S$2.4 million.
Current liabilities
Current liabilities comprise mainly trade payables, gross amount due to customers for contract work-in-progress, trust receipts and bills payable, other creditors, accruals and other liabilities, dividends payable, amounts due to affiliated company (trade and non-trade), provision for income tax, current portion of amount owing to then-shareholders and then-directors, and bank borrowings. Current liabilities amounted
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
to S$14.7 million, S$9.2 million and S$11.8 million as at 31 December 2008, 31 December 2009 and 31 December 2010 respectively, representing 77.3%, 67.4% and 79.7% of our total liabilities as at the respective dates.
Trade payables amounted to approximately S$1.5 million as at 31 December 2010, representing 12.7% of our current liabilities. Trade payables relate to purchases of finished products and raw materials from third party suppliers. Gross amount due to customers for contract work-in-progress of approximately S$0.6 million or 5.0% of current liabilities relates to deferred revenue on our project not yet recognised in FY2010. Trust receipts and bills payable amounted to approximately S$3.4 million as at 31 December 2010, representing 29.1% of current liabilities. Trust receipts and bills payable relate to our purchases and were secured by way of legal mortgages on certain of our fixed assets. Other creditors amounted to approximately S$0.8 million as at 31 December 2010, representing 6.5% of our current liabilities. These relate mainly to amounts owing to freight companies and sundry creditors, GST payable and other payable for professional services rendered. Accruals and other liabilities amounted to approximately S$1.7 million as at 31 December 2010, representing 14.9% of our current liabilities. Accruals and other liabilities comprise mainly accruals for expenses and professional fees, provision for directors’ fees and provision for bonus. Dividends payable amounted to approximately S$1.6 million as at 31 December 2010, representing 13.9% of our current liabilities. These relate mainly to dividends declared in FY2010 which remained outstanding as at 31 December 2010. Trade and non-trade amounts owing to our affiliated companies, SER and Old FER HK, amounted to approximately S$0.3 million and S$0.1 million respectively as at 31 December 2010, representing 2.2% and 0.9% of our current liabilities. As at 31 December 2010, our provision for income tax amounted to approximately S$0.6 million, which accounted for 5.1% of our current liabilities. The current portion of the amount owing to then-shareholders and then-directors amounted to approximately S$0.6 million which relates to amounts owing to Loh Ee Ming (our Non-executive Chairman) and David Leng (our COO (Sales and Marketing) and Executive Director) who had, from time to time, extended advances to us for our working capital requirements. These advances are unsecured and interest-free. The current portion of the advances is expected to be repaid within the next financial year, based on agreed payment terms. The current portion of our bank borrowings amounted to approximately S$0.4 million as at 31 December 2010, which accounted for 3.8% of our current liabilities. The remaining current liabilities were made up of provision for warranty of approximately S$50,000, current portion of finance leases of approximately S$18,000 and bank overdraft of approximately S$57,000.
Non-current liabilities
Non-current liabilities comprise mainly deferred tax liabilities, non-current portion of our finance lease obligations, bank borrowings, as well as amount owing to then-shareholders and then-directors, which amounted to S$4.3 million, S$4.5 million and S$3.0 million as at 31 December 2008, 31 December 2009 and 31 December 2010 respectively. These accounted for 22.7%, 32.6% and 20.3% of our total liabilities as at 31 December 2008, 31 December 2009 and 31 December 2010, respectively.
Deferred tax liabilities of approximately S$0.2 million arose as a result of an excess of net book value over tax written down value of fixed assets. The non-current portion of our finance lease obligations amounted to approximately S$58,000 and was secured to finance the purchase of a motor vehicle in FY2010. The non-current portion of our bank borrowings amounted to approximately S$1.7 million as at 31 December 2010. The amount owing to then-shareholders and then-directors relates to amounts owing to Loh Ee Ming and David Leng who had, from time to time, extended advances to us for our working capital requirements. These advances are unsecured, interest-free and had no fixed terms of repayment.
Equity attributable to equity holders of the Company
As at 31 December 2010, equity attributable to equity holders of the Company amounted to approximately S$13.2 million.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
LIQUIDITY AND CAPITAL RESOURCES
We financed our growth and operations through a combination of shareholders’ equity (including retained earnings), net cash generated from operating activities and indebtedness from financial institutions. Our principal uses of cash have been for working capital requirements and capital expenditures.
As at 31 December 2010, our shareholders’ equity amounted to S$13.2 million and indebtedness to financial institutions (comprising term loans, finance leases, bills payable, trust receipts and bank overdrafts) amounted to approximately S$5.7 million. Our gearing ratio (defined as the sum of indebtedness to financial institutions divided by shareholders’ equity) was 0.4 times. Our net current assets amounted to S$8.6 million and our working capital ratio (defined as current assets divided by current liabilities) was 1.7 times.
Had the issuance of 8,312 new Shares (before the Sub-Division) for a total cash consideration of approximately S$1,187,452 pursuant to the Pre-IPO Investment, subsequent to 31 December 2010 been accounted for, our shareholders’ equity as at 31 December 2010 would have amounted to approximately S$14.4 million and our gearing ratio would be 0.4 times. In addition, our net current assets would amount to S$9.7 million and our working capital ratio would be 1.8 times.
As at the Latest Practicable Date, we had an aggregate net cash surplus of S$2.6 million. Our total banking facilities amounted to S$17.8 million equivalent (comprising trade facilities of S$12.2 million, term loans of S$3.3 million and overdraft of S$2.3 million) of which S$11.4 million were unutilised.
Our Directors are of the reasonable opinion that, after taking into account the cash flows generated from our operations, our banking facilities and our existing cash and cash equivalents, the working capital available to us as at the date of lodgement of this Offer Document is sufficient for our present working capital requirements and for at least 12 months after the listing of our Company on Catalist.
The Sponsor is of the reasonable opinion that, after having made due and careful enquiry and after taking into account the cash flows generated from our operations, our banking facilities and our existing cash and cash equivalents, the working capital available to our Group as at the date of lodgement of this Offer Document is sufficient for our present working capital requirements and for at least 12 months after the admission of our Company to Catalist.
We set out below a summary of our consolidated statements of cash flows for the period under review. The following net cash flow summary should be read in conjunction with the full text of this Offer Document, including the “Independent Auditors’ Report on the Audited Consolidated Financial Statements of Far East Group Limited and Subsidiary Companies for the Financial Years Ended 31 December 2008, 2009 and 2010” as set out in Appendix A of this Offer Document.
Audited (S$’000) FY2008 FY2009 FY2010
Net cash from operating activities 790 2,755 1,798Net cash (used in)/from investing activities (305) (274) 872Net cash (used in)/from financing activities 225 130 (2,135)
Net increase in cash and cash equivalents 710 2,611 535Cash and cash equivalents at beginning of year (163) 547 3,158
Cash and cash equivalents at the end of the year(1) 547 3,158 3,693
Note:-
(1) Cash and cash equivalents comprise fixed deposits as well as cash and bank balances, net of bank overdrafts.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
FY2008
In FY2008, we generated net cash from operating activities before changes in working capital of S$3.2 million. Net cash used in working capital amounted to S$1.6 million. This was mainly due to a decrease in trade debtors and other receivables of S$1.0 million, and a decrease in deposits and prepayments of S$0.5 million, partially offset by an increase in inventories of S$1.5 million, a decrease in trust receipts and bills payable of S$0.7 million, a decrease in accruals and other liabilities of S$0.2 million, and a decrease in trade and other payables of S$0.8 million. We paid income tax of S$0.2 million and interest of S$0.6 million in FY2008. The net cash generated from operating activities amounted to S$0.8 million.
Net cash used in investing activities of S$0.3 million was due to the purchase of plant and machinery of S$0.2 million and other fixed assets of S$0.1 million. Net cash generated from financing activities of S$0.2 million was due mainly to proceeds from term loans of S$0.5 million, partly offset by repayments of term loans of S$0.1 million, repayment of loans to certain shareholders of S$0.1 million, and repayment of obligations under finance leases of approximately S$26,000 and dividend payment of approximately S$16,000.
As a result of the above, there was a net increase of S$0.7 million in our cash and cash equivalents, from an overdraft of S$0.2 million as at 1 January 2008 to a cash surplus of S$0.5 million as at 31 December 2008.
FY2009
In FY2009, we generated net cash from operating activities before changes in working capital of S$3.0 million. Net cash generated from working capital amounted to S$0.6 million. This was mainly due to a decrease in inventories of S$2.5 million, a decrease in trade debtors and other receivables of S$2.6 million and an increase in accruals and other liabilities of S$0.7 million, partly offset by a decrease in trust receipts and bills payable of S$3.9 million, an increase in deposits and prepayments of S$0.4 million and a decrease in trade and other payables of S$0.9 million. We paid interest expenses of S$0.5 million and income taxes of S$0.5 million. Net cash generated from operating activities amounted to S$2.8 million.
Net cash used in investing activities of S$0.3 million was mainly due to the purchase of motor vehicles of S$0.2 million and other assets of S$0.1 milion, partially offset by proceeds from the sale of motor vehicles of S$0.1 million.
Net cash generated from financing activities of S$0.1 million was due mainly to proceeds from term loans of S$1.6 million, partly offset by repayments of term loans of S$0.8 million, repayment of loans to related parties and certain shareholders of S$0.2 million and S$0.5 million respectively.
As a result of the above, there was a net increase of S$2.6 million in our cash and cash equivalents, from S$0.5 million as at 1 January 2009 to S$3.2 million as at 31 December 2009.
FY2010
In FY2010, we generated net cash from operating activities before changes in working capital of S$4.0 million. Net cash used in working capital amounted to S$1.5 million. This was mainly due to an increase in trade debtors and other receivables of S$2.2 million, an increase in deposits and prepayment of S$0.7 million, a decrease in accruals and other liabilities of S$0.2 million and a decrease in bills payable of S$0.7 million, partly offset by a decrease in inventories of S$1.1 million, a decrease in gross amount due to customers for contract work-in-progress of S$0.6 million and an increase in trade and other payables of S$0.6 million. We paid income taxes of S$0.4 million and interest expenses of S$0.3 million in FY2010. The net cash used in operating activities amounted to S$1.8 million.
Net cash generated from investing activities of S$0.9 million was due mainly to proceeds from the disposal of our investment properties of S$1.2 million, partly offset by purchase of motor vehicles of S$0.1 million, office equipment and furniture of S$0.1 million and renovation of S$0.1 million.
62
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
Net cash used in financing activities of S$2.1 million was due mainly to repayments of term loans of S$1.2 million, repayment of loans from certain shareholders of S$0.4 million and dividends paid to shareholders of S$0.4 million.
As a result of the above, there was a net increase of S$0.5 million in our cash and cash equivalents, from S$3.2 million as at 1 January 2010 to S$3.7 million as at 31 December 2010.
CAPITAL EXPENDITURES, DIVESTMENTS, COMMITMENTS AND CONTINGENT LIABILITIES
Capital expenditures and divestments
Our capital expenditures and divestments during the period under review and the period from 1 January 2011 to the Latest Practicable Date are as follows:-
(S$’000) FY2008 FY2009 FY2010
1 January 2011 to the Latest
Practicable Date
Capital expenditures
Building – 1 17 13Plant and machinery 195 – 3 23Renovations 17 30 81 –Office equipment, furniture and fittings 51 74 102 22Computers 20 24 39 13Motor vehicles 26 213 196 –
309 342 438 71
Divestments
Plant and machinery – – 1 –Renovations – – 7 –Office equipment, furniture and fittings 5 1 5 8Computers – 13 4 –Motor vehicles – 154 14 –
5 168 31 8
The above capital expenditures were financed by internally generated funds and finance leases.
Commitments
Capital commitments
As at the Latest Practicable Date, we do not have any material capital commitments.
Operating lease commitments
As at the Latest Practicable Date, we have operating lease commitments as follows:-
(S$’000)
Not later than one year 161Later than one year but not later than five years 242More than five years 866
63
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
The operating leases commitments comprise rent payable by us for the leased properties as disclosed in the “Business – Properties and Fixed Assets” section of this Offer Document.
We intend to finance the above operating lease commitments by internally generated funds.
Contingent liabilities
As at the Latest Practicable Date, we do not have any material contingent liabilities.
FOREIGN EXCHANGE MANAGEMENT
Transactions in foreign currencies are measured in the respective functional currencies of our Company and our subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabiilites denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at a date when the fair value was determined.
Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in profit or loss except for exchange differences arising on monetary items that form part of our Group’s net investment in foreign operations, which are recognised initially in other comprehensive income and accumulated under foreign currency translation reserve in equity. The foreign currency translation reserve is reclassified from equity to profit and loss of our Group on disposal of our foreign operations.
Our reporting currency is in Singapore dollars and our operations are primarily carried out in Singapore, Malaysia, Hong Kong and other SEA regions. Other than the respective functional currencies of our subsidiaries, we also transact mainly in US$ and €.
The percentage of our revenue, purchases and expenses denominated in currencies for the period under review are as follows:-
(%) FY2008 FY2009 FY2010
Percentage of revenue denominated in S$ 54.9 55.3 58.3RM 26.8 27.4 25.9US$ 12.4 9.2 6.3HK$ 5.0 6.5 9.0Others 0.9 1.6 0.5
Percentage of purchases denominated in US$ 39.8 47.4 44.9€ 48.1 38.6 43.3S$ 5.0 6.6 5.8RM 4.8 4.6 4.5JPY 2.1 2.7 1.5Others 0.2 0.1 –
Percentage of expenses denominated inS$ 70.6 72.0 67.4RM 22.9 21.1 27.7HK$ 6.5 6.9 4.9
64
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
To the extent that our revenue, purchases and expenses are not naturally matched in the same currency and to the extent that there are timing differences between invoicing and collection or payment, we will be exposed to fluctuations in the various currencies against the functional currencies of the respective companies, which may adversely affect our earnings.
At present, while we do not have any formal policy for hedging against foreign exchange exposure, we do use forward contracts to manage our foreign exchange risks from time to time. Typically, we do not purchase forward currency contracts of amounts greater than our existing purchase commitments. We will continue to monitor our foreign exchange exposure and may continue to employ forward currency contracts to manage our foreign exchange exposure should the need arise. Prior to implementing any formal hedging policies, we will seek the approval of our Board on the policy and put in place adequate procedures which shall be reviewed and approved by our Audit Committee. Thereafter, all hedging transactions entered into by our Group will be in accordance with the set policies and procedures.
Our net foreign exchange loss, and as a percentage of revenue and PBT, for the period under review were as follows:-
FY2008 FY2009 FY2010
Net foreign exchange loss (S$’000) 153 111 204As a percentage of revenue (%) 0.5 0.4 0.6As a percentage of PBT (%) 11.3 6.8 3.7
65
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
SHARE CAPITAL
We were incorporated in Singapore on 18 March 1964 under the Companies Act as a private limited company under the name of “Far East Refrigeration (Pte.) Limited” (Company Registration Number: 196400096C). On 18 March 2011, we changed our name to “Far East Group Pte. Ltd.”. On 25 July 2011, we were converted into a public company and changed our name to “Far East Group Limited”.
As at the date of incorporation, our issued and paid-up capital was S$115,000.00 comprising 1,150 Shares allotted and issued to Loh Ee Ming (42.0%), Chan Tuck Kwye (42.0%) and Ng Tat Keong (16.0%).
As at 31 December 2010, the issued and paid-up share capital of our Company was S$8,134,740.00 comprising 80,888 Shares.
Pursuant to an investment agreement dated 1 February 2011 (the “Investment Agreement”) entered into between our Company, UPL (our Controlling Shareholder), Steven Loh (our CEO and Executive Director), David Leng (our COO (Sales and Marketing) and Executive Director) and Lim Keng Ann (collectively the “Majority Shareholders”) and the Pre-IPO Investors, the Pre-IPO Investors subscribed for an aggregate of 8,312 new Shares for a total cash consideration of S$1,187,452.32 (the “Pre-IPO Investment”). The proceeds from the Pre-IPO Investment were used for general working capital purposes.
On 15 March 2011, our Company allotted and issued such number of Shares (before Sub-Division) to the Pre-IPO Investors as set out below:-
Number of Shares
Sam Cheung 7,000Richard Chung 700David Leng 612
Total 8,312
Pursuant to the Investment Agreement, our Company and the Majority Shareholders jointly and severally granted the Pre-IPO Investors a put option to require our Company and/or the Majority Shareholders to acquire all of the Pre-IPO Investors’ Shares at an acquisition price equivalent to the principal amount paid for such Shares plus a compounded annual interest of 4.0% in the event that our Company was unsuccessful in the Placement (for any reason other than our Company’s decision not to proceed with the Placement). In the event of a material breach of the Investment Agreement or, amongst others, our Company decided not to proceed with the Placement, the Majority Shareholders and our Company jointly and severally granted the Pre-IPO Investors a put option to require the Majority Shareholders and/or our Company to acquire all of the Pre-IPO Investors’ Shares at an acquisition price equivalent to the principal amount paid for such Shares plus a compounded annual interest of 6.0%.
Further to the Pre-IPO Investment and as at the Latest Practicable Date, the issued and paid-up share capital of our Company was S$9,322,192.32 comprising 89,200 Shares.
66
GENERAL INFORMATION ON OUR GROUP
At an extraordinary general meeting held on 22 July 2011, our Shareholders approved, inter alia, the following:-
(a) the conversion of our Company into a public limited company and the change of our name to “Far East Group Limited”;
(b) the adoption of a new set of Articles of Association;
(c) the sub-division of every one (1) Share into 600 Shares (the “Sub-Division”);
(d) the issue of the New Shares pursuant to the Placement, which when allotted or allocated, issued and fully-paid, will rank pari passu in all respects with the existing Shares;
(e) the authorisation of our Directors, pursuant to Section 161 of the Companies Act, to:-
(i) allot and issue Shares whether by way of rights, bonus or otherwise (including Shares as may be issued pursuant to any Instrument (as defined below) made or granted by our Directors while this resolution is in force notwithstanding that the authority conferred by this resolution may have ceased to be in force at the time of issue of such Shares); and/or
(ii) make or grant offers, agreements or options (collectively, “Instruments”) that might or would require Shares to be issued, including but not limited to the creation and issue of warrants, debentures or other instruments convertible into Shares,
at any time and upon such terms and conditions and for such purposes and to such persons as our Directors may in their absolute discretion deem fit, provided that the aggregate number of Shares issued pursuant to such authority (including Shares to be issued pursuant to any Instrument but excluding Shares which may be issued pursuant to any adjustments (“Adjustments”) effected under any relevant Instrument, which Adjustment shall be made in compliance with the provisions of the Catalist Rules for the time being in force (unless such compliance has been waived by the SGX-ST) and the Articles of Association for the time being of our Company), shall not exceed 100% of the issued share capital of our Company (excluding treasury shares) immediately after the Placement, and provided that the aggregate number of such Shares to be issued other than on a pro rata basis in pursuance to such authority (including Shares to be issued pursuant to any Instrument but excluding shares which may be issued pursuant to any Adjustment effected under any relevant Instrument) to the existing Shareholders shall not exceed 50% of the issued share capital of our Company (excluding treasury shares) immediately after the Placement, and, unless revoked or varied by our Company in general meeting, such authority shall continue in force until the conclusion of the next Annual General Meeting of our Company or the date by which the next Annual General Meeting of our Company is required by law to be held, whichever is the earlier; and
(f) the adoption of the Shareholders’ Mandate (details of which are set out in the “Interested Person Transactions – Shareholders’ Mandate” section of this Offer Document).
As at the date of this Offer Document, there is only one class of shares in the capital of our Company, being the Shares. A summary of the Articles of Association of our Company relating to, among others, the voting rights of our Shareholders is set out in Appendix B – “Summary of the Constitution of our Company” of this Offer Document. There is no founder, management, deferred or unissued Shares reserved for issuance for any purpose. No person has been, or is entitled to be, given an option to subscribe for or purchase any shares in or debentures of our Company or our subsidiaries.
67
GENERAL INFORMATION ON OUR GROUP
Details of changes in our issued and paid-up capital since 31 December 2010 and our issued and paid-up share capital immediately after the Placement are as follows:-
Resultant number of
issued Shares
Resultant issued and paid-up share
capital(S$)
Issued and fully paid Shares as at 31 December 2010 80,888 8,134,740Issued and fully paid Shares pursuant to the Pre-IPO Investment 89,200 9,322,192Issued and fully paid Shares pursuant to the Sub-Division 53,520,000 9,322,192New Shares issued pursuant to the Placement 18,800,000 13,958,192
Post-Placement issued and paid-up share capital 72,320,000 13,958,192
Save as disclosed above, there were no changes in the issued and paid-up capital of our Company within the three years preceding the date of this Offer Document.
The shareholders’ equity of our Company as at 31 December 2010, before and after adjustments to reflect the Pre-IPO Investment and the issue of the New Shares pursuant to the Placement are set out below:-
(S$’000)
As at 31 December
2010
After adjusting for the Pre-IPO
InvestmentAfter the
Placement
Share capital 8,135 9,322 13,958(1)
Reserves(2) 1,803 1,803 667
9,938 11,125 14,625
Notes:-
(1) After deducting expenses incurred relating to the Placement of approximately S$440,000 which will be capitalised against share capital.
(2) Reserves comprise accumulated profits and capital reserves.
68
GENERAL INFORMATION ON OUR GROUP
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69
OUR SUBSIDIARIES
The details of our subsidiaries as at the date of this Offer Document are as follows:-
Name of company
Date and place of incorporation
Principal business/Principal place of business
Issued and paid-up capital
Equity interest
held by our Company
Edenkool 26 May 2009/Singapore
Trading of refrigeration and air-conditioning parts/Singapore
S$200,000 100.0%
Far East HK 30 December 2005/Hong Kong
Trading of refrigeration and air-conditioning parts/Hong Kong
HK$3,000,000 100.0%
Far East JB(1) 23 January 1980/Malaysia
Trading of electrical, refrigeration and air-conditioning equipment and parts/Malaysia
RM1,000,000 100.0%
Far East KL 27 February 1976/Malaysia
Trading of electrical, refrigeration and air-conditioning equipment and parts/Malaysia
RM2,760,000 100.0%
Far East Kuching 10 May 1994/Malaysia
Trading of electrical, refrigeration and air-conditioning equipment and parts/Malaysia
RM2 100.0%
Far East Maju 21 March 1983/Malaysia
Manufacturing and trading of electrical, refrigeration and air-conditioning equipment and parts/Malaysia
RM2,839,000 100.0%
Far East Malaysia 26 January 1967/Malaysia
Investment holding/Malaysia
RM4,000,000 100.0%
Far East Penang 6 February 1980/Malaysia
Trading of electrical, refrigeration and air-conditioning equipment and parts/Malaysia
RM850,000 93.88%(2)
FE&B 10 August 1987/Malaysia
Trading of electrical, refrigeration and air-conditioning equipment and parts/Malaysia
RM400,000 100.0%
Green Point 13 July 2009/Singapore
Repair and maintenance of refrigeration and air-conditioning compressors/ Singapore
S$2 100.0%
RSP 15 July 1998/Singapore
Supply and solutions provider of refrigeration and air-conditioning monitoring and energy management systems/Singapore
S$70,000 57.1%(3)
70
GENERAL INFORMATION ON OUR GROUP
Name of company
Date and place of incorporation
Principal business/Principal place of business
Issued and paid-up capital
Equity interest
held by our Company
Safety Enterprises 4 June 1976/Malaysia
Trading of electrical, refrigeration and air-conditioning equipment and parts/Malaysia
RM20,000 100.0%
Notes:-
(1) Far East JB has ceased operations since 2007.
(2) The remaining shareholders of Far East Penang are Yap Kwong Sen (5.88%) and the estate of Lee Lee Boon (0.24%), both of whom are not related to any of our Directors, Executive Officers and Substantial Shareholders.
(3) The remaining 42.9% shareholding interest in RSP is owned by Richard Chung, one of our Executive Officers.
None of our subsidiaries is listed on any stock exchange.
SHAREHOLDERS
Our Shareholders and their respective shareholdings in our Company immediately before and after the Placement are set out below:-
Before the Placement After the Placement
Direct Interest Deemed Interest Direct Interest Deemed Interest
Number of Shares
% Number of Shares
% Number of Shares
% Number of Shares
%
DirectorsLoh Ee Ming(1),(2) – – 42,570,000 79.5 – – 42,570,000 58.9Steven Loh(1),(2) 654,600 1.2 42,570,000 79.5 654,600 0.9 42,570,000 58.9David Leng 3,700,200 6.9 – – 3,700,200 5.1 – –Karen Loh(1),(2) – – 4,200,000 7.9 – – 4,200,000 5.8Hew Koon Chan – – – – – – – –Andrew Mak – – – – – – – –Tan Hwee Kiong – – – – – – – –
Substantial Shareholder (other than Directors)
UPL(2) 42,570,000 79.5 – – 42,570,000 58.9 – –
Other ShareholdersLim Keng Ann(3) 439,800 0.8 – – 439,800 0.6 – –Estate of Ng Tat Keong(4) 711,600 1.3 – – 711,600 1.0 – –Estate of Chan Tuck Kwye(5) 823,800 1.6 – – 823,800 1.1 – –
Pre-IPO Investors(other than Directors)Sam Cheung(1) 4,200,000 7.9 – – 4,200,000 5.8 – –Richard Chung(6) 420,000 0.8 – – 420,000 0.6 – –
Public – – – – 18,800,000 26.0 – –
Total 53,520,000 100.0 72,320,000 100.0
71
GENERAL INFORMATION ON OUR GROUP
Notes:-
(1) Loh Ee Ming (our Non-executive Chairman) is the father of Steven Loh (our CEO and Executive Director) and Karen Loh (our Non-executive Director), and father-in-law of Sam Cheung (a Pre-IPO Investor). Steven Loh and Karen Loh are siblings. Karen Loh is the wife of Sam Cheung.
(2) UPL is an investment holding company incorporated in Singapore and the shareholders are Loh Ee Ming, Steven Loh, Karen Loh, Lum Soo Mooi (spouse of Loh Ee Ming) and Sharon Loh (daughter of Loh Ee Ming and Lum Soo Mooi, and sibling of Steven Loh and Karen Loh) with shareholding interests of 40.68%, 27.42%, 10.68%, 10.33% and 10.89% respectively. The directors of UPL are Loh Ee Ming, Steven Loh, Sharon Loh and Lum Soo Mooi.
(3) Lim Keng Ann is an employee of our Group and is not related to any of our Directors, Executive Officers and Substantial Shareholders.
(4) Ng Tat Keong is not related to any of our Directors, Executive Officers and Substantial Shareholders.
(5) Chan Tuck Kwye is not related to any of our Directors, Executive Officers and Substantial Shareholders.
(6) Richard Chung is one of our Executive Officers.
Saved as disclosed above, there are no family relationships amongst our Directors, Executive Officers and Substantial Shareholders.
Save as disclosed above, our Company is not directly or indirectly owned or controlled, whether severally or jointly, by any other corporation, any government or other natural or legal person.
The Shares held by our Directors and Substantial Shareholders do not carry different voting rights from the New Shares which are the subject of the Placement. To the best of our knowledge, none of our Directors is aware of any arrangement, the operation of which may at a subsequent date, result in a change in control of our Company.
Save as disclosed above in the “General Information on our Group – Share Capital” section of this Offer Document, there were no significant changes in the percentages of ownership of our Directors and Substantial Shareholders in our Company during the period under review and up to the Latest Practicable Date.
There has not been any public take-over offer by a third party in respect of our Shares or by our Company in respect of shares of another corporation or units of a business trust which has occurred between 1 January 2010 and the Latest Practicable Date.
MORATORIUM
To demonstrate their commitment to our Group, each of UPL (our Controlling Shareholder), Steven Loh (our CEO and Executive Director) and the Pre-IPO Investors, who in aggregate hold 51,544,800 Shares, in our Company immediately after the Placement (representing approximately 71.3% of the enlarged issued share capital of our Company after the Placement), have undertaken not to sell, realise, transfer or dispose of any part of their respective interests in the issued share capital of our Company immediately after the Placement (adjusted for any bonus issue or sub-division) for a period of 12 months commencing from the date of admission of our Company to Catalist.
In addition, Loh Ee Ming (our Non-executive Chairman), Steven Loh, Karen Loh (our Non-executive Director), Lum Soo Mooi and Sharon Loh, being all the shareholders of UPL, have undertaken not to sell, realise, transfer or dispose of any part of their respective interests in the issued share capital of UPL immediately after the Placement (adjusted for any bonus issue or sub-division) for a period of 12 months commencing from the date of admission of our Company to Catalist.
72
GENERAL INFORMATION ON OUR GROUP
We are one of the pioneers in the refrigeration and air-conditioning business in Singapore with more than 58 years of experience in the HVAC&R industry.
Our history can be traced back to 1953 when Loh Ee Ming, our founder and Non-executive Chairman, started a sole proprietorship to principally engage in the business of providing repair services of refrigerators at a leased shop located at Bencoolen Street, Singapore. In March 1964, Loh Ee Ming, together with Ng Tat Keong and Chan Tuck Kwye, incorporated our Company under the Companies Act as a private limited company under the name of “Far East Refrigeration (Pte.) Limited”.
In 1966, we were principally engaged in the manufacturing and distribution of commercial refrigerators as well as the trading of related spare parts with a staff strength of five employees. In the same year, as part of our expansion plans, we shifted from our leased premises at Bencoolen Street to our own premises at 230 Serangoon Road, Singapore 218081 (“230 Serangoon Road”).
In 1967, Loh Ee Ming saw huge demand for commercial refrigerators in Malaysia and established our first overseas subsidiary, Far East Malaysia, with a staff strength of approximately 20 employees to focus primarily on the manufacturing and distribution of commercial refrigerators and installation of cold rooms, as well as trading of refrigeration and air-conditioning parts in Johor, Kuala Lumpur and Penang in Malaysia.
In 1971, our staff strength increased to approximately 15 employees in Singapore and we purchased a property at 1120 Serangoon Road, Singapore 328205 (“1120 Serangoon Road”), with an estimated gross floor area of 1,400 sqft, as our office, service workshop and additional warehouse for storage.
In 1973, to cater to our expansion requirements, we sold 230 Serangoon Road and moved to a leased premise located at 3A Kinta Road, Singapore, which has an estimated gross floor area of approximately 4,000 sqft whilst maintaining our showroom at 1120 Serangoon Road. This new premise was used for our sales and marketing activities in relation to commercial refrigerators as well as refrigeration and air-conditioning parts.
In 1976, we acquired Far East KL and Safety Enterprises. Far East KL was focused on the manufacturing and distribution of commercial refrigerators, whilst Safety Enterprises was focused on distribution of imported refrigeration and air-conditioning parts in Kuala Lumpur.
In 1979, to cater to the increase in our export business volume, we acquired Elektro-Metall (Singapore) Private Limited (“Elektro-Metall”), which owned a factory and warehouse with an estimated gross floor area of 25,112 sqft at 5 Third Lok Yang Road, Singapore 628000 to enhance our warehouse and storage capacities. This factory became our regional logistics hub distributing our products in larger volumes to various countries in SEA, including Malaysia. In 2004, the business and assets of Elektro-Metall were subsequently transferred to our Group and in 2008, Elektro-Metall was dissolved.
In 1980, as our business continued to grow in Malaysia, we established Far East JB to consolidate our manufacturing facility from Far East Malaysia. In the same year, we established Far East Penang to focus on marketing and distribution of commercial refrigerators as well as refrigeration and air-conditioning parts in Penang.
In 1983, we acquired Far East Maju, a company located in Kuala Lumpur to principally engage in the manufacture of condensers and assembly of condensing units.
In 1988, Loh Ee Ming saw the business potential in the PRC and in order to reduce our dependence on the Singapore and Malaysia markets, we incorporated Far East Refrigeration (Hong Kong) Limited (“Old FER HK”), which acted as a business platform for our Group to the PRC market.
In 1990, Steven Loh (our CEO and Executive Director, and son of Loh Ee Ming), joined our Group as a retail sales executive. In 2003, he became our Group managing director.
In 1992, we streamlined our Group’s businesses to focus on distribution of refrigeration and air-conditioning systems and products and terminated the manufacturing of commercial refrigerators due to intense competition in this business segment.
73
HISTORY
In 1993, as our business continued to expand, we recognised the importance of branding. To this end, we created the “Fascold” brand for our manufactured range of products such as condensers, condensing units, evaporators, and custom coils. These products were manufactured by Far East Maju.
In the same year, we acquired FE&B, which was principally engaged in the sales, marketing and distribution of our products in South Malaysia.
In 1994, in order to garner greater market share and strengthen our market position in Malaysia, we incorporated Far East Kuching in Kuching (the capital of East Malaysian state of Sarawak) to focus primarily on the retailing and trading of refrigeration and air-conditioning parts, relevant spare parts and components in East Malaysia.
In 1994, we adopted a computerised inventory system, ERP program, which enabled us to have better control of our inventories and monitor the movement of our inventories on a real time basis. In 1995, we introduced the fully computerised commercial Stock Control Inventory Management and Accounting System (SCIMAS) to manage our inventories more efficiently and to provide information on our products to our customers on a timely basis.
In 1998, we incorporated RSP to focus primarily on Energy Management Systems (EMS), refrigeration monitoring as well as control and alarm management systems to cater to emerging demand for new technology within the HVAC&R industry. With the establishment of RSP, we are equipped with the advanced refrigeration technologies and online monitoring systems that help food-related companies to comply with the HACCP requirements. We are also currently providing refrigeration monitoring as well as control and alarm management systems to HSA (Singapore Blood Bank) and several cord blood companies.
Over the years, we strive to maintain a quality management system to ensure only quality products and services are provided to our customers. As a testament to our commitment, our Company was awarded the ISO9001:2008 certification for assembly and trading of refrigeration parts since May 2002. Our subsidiaries, Far East Maju and Safety Enterprises have also obtained the ISO9001:2008 certifications since October 2004.
In 2003, we carried out a rebranding exercise and changed our in-house brand name to “Eden”. This was part of our vision to launch a comprehensive range of innovative in-house manufactured heat exchangers which uses high energy-efficient coil technologies. This was part of our Green Program which brings us into the next phase of expansion, in line with the increasing environmental awareness in providing fresh and hygienic food storage solutions to the community.
Our “Eden” brand of products, in particular, our “Eden” brand of heat exchangers, are manufactured by our subsidiary, Far East Maju. Our “Eden” brand of products cover a wide range of international standard and quality heat exchangers, including evaporators, brine coolers, condensers and custom coils, which are extensively used in commercial, light industrial and marine applications. Today, “Eden” has a comprehensive product range of G4 heat exchangers.
In 2003, in conjunction with our 50th anniversary since the commencement of our business, and to further expand our operations, we acquired a new building at 112 Lavender Street, Singapore 338728, with an estimated gross floor area of approximately 20,839 sqft (the “Far East Refrigeration Building”). The Far East Refrigeration Building serves as our head office and retail centre.
From 2004 to 2005, our Group underwent a series of corporate restructuring exercises to achieve our corporate objectives of becoming a comprehensive provider of refrigeration and air-conditioning systems and products, and to streamline and rationalise our corporate structure and business activities of our Group.
In December 2005, we incorporated a new Hong Kong subsidiary, Far East HK, to take over the business and operations of Old FER HK. In 2009, we disposed of Old FER HK to Karen Loh. Please refer to the “Interested Person Transactions – Past Interested Person Transactions” section of this Offer Document for further details.
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In 2008, our “Eden” brand of heat exchangers were successfully tested in the laboratory of Ziehl-Abegg, which is one of Europe’s accredited laboratories. The results of the tests certified that our products’ specifications, such as noise level and air flow performance, were in line with market’s requirements. These certifications are a further testimony of the quality of our products. In particular, our “Eden” brand of heat exchangers are widely recognised and used by well-known international and regional retail chains, including Carrefour, Metro, Tesco and Giant. We were also one of the major suppliers of refrigeration equipment to Singapore’s two Integrated Resorts, namely Resorts World Sentosa and Marina Bay Sands.
In 2009, we expanded our business into the servicing, repair and overhauling of Bitzer’s reciprocating and screw compressors by establishing Green Point through a franchise program with Bitzer Refrigeration Asia Limited (a wholly-owned subsidiary of Bitzer, a leading manufacturer of compressors in Germany).
In view of the rapid growth of residential and commercial air-conditioning business in Singapore, we incorporated Edenkool in May 2009, to primarily focus on providing air-conditioning materials (such as copper pipes, PVC trunkings, electrical wires, refrigerants, class O and 1 closed cell insulation pipes and sheets) to the residential and commercial air-conditioning markets.
As part of our business strategy to expand regionally, we obtained a licence from the Vietnam Department of Industry and Trade in September 2010 to set up a new representative office in Ho Chi Minh City, Vietnam to serve as our Group’s gateway into the Indochina market (namely Vietnam, Cambodia, Laos and Myanmar).
In May 2011, we established a representative office in Indonesia to provide sales and marketing support and assistance for our distributors and dealers in Indonesia.
Since our establishment, our Group has grown rapidly and we have evolved into a comprehensive provider of refrigeration and air-conditioning systems and products in the HVAC&R industry. We have grown from a provider of repair services of refrigerators to a distributor of a wide range of agency products for several prominent manufacturers in the HVAC&R industry, as well as a manufacturer and distributor of heat exchangers and condensing units under our own brand “Eden”. As at the Latest Practicable Date, we have 118 employees, with subsidiaries in Singapore, Malaysia and Hong Kong as well as representative offices in Vietnam and Indonesia.
On 18 March 2011, we changed our name to “Far East Group Pte. Ltd.”. On 25 July 2011, our Company was converted into a public company and changed our name to “Far East Group Limited”. For further details on the share capital of our Company, please refer to the “General Information on our Group – Share Capital” section of this Offer Document.
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BUSINESS OVERVIEW
We are a comprehensive provider of refrigeration and air-conditioning systems and products in the HVAC&R industry, principally engaged in the sourcing and distribution of a wide range of agency products as well as the manufacturing and distribution of heat exchangers and condensing units under our own brand “Eden”. Our Directors believe that we are one of the leading regional distributors of commercial and light industrial refrigeration systems and products in the SEA region.
For our agency products, some of the international brands that we distribute are Bitzer, Copeland, Embraco, Danfoss, Emerson Flows, Eliwell, Honeywell, Saginomiya, Castel, ebm-papst, Ziehl-Abegg, HARP and Aeroflex. For further details on the agency products that we distribute, please refer to the “Business – Our Products” section of this Offer Document.
We possess a comprehensive range of innovative in-house manufactured heat exchangers under our own brand “Eden”, which use high energy-efficient coil technologies. Our “Eden” brand of heat exchangers are used for refrigeration and cooling by prominent end-users in various industries, such as retail (Carrefour, Metro, Tesco, Giant, Cold Storage and NTUC FairPrice), food and beverage (Resorts World Sentosa and Marina Bay Sands), pharmaceutical (HSA (Singapore Blood Bank)), hospitality (The St. Regis Singapore, Shangri-La Hotel Singapore and Capella Singapore), logistics (CIAS Flight Kitchen), food processing (Chun Cheng Fishery and Angliss Singapore) and shipping (Jurong Shipyard Pte Ltd, Keppel Shipyard Limited and Sembawang Shipyard Pte Ltd).
As part of our value-added services to our customers, we also provide design and consultancy services in relation to refrigeration and air-conditioning systems, as well as relevant product trainings and after-sales support.
We have a broad customer base of more than 1,000 active customers, of which 50% are repeat customers who have purchased from us for five years or more. Our customers include distributors, dealers as well as refrigeration and air-conditioning contractors who use our products and services to provide comprehensive refrigeration and air-conditioning systems to end-users, such as supermarkets, cold store distribution centres, food processing and catering facilities, hotels, hospitals, food and beverage establishments, convenient stores, petrol stations, marine vessels, oil rigs and barges.
Our head office is based in Singapore and we have subsidiaries in Singapore, Malaysia and Hong Kong, as well as representative offices in Vietnam and Indonesia. Our Company and subsidiaries in Singapore focus primarily on the business opportunities arising from Singapore and other SEA countries. Our subsidiaries in Malaysia operate as retail and distribution offices covering the Malaysian market whilst our subsidiary in Hong Kong serves as a business platform to the Hong Kong and PRC markets. Our representative office in Vietnam serves as our Group’s gateway into the Indochina market while our representative office in Indonesia covers the Indonesia market.
As at the Latest Practicable Date, we have appointed approximately 20 dealers and distributors with a wide business and distribution network in their respective countries, including Malaysia, Thailand, the Philippines, Myanmar, Mauritius, Vietnam, Sri Lanka and Indonesia. We also provide design and technical services to our dealers and distributors in connection with the sale of our products. Please refer to the “Business – Distribution Channels” section of this Offer Document for further details.
Our head office is currently located at 112 Lavender Street, Far East Refrigeration Building, Singapore 338728, occupying an estimated gross floor area of 20,839 sqft. Our main warehouse and workshop is located at 5 Third Lok Yang Road, Singapore 628000, occupying an estimated gross floor area of 25,112 sqft. Our manufacturing facility is located at Lot 1998/D Jalan Perusahaan 3, Taman Industri Selesa Jaya, 43300 Balakong, Seri Kembangan, Selangor Darul Ehsan, Malaysia, occupying an estimated gross floor area of 39,719 sqft.
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OUR PRODUCTS
We manufacture and distribute our “Eden” brand of heat exchangers and condensing units, as well as represent and distribute agency products. As at the Latest Practicable Date, we have 13 series with more than 300 models of evaporators, condensers and condensing units to serve the cooling requirements of different business segments, some of which are as follows:-
“Eden” brand of heat exchangers and condensing units
Product Product description
Cabinet unit coolers These evaporators are used in commercial refrigerators, wine coolers, convenience stores and small cold rooms. They are designed for energy-saving purposes and offer more storage space due to their slim design profile.
Low profile unit coolers These evaporators are used in hotels, restaurants, supermarkets, convenience stores and food processing factories. They are designed for energy-saving purposes with efficient air circulation and have modern aesthetic appearances.
High profile unit coolers These evaporators are used in supermarkets, hypermarkets, logistics hubs and food processing factories. They are designed for applications which require high air circulation and usage purposes.
Low air unit coolers / Dual throw unit coolers These evaporators are used in food processing rooms, wine coolers and supermarkets. They are designed for food processing areas which require controlled temperatures and comfort cooling in work areas.
Heavy duty unit coolers These evaporators are used in semi-blast freezing rooms, large cold storage rooms and logistics hubs. They are designed for large cold rooms which require critical air circulation applications.
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Product Product description
Titan unit coolers (blast freezer) These evaporators are designed for ultra-fast freezing applications to maintain food freshness, prevent loss of product weight and ultimate reduction in energy.
Matrix air-cooled condensers These condensers are used in refrigeration systems and commercial air-conditioning. They are designed for matrix application where condensers can be multi-linked. These condensers also have modern aesthetic appearance.
Matrix V air-cooled condensers These condensers are used in refrigeration installations and commercial air-conditioning. They are designed for installation sites with space constraints.
Jumbo air-cooled condensers These condensers have large capacities and are used in refrigeration installations, hypermarkets and commercial air-conditioning. They are designed for multiple compressor applications and closed circuit fluid coolers (radiators). These air-cooled condensers have modern aesthetic appearance.
Scrollpak condensing units These condensing units use advance scroll technologies from Copeland, coupled with energy-efficient “Eden” G4 condensers. They are primarily used in commercial refrigerators, wine chillers, convenience stores and small cold rooms offering quick installations.
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Product Product description
Polapak condensing units These condensing units are technology and quality-driven products which utilise Bitzer reciprocating compressors and energy-efficient “Eden” G4 condensers. They are primarily used in commercial refrigeration applications in hotels, restaurants, large cold rooms and logistics hubs, specially designed for high performance applications and quick installations.
E2pak frequency inverter condensing units These condensing units use inverter technology (compressor and condenser fan) designed for applications with varying loads in multiple evaporator refrigeration systems, providing energy-saving solutions to users. They are primarily used in commercial refrigeration, wine coolers, restaurants, logistics hubs, supermarkets and convenience stores.
Compressors
Product Brand / Country Product description
Open type compressors Bitzer / Germany These compressors are used in oil, marine and gas (refrigeration and air-conditioning) applications.
Semi-hermetic reciprocating compressors Bitzer / Germany These compressors are used in commercial refrigeration and air-conditioning applications.
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Product Brand / Country Product description
Semi-hermetic screw compressors Bitzer / Germany These compressors are used in commercial and light industrial refrigeration and air-conditioning applications.
Controllers, thermostats, systems protection, thermal expansion valves and line components
Product Brand / Country Product description
Saginomiya / Japan
Saginomiya offers an extensive range of pressure controllers and thermostats used in refrigeration, air-conditioning and fire protection systems.
Danfoss / Denmark
Danfoss offers a comprehensive range of thermal expansion valves, commercial l ine components, pressure and temperature controllers used in commercial and industrial refrigeration and air-conditioning applications.
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Product Brand / Country Product description
Eliwell / Italy Eliwell offers a comprehensive range of electronic pressure, temperature and humidity controllers for commercial and air-conditioning applications. Eliwell also offers energy-saving solutions and energy management systems for customers who require remote monitoring features and energy savings.
Honeywell / United States of America
H o n ey w e l l o f fe r s a comprehensive range of thermostats, controllers, valves and actuators used mainly in residential and commercial air-conditioning applications.
Emerson Flows / United States of America
Emerson Flows offers a comprehensive range of thermal expansion valves, systems protection par ts and line components used in refrigeration and air-conditioning applications.
Castel / Italy Castel offers a comprehensive range of line components, systems protection par ts and valves used mainly in commercial refrigeration and air-conditioning applications.
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Accessories
Product Brand Product description
Copper Pipes Eden We provide a comprehensive range of our “Eden” brand of high quality refrigeration and air-conditioning copper pipes. These copper pipes are supplied in both hard drawn length and annealed form, after meticulous cleaning, dehydrating and capping, to ensure that internal cleanliness standards are met. Most of our “Eden” copper pipes have undergone hydrostatic tests conducted by the TÜV SÜD PSB Pte Ltd in Singapore.
Insulation materials Aeroflex Aeroflex offers closed cell tubes and sheet insulation materials used in refrigeration and air-conditioning applications. Such insulation materials prevent condensation and offer thermal efficiency against heat loss.
Refrigerants HARP, ICOOL We carry various types of refr igerants used in re f r igera t ion and a i r -conditioning applications.
Our “Eden” brand of heat exchangers and condensing units are developed by our research and development team. During the period under review, we have developed a comprehensive range of G4 heat exchangers which uses high energy-efficient coil technologies.
All our “Eden” G4 condensers and evaporators are designed with the latest smart circuitry and incorporate the inner groove tube technology, which allows the refrigerant to be evenly distributed throughout the evaporators. This maximises coil efficiency and increases internal primary coil surface area, thereby providing higher efficiency and cooling capacity with a smaller physical evaporator dimension. This may result in a reduction of the number of evaporator fan motors used, hence reducing the energy consumption of fan motors by up to 50%. In addition, our fins technology that are used in our refrigeration and air-conditioning systems are made of high-grade aluminum (Aluminum Association - AA 1100 Standard) with Double Sine Wave Pattern and Rippled Fin Edges to provide higher heat transfer
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efficiency, which results in greater energy efficiency as compared with conventional fin designs. Some of the designs are patented and registered with the relevant authority in the PRC. Please refer to “Business – Intellectual Property” section of this Offer Document for further details.
In 2008, our “Eden” brand of heat exchangers were successfully tested in the laboratory of Ziehl-Abegg, which is one of Europe’s accredited laboratories. The results of the tests certified that our products’ specifications, such as noise level and air flow performance, were in line with market’s requirements.These certifications are a further testimony of the quality of our products.
OUR BUSINESS MODEL
Our business activities can be broadly segmented into the following categories:-
(i) Commercial and light industrial (refrigeration);
(ii) Residential and commercial (air-conditioning); and
(iii) Oil, marine and gas (refrigeration and air-conditioning).
The description of each of our Group’s business segments are set out as follows:-
Commercial and light industrial (refrigeration)
Our Directors believe that we are one of the leading regional distributors of commercial and light industrial refrigeration systems and products in SEA, including compressors, condensers, condensing units, multiple compressor racks units, electronic controls, energy management solutions, service equipment and tools and our “Eden” range of heat exchangers. Our customers are mainly refrigeration contractors, who use our products and services to provide a comprehensive refrigeration system to the end users, such as Carrefour, NTUC FairPrice, Resorts World Sentosa and Marina Bay Sands.
We purchase agency products from international brands such as Bitzer, Embraco, Danfoss, Emerson Flows and Eliwell. In addition, we manufacture our “Eden” brand of heat exchangers and customise our products to suit our customer’s specific design requirements.
We also offer value-added services to our customers by providing design and consultancy services in relation to refrigeration and air-conditioning systems, as well as relevant product trainings and after-sales support.
Our commercial and light industrial (refrigeration) business segment contributed approximately 70.8%, 73.4%, and 72.8% of our total revenue in FY2008, FY2009 and FY2010 respectively.
Residential and commercial (air-conditioning)
We distribute a wide range of air-conditioning materials, including copper pipes, insulation materials, fittings, PVC trunkings and other relevant components for residential and commercial air-conditioning applications. Our customers are mainly air-conditioning contractors and distributors, who use our products and services to provide air-conditioning systems for residential and commercial projects, such as condominiums, offices, warehouses and shopping complexes in Singapore and other SEA countries. With our expertise and experience in the manufacture of heat exchangers, we are able to customise and manufacture replacement air handling unit coils for commercial air-conditioning.
We purchase air-conditioning materials from international brands such as Aeroflex, Castel, Emerson Flows and Honeywell.
Our residential and commercial (air-conditioning) business segment contributed approximately 18.5%, 17.5% and 19.0% of our total revenue in FY2008, FY2009 and FY2010 respectively.
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Oil, marine and gas (refrigeration and air-conditioning)
We distribute a range of air-conditioning and refrigeration systems to the oil, marine and gas industry. These products include our “Eden” brand of heat exchangers and packaged condensing units supplied to ships, vessels and oil rigs, which are primarily used to preserve food, other perishables and also to provide a cool and comfortable environment for the crew. Our customers are mainly project contractors who supply our systems and products to shipyards, such as Jurong Shipyard Pte Ltd, Keppel Shipyard Limited and Sembawang Shipyard Pte Ltd.
With our extensive experience in the HVAC&R industry, we are also able to provide consultancy, technical support, product customisation and design services to our customers in the oil, marine and gas industry.
We purchase air-conditioning and refrigeration materials from international brands such as Bitzer, Danfoss and Castel.
Our oil, marine and gas (refrigeration and air-conditioning) business segment contributed approximately 10.7%, 9.1%, and 8.2% of our total revenue in FY2008, FY2009 and FY2010 respectively.
BUSINESS AND MANUFACTURING PROCESS
Our business process
In general, our business process can be illustrated diagrammatically as follows:-
Marketing and customer enquiries
Processing of sales orders
Packing and delivery
Submission of quotation and sales order confirmation
After-sales service
Assembly, inspection and testing
A general description of the abovementioned business process is set out below:-
(1) Marketing and customer enquiries
Our sales and marketing personnel take an active attitude towards seeking business opportunities and constantly look for potential customers. Upon receipt of sales enquiries from our customers, our sales and marketing personnel will liaise with them to understand the technical specifications and requirements of the products and services required by them.
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(2) Submission of quotation and sales order confirmation
Based on our customer’s requirements, our sales and marketing personnel will prepare a quotation setting out the product specifications, delivery schedule and payment terms. If our quotation is acceptable, our customer will provide us with a purchase order or by signing the acceptance confirmation provided in our quotation. We will accept the purchase order once we are satisfied that we are able to fulfill the requirements of the contract.
(3) Processing of sales orders
Upon receipt of the purchase order confirmation from our customers, our sales and marketing personnel will check the availability of such products in our inventory. If the products are internally available, our sales personnel will process the order by entering the purchase order into our ERP system to notify our retail store or warehouse, where such ordered products are stored and arrange the packing and schedule for delivery. In the event that the products are not available in our inventory, our sales and marketing personnel will inform our procurement department, who will undertake to place order for such products from our suppliers. Our sales and marketing personnel will be informed on the delivery status so that they can advise our customers accordingly.
(4) Assembly, inspection and testing
In relation to sales orders for a set of system which require assembly prior to delivery to our customers, our engineers will be involved in assembling such system. In order to meet our customers’ requirements, our engineers will confirm the designs with our customers and if required, prepare the system drawings for approval. Upon receipt of the approval of our designs, our manufacturing department will then proceed with the assembly in accordance with the approved designed drawings. If any of the components required for the assembly process is not available in our inventory, our procurement department will be informed and will undertake to procure such components from our suppliers.
After the completion of the assembly of the system, our quality control personnel will carry out a quality control check to ensure that the completed system is assembled in accordance with the specifications. Upon requests from our customers, we will assist in the commissioning of the system after our customers have completed installation.
(5) Packing and delivery
Our store or warehouse will be notified through our ERP system to prepare the packing list and pick the products ordered for packing and delivery. Prior to delivery to our customers, our store or warehouse supervisor will verify the relevant documents (such as delivery order) and the items to be delivered, and inform our sales and marketing department to prepare the invoices for our customers.
(6) After-sales service
Our sales personnel visit our customers regularly to provide updates on our products, follow-up on pending quotations and delivery, as well as to offer a range of technical support services to them.
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Our manufacturing process
In general, the manufacturing process of a heat exchanger can be illustrated diagrammatically as follows:-
Sub-assembly section
Fin press section
Sheet metal section
Tube section
Final assembly section
Packing
Storage
Delivery
Lacing Expanding Flaring Belling
Brazing Leak test Painting Electrical
Incoming raw materials
A general description of the manufacturing process of a heat exchanger is set out below:-
(1) Incoming raw materials and components
To manufacture a heat exchanger, raw materials such as aluminum sheets, copper pipes, galvanised steel and fan sets are required. We order our raw materials from our suppliers based on our current inventory level, manufacturing schedule and sales forecast. All incoming raw materials are examined thoroughly by our quality control personnel, on its quality and functions prior to using them in our manufacturing process.
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(2) Fin press, sheet metal and tube sections
(i) Fin press section
The fin is made of aluminum or copper, which will be inserted and passed through the fin press machines whereby holes and patterns are punched or formed respectively accordingly to various diameters and patterns required. They are also cut accordingly to their required sizes and consolidated into a stack for the final assembly section.
(ii) Sheet metal section
Using CNC machines, galvanised steel or aluminum sheets are formed into various components required for the final assembly section. These components include the casings, end plates and base frames.
(iii) Tube section
Copper pipes are straightened, cut, bent and capped to form various components such as straight tubes, hairpin tubes, headers, distributors and other copper components required in the final assembly section.
(3) Sub-assembly section
In the sub-assembly section, the components produced or formed in the fin press, sheet metal and tube sections as described above are assembled whereby:-
(a) straight or hairpin tubes are laced through the fins and are internally expanded to form a tight fit within the fins;
(b) the ends of these tubes are then flared and belled for the insertion and brazing of return bends;
(c) distributors and headers are then inserted and brazed;
(d) the coil is pressurised with nitrogen and then tested for leaks by immersing into a water tank;
(e) various components are painted; and
(f) electrical components such as electrical fans, defrost heaters, control boxes are then fitted and wired accordingly.
(4) Final assembly section
The various components that were produced and formed in the sub-assembly section such as tubes, fins, distributors, headers, coils and electrical components will be assembled to become a heat exchanger.
(5) Packing, storage and delivery
Once the heat exchanger is fully assembled, it is packed and stored in our warehouse for delivery to our customers.
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AWARDS AND ACHIEVEMENTS
Our Company has been conferred the following awards and achievements since establishment:-
Award/Achievement DescriptionAwarding authority/company Year of award
The Distributor of the Year This award recognises us as Bitzer’s top distributor in the Asia Pacific Region, except for the PRC
Bitzer 2001, 2007 and 2008
Business Partner of the Year Award This award recognises us as Eliwell SPA’s top distributor in the Asia Pacific Region, except for the PRC
Eliwell SPA 2003
Sales Commendation Award (Environmental Controls – HVAC)
This award commends us as Honeywell’s sales achiever in its Environmental Controls – HVAC products
Honeywell Pte Ltd 2010
Singapore SME500 Company This award ranks and recognises us as one of Singapore’s most successful small and medium enterprises in terms of sales turnover and net profit
DP Information Group 2001, 2002,2003 and 2010
SALES AND MARKETING
Our sales and marketing efforts are led by David Leng, our COO (Sales and Marketing) and Executive Director and supported by our sales and marketing team which comprises 41 personnel as at 31 December 2010. Our sales and marketing team is divided according to our various products, business or market segments so as to offer specialised and dedicated services to our customers. Our customers comprise mainly distributors, dealers as well as refrigeration and air-conditioning contractors. We have a broad customer base of more than 1,000 active customers, of which 50% are repeat customers who have purchased from us for five years or more.
Our sales and marketing team plans and formulates the overall sales and marketing objectives and strategies, and is responsible for each business segment. They are responsible for generating new customer accounts while managing relationships with existing customers. They attend to customers’ enquiries and provide timely quotations to customers according to their specifications and requirements. In addition, they communicate and/or pay regular visits to our existing customers to obtain feedbacks on our products and services, keeping us abreast of the changes in market trends, customers’ requirements and demands so that we can better respond to the market situation.
Our sales and marketing team sets out our annual sales target for each of our subsidiary on an annual basis. Such sales targets are projected based on our customers’ sales contributions in the previous two years and through our discussions with our customers to understand their business trends going forward. The actual sales results for each of our subsidiary is monitored by our sales and marketing team and reviewed by David Leng. Our sales and marketing team holds regular meetings to review the market trends and the actual sales results generated by each of our subsidiary.
We place great emphasis on our branding, advertising and promotion programmes. To promote our products and services in the region, we regularly participate in numerous exhibitions and trade shows in Singapore, Indonesia, Vietnam, the Philippines, Germany and the PRC. Since 1995, we have participated annually in the “China Refrigeration” exhibition held in the PRC, which is the largest HVAC&R trade show event in Asia. Our “Eden” brand of products were exhibited in Chillventa Nuremberg, Germany in 2008, which was the largest global international trade fair for refrigeration, air-conditioning, ventilation products and heat pumps. In addition, we also organise seminars and technical presentations for our customers and distributors in SEA countries, including Singapore, Malaysia, Indonesia, Vietnam and the Philippines.
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To improve our profile and increase public awareness of our products and services, we advertise in print media, including trade magazines and industry directories, and display posters and banners relating to our Group and products at our retail stores and distributors’ stores. In addition, we furnish our marketing package (comprising posters, catalogues, folders, technical leaflets, gifts and banners), which contains information and sales promotions of our products, to our distributors and customers.
Our corporate website (http://www.fareastref.com.sg/) and product website (http://www.edensolution.com) are important sales and marketing channels, which contain information on, amongst others, our history, product range and catalogues, news, corporate culture, awards and accolades, current promotions and a downloadable survey form through which customers can lodge their complaints, compliments and suggestions. Information contained in our internet websites does not constitute part of this Offer Document.
Our sales and marketing activities have increased our corporate profile and public awareness of our products and services. We are confident that our on-going sales and marketing efforts and activities will continue to contribute to the growth of our market share and effectively market our products and services to our customers in the local and regional markets.
DISTRIBUTION CHANNELS
We market and distribute our products and services through various distribution channels including direct selling, representative offices, refrigeration and air-conditioning contractors, distributors and/or dealers. In Singapore, Malaysia and Hong Kong, our products and services are directly distributed through companies within our Group in the respective countries. Most of the companies within our Group are equipped with showrooms, retail facilities and warehouses, to provide timely deliveries, and quality products and services to our customers.
We have representative offices in Vietnam and Indonesia to serve as our Group’s gateway into the Indochina and Indonesia markets respectively, to generate sales leads and provide necessary assistance to distributors and dealers in Vietnam and Indonesia.
To extend our regional reach, we have also appointed a number of distributors and dealers who are well-established and have a wide business and distribution network in their respective countries, including Malaysia, Thailand, the Philippines, Myanmar, Mauritius, Vietnam, Sri Lanka and Indonesia. As at the Latest Practicable Date, we have approximately 20 distributors and dealers who distribute our products to end users, sub-distributors and sub-dealers, refrigeration and air-conditioning contractors and/or original equipment manufacturer customers in the SEA region and other regions. We also provide design and technical services to our distributors and dealers in connection with the sale of our products.
MANUFACTURING FACILITY AND CAPACITY
Our manufacturing facility is located at Lot 1998/D Jalan Perusahaan 3, Taman Industri Selesa Jaya, 43300 Balakong, Seri Kembangan, Selangor Darul Ehsan, Malaysia, with a gross floor area of approximately 39,719 sqft. Please refer to the “Business – Properties and Fixed Assets” section of this Offer Document for further details on our Maju Facility.
Our Maju Facility is primarily engaged in manufacturing and research and development of our “Eden” brand of heat exchangers, including unit coolers, blast freezers/chillers and air cooled condensers. Our Maju Facility is equipped with adequate machines and equipment, including fin presses, expander machines, tube bending machines and a full range of sheet metal manufacturing machines.
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The following table illustrates the annual manufacturing capacity, actual annual manufacturing output and the utilisation rate for our manufacturing lines of coils at our Maju Facility for FY2008, FY2009 and FY2010:-
Annual manufacturing capacity (1)
(Units)
Actual annual manufacturing output
(Units) Utilisation rate (2)
(%)
FY2008 FY2009 FY2010 FY2008 FY2009 FY2010 FY2008 FY2009 FY2010
Coils 7,200 7,200 7,200 6,670 4,980 4,590 92.6 69.1 63.7
Notes:-
(1) Our annual manufacturing capacity is derived based on 22 manufacturing staff on one work shift of nine hours per day for 250 days in a year.
(2) Utilisation rate is calculated based on our actual annual manufacturing output divided by our annual manufacturing capacity.
Our utilisation rate decreased from 92.6% in FY2008 to 69.1% in FY2009, mainly due to the relocation of one of our major customers out of Singapore. In addition, due to the global economic crisis in FY2008, the demand for our products declined in FY2009.
Our utilisation rate decreased from 69.1% in FY2009 to 63.7% in FY2010, mainly due to the decline in the number of units of coils manufactured as the coils we manufactured during this period were larger units of higher values.
During the period under review and up to the Latest Practicable Date, we have not experienced any form of disruption to the operations in our Maju Facility.
QUALITY CONTROL AND SAFETY ASSURANCE
Quality control
We believe that quality control in our products and services is one of the key factors that contribute to our growth and success. We have established a stringent quality management system for our business operations and manufacturing process.
These quality control measures ensure that our products and services meet the requirements and expectations of our customers. Our quality control measures, from sourcing and procurement of raw materials and agency products to the delivery of our finished products, adhere closely to the ISO guidelines. We are committed to comply with ISO9001 and will continuously improve on our quality control.
Our commitment to quality is evidenced by the following certifications received by us:-
Certification Receiving party ScopeCertifying authority Date of expiry
ISO9001:2008 Far East Group Assembly and trading of refrigeration parts
BSI 12 May 2014
ISO9001:2008 Fast East Maju Design and manufacture of industrial and commercial refrigeration systems including heat exchangers and condensing units
Global Certification Limited
17 August 2013
ISO9001:2008 Safety Enterprises Distribution and wholesale of pre-manufacturing products and parts for refrigeration systems
Global Certification Limited
17 August 2013
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Our quality control measures include the following:-
Sourcing and procurement
We source and procure the raw materials that are used in our manufacturing, as well as agency products that we distribute to our customers. We maintain an updated list of suppliers that are selected through a process of formal audit and qualification checks, which are conducted by our procurement manager, engineer and quality control personnel (the “procurement team”) by taking into account various considerations, including product quality, specification compliance, service quality, delivery schedule, payment terms and price. Suppliers’ performances are monitored by our procurement team regularly to ensure that the quality of products supplied by them meet our requirements. In addition, our raw materials and agency products are purchased at competitive prices without compromising on quality.
Incoming quality assurance
Upon receipt of the raw materials and agency products at our warehouse, our quality control personnel will conduct inspections on them to ensure that there are no discrepancies in the quantity and quality in accordance to our specifications. Should there be any discrepancy, such raw materials and agency products would be rejected and returned to our suppliers. The raw materials and agency products that pass our quality standards will be stored in our warehouses, pending delivery or manufacturing.
In-process quality assurance
During the course of manufacturing, our technicians will conduct periodic quality inspections based on our internal quality control checklist.
Out-going quality assurance
Our quality control personnel will inspect our out-going finished products and their packaging thoroughly to ensure that the quality, quantity and specifications are in accordance with our customers’ requirements before delivery to our customers.
After-sales service and customer support
Our sales and marketing personnel maintain regular contact with our customers to foster and maintain good business relationships and obtain feedbacks on our products and services. These frequent contact with our customers also helps us to better understand the industries in which our customers operate and allow us to service our customers’ business needs and provide efficient after-sales service.
In general, we provide standard product warranties of one year for our in-house manufactured products and we offer back-to-back manufacturer warranties for our agency products that we represent and distribute. Should our customers detect any manufacturing defects in our products within the warranty period, we will make the necessary repairs or replacements.
Safety assurance
We have put in place comprehensive safety measures for our business operations and manufacturing facility to ensure the safety of our staff. These measures include periodic fire drills, monthly manufacturing equipment checks and regular meetings to cultivate safety awareness among our staff. We also ensure that our manufacturing personnel are properly trained to operate our manufacturing machines safely.
INVENTORY MANAGEMENT
Our inventories comprise raw materials, refrigeration and air-conditioning systems and products, including compressors, condensers, evaporators, condensing units, controllers, valves, copper pipes, and insulation materials.
We have an ERP inventory management system in-place which tracks the movements of our inventories in all our warehouses on a real-time basis. We also review our inventory levels periodically to ensure we are able to continue to meet the needs of our customers.
Our inventories are maintained and replenished based on annual budgets, sales orders on hand and anticipated demand patterns. We also take into consideration the delivery lead time before manufacturing or placing orders with our suppliers.
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Our average inventory turnover days for the period under review are as follows:-
FY2008 FY2009 FY2010
Average inventory turnover days(1) 181 179 136
Note:-
(1) Average inventory turnover days are computed as follows:- (Average inventories/cost of sales) x number of days Where:- “Average inventory” is defined as the average of the opening and closing amount of the relevant financial year. “Number of days” is defined as the number of calendar days in the relevant financial year.
In general, delivery lead time from our suppliers range from two to four months. As such, we typically maintain sufficient inventories of up to five months in order to meet the demand from our customers as well as to support our subsidiaries’ operations.
In FY2008 and FY2009, we purchased our inventories in bulk to obtain more competitive prices from our suppliers. In FY2010, we implemented a more stringent procurement policy and together with our increase in sales in the year, our average inventory turnover days decreased from 179 days in FY2009 to 136 days in FY2010.
We regularly assess our inventories to identify slow moving inventories. Inventories that remained unsold or unused for more than 12 months are provided for inventory obsolescence.
The write-down or write-back of inventories for the period under review are as follows:-
(S$’000) FY2008 FY2009 FY2010
Inventories 11,164 8,109 8,200
Write-down/(write-back) of inventories 1,074 557 (1,154)
In FY2008, we adopted a more stringent inventory obsolescence provision policy which resulted in higher allowance for inventory obsolescence in FY2008. In FY2009, we made additional provision for inventory obsolescence of approximately S$557,000 as our sales and business was affected by the global financial crisis. In FY2010, we recorded an inventory write-back of approximately S$1,154,000.
OUR MAJOR SUPPLIERS
We purchase our raw materials and agency products, including compressors, condensers, controllers, valves, copper pipes, cold room panels and insulation materials from different suppliers.
We also purchase heat exchangers and condensing units from SER, who is an Interested Person. Please refer to “Interested Person Transactions – Interested Persons” section of this Offer Document for further details on SER.
The key considerations in selecting our suppliers, amongst others, include the quality of their products, pricing, services and timeliness of delivery. We do not depend on a single supplier for our materials. Generally, we do not enter into any long-term or exclusive contracts for the purchase of raw materials and agency products so as to allow us flexibility in terms of pricing, quality and timeliness of delivery of our supplies.
Save for agency products, our Directors believe that our raw materials and non-agency products can be easily sourced from other suppliers. We purchase from suppliers who are able to offer us the required quality at the most competitive prices.
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The table below sets out our major suppliers which accounted for 5% or more of our total purchases during the period under review:-
Name of supplier Products purchased As a percentage of total purchases (%)FY2008 FY2009 FY2010
Bitzer Compressors, condensers, receivers and spare parts
36.2 26.2 28.9
Changzhou Jingxue Freezing Equipment Co., Ltd. (“Changzhou Jingxue”)(常州晶雪冷冻设备有限公司)
Cold room panels 2.6 2.2 8.8
Zhejiang Hailiang Co., Ltd. (“Zhejiang Hailiang”)(浙江海亮股份有限公司)
Copper pipes and fittings 5.7 5.9 6.6
44.5 34.3 44.3
Our purchases from Bitzer decreased in FY2009, mainly due to lower demand for Bitzer products as a result of the global financial crisis. Our purchases from Bitzer increased from FY2009 to FY2010, mainly attributable to an increase in demand for Bitzer products as the economy improved.
Our purchases of cold room panels from Changzhou Jingxue increased from FY2009 to FY2010, as we supplied such panels to one of our major customers for its project. Please refer to the “Business – Our Major Customers” section of this Offer Document for futher details on this customer.
Our purchases of copper pipes and fittings from Zhejiang Hailiang increased from FY2008 to FY2010. This was attributable to an increase in copper prices as well as an increase in demand for copper pipes and fittings from our residential and commercial (air-conditioning) business segment over the period under review.
To the best of our Directors’ knowledge, we are not aware of any information or arrangements which would lead to a cessation or termination of our current relationship with any of our major suppliers.
Our Directors are of the opinion that our business and profitability will not be materially affected by the loss of any single supplier and are currently not dependent on any particular industrial, commercial or financial contract with any supplier.
As at the date of this Offer Document and save as disclosed above, none of our Directors or Substantial Shareholders nor their respective Associates has any interest, direct or indirect, in any of the above major suppliers.
OUR MAJOR CUSTOMERS
We have a broad customer base of more than 1,000 active customers, of which 50% are repeat customers who have purchased from us for five years or more. Our customers include distributors, dealers and refrigeration and air-conditioning contractors in commercial and light industrial (refrigeration), residential and commercial (air-conditioning) as well as oil, marine and gas (refrigeration and air-conditioning) business segments.
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The table below sets out our major customer which accounted for 5% or more of our revenue during the period under review:-
Name of customer Products and services supplied As a percentage of revenue (%)FY2008 FY2009 FY2010
Chun Cheng Fishery Refrigeration systems and products – – 10.4
Chun Cheng Fishery was our new customer in FY2010. Our sales to Chun Cheng Fishery in FY2010 comprised the design and supply of a comprehensive refrigeration system for its cold rooms and food processing rooms.
Generally, we do not enter into long-term sales agreement with our customers. Our Directors are of the opinion that our business and profitability are currently not dependent on any particular industrial, commercial or financial contract with any customer.
To the best of our Directors’ knowledge, we are not aware of any information or arrangements which would lead to a cessation or termination of our current relationship with any of our major customers.
As at the date of this Offer Document, none of our Directors or Substantial Shareholders nor their respective Associates has any interest, direct or indirect, in the above major customer.
CREDIT MANAGEMENT
Credit terms from our suppliers
Credit terms granted by our suppliers depend on, inter alia, our relationship with the suppliers and the size of transactions. Generally, our suppliers grant us credit terms ranging from 30 to 90 days.
We may make full payment to certain suppliers before the delivery of our order is made, in order to enjoy early payment discounts.
Our average trade payables turnover days for FY2008, FY2009 and FY2010 are as follows:-
FY2008 FY2009 FY2010
Average trade payables turnover days(1) 41 34 27
Note:-
(1) Average trade payables turnover days are computed as follows:- (Average trade payables/costs of sales) x number of days Where:- “Average trade payables” is defined as the average of the opening and closing amount of the relevant financial year. “Number of days” is defined as the number of calendar days in the relevant financial year.
Our average trade payables turnover days decreased from 41 days in FY2008 to 27 days in FY2010 as we made efforts to be more prompt in our settlements in order to secure more attractive terms from our suppliers.
Credit terms to our customers
In general, we grant credit terms of 30 to 90 days to our customers. Our finance department is responsible for overseeing and managing the collection from debtors on a monthly basis, and prepares a report of outstanding amounts due from our customers for review by our credit committee, which is headed by one of our Executive Directors. In addition, our finance department routinely communicates with our customers directly on their respective credit terms and payment status so as to minimise our Group’s credit risk exposure to these customers.
We perform credit assessment of all our existing customers on a regular basis. In our assessment of the credit terms to be extended to each customer, we take into consideration various factors, including their creditworthiness, market reputation, the transaction volume, payment history and length of relationship with us. For new customers, we usually require them to make cash payment upon or before delivery of our products. Once our business relationship with these new customers is established and such customers are deemed creditworthy, we will grant them a credit term, which is based on our credit assessment.
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Our average trade debtors turnover days for FY2008, FY2009 and FY2010 are as follows:-
FY2008 FY2009 FY2010
Average trade debtors turnover days(1) 86 73 62
Note:-
(1) Average trade debtors turnover days are computed as follows:- (Average trade debtors/revenue) x number of days Where:- “Average trade debtors” is defined as the average of the opening and closing amount of the relevant financial year. “Number of days” is defined as the number of calendar days in the relevant financial year.
Our average trade debtors turnover days decreased from 86 days in FY2008 to 62 days in FY2010 as a result of our tighter credit control over the years.
The collectability of trade debtors will be assessed based on factors, including but not limited to, the length of time that such trade debtors have been outstanding and the financial standing of our trade debtors. In the event that there are significant uncertainties regarding collectability, we will make the necessary provisions or write-off the bad debt.
The amounts of provisions for doubtful debts, provisions for doubtful debts written back and bad debts written off during the period under review were as follows:-
(S$’000) FY2008 FY2009 FY2010
Provisions for doubtful debts (trade related) 300 456 33Provisions for doubtful debts (non-trade related) 223 80 –Provisions for doubtful debts written back (trade related) (505) (221) (117)Provisions for doubtful debts written back (non-trade related) – (222) (9)Bad debts written off 12 – 12
Total 30 93 (81)
As a percentage of revenue (%) 0.1 0.3 (0.2)As a percentage of PBT (%) 2.2 5.7 (1.5)
In FY2008, we made provisions for doubtful debts of approximately S$523,000 which included (i) trade related debts due from a related party of approximately S$180,000 as the company had ceased operation; and (ii) non-trade related debts due from a third party of approximately S$223,000 in relation to the balance of the proceeds from the sale of our business in Hong Kong in 2005.
In FY2009, we made a provision of trade related debts amounting to S$456,000 mainly in relation to a customer who went into compulsory liquidation.
The ageing for our trade debtors as at 31 December 2010 is as follows:-
0 to 30 days
31 to 60 days
61 to 90 days
91 to 120 days
> 120 days
Trade debtors’ ageing (S$’000) 3,052 1,384 1,489 207 515
Trade debtors’ ageing (%) 46.0 20.8 22.4 3.1 7.7
As at 31 December 2010, our trade debtors amounted to approximately S$6,647,000, of which approximately S$4,892,000 (or approximately 73.6%) had been collected as at the Latest Practicable Date.
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PROPERTIES AND FIXED ASSETS
Properties
As at the Latest Practicable Date, our Group owned the following properties:-
Location Country Tenure
Estimated gross floor
area(sqft)
Encumbrances Usage Owner
112 Lavender Street,Far East Refrigeration Building, Singapore 338728(1)
Singapore Freehold 20,839 Mortgaged to United Overseas Bank Limited
Head office, warehouse, showroom and office
Far East Group
5 Third Lok Yang Road, Singapore 628000
Singapore 60-year leasehold commencing from 1 January 1972
25,112 Mortgaged to DBS Bank Ltd
Warehouse and office
Far East Group
Lot 1998/D Jalan Perusahaan 3, Taman Industri Selesa Jaya, 43300 Balakong, Seri Kembangan, Selangor Darul Ehsan, Malaysia
Malaysia Freehold 39,719 Mortgaged to United Overseas Bank (Malaysia) Bhd
Manufacturing facility, warehouse and office
Far East Maju
60 Lebuh Noordin, 10300 Pulau Pinang, Malaysia
Malaysia Freehold 3,265 Mortgaged to CIMB Bank Berhad
Warehouse and office
Far East Penang
1-1, 1-1A and 1-1B Jalan Kalong, Off Jalan Sungai Besi, 55200 Kuala Lumpur, Malaysia
Malaysia 99-year leasehold commencing from 16 November 1982
5,616 Mortgaged to OCBC Bank (Malaysia) Berhad
Warehouse and office
Far East KL
Flat B, 1st floor, Tung On Court, 17, 19 and 21 Tung On Street, Kowloon, Hong Kong
Hong Kong 75 years renewable for 75 years commencing from 18 September 1899
1,050 Mortgaged to DBS Bank (Hong Kong) Limited
Office Far East HK
Note:-
(1) The second and third floors of this property are leased to third party tenants (the “Tenants”) for the operation of their business for tenures of up to two years. As at the Latest Practicable Date, the Tenants have no business dealing with our Group and none of our Directors, Controlling Shareholder or their Associates has any interest in the Tenants’ business.
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As at the Latest Practicable Date, we leased the following properties:-
Location Country Tenure
Approximate monthly
rental and fees
Estimated gross floor
area(sqft)
Usage Lessee Lessor
51 Ubi Avenue 1, #01-04 and #02-04, Paya Ubi Industrial Park, Singapore 408933
Singapore 1 July 2009 to 30 June 2011(1)
S$9,095 6,761 Warehouseand office
Edenkool Paya Ubi Industrial Park Pte Ltd
Jakarta Design Center, 4th Floor SR 26, Jl. Gatot Subroto Kv. 53 Slipi, Jakarta 10260, Indonesia
Indonesia 1 November 2009 to 31 October 2011
US$434 334 Representative office
Far East Group
PT Cipta Paramula Sejati
The OIIC Building, Level 3, Suite 303, 248-250 Nguyen Dinh Chieu, Ward 6, District 3, Ho Chi Minh City, Vietnam
Vietnam 3 November 2010 to 2 November 2011
US$598 354 Representative office
Far East Group
Ocean Information Investment Corporation
Lot 7758 and 7759, Section 64, KTLD, Jalan Datuk Abang Abdul Rahim, 93450 Kuching, Sarawak, Malaysia
Malaysia 1 August 2010 to 31 July 2012
RM4,200 3,615 Warehouseand office
Far East Kuching
Kuching Park Hotel Sdn Bhd
No. 12 & 12A, Jalan Shah Bandar 2, Taman Ungku Tun Aminah, 81300 Skudai, Johor, Malaysia
Malaysia 1 January 2010 to 31 December 2012
RM1,600 3,079 Warehouseand office
FE&B Chuan Yuan Realty Sdn Bhd
G/F, Man On Building, 2-4 Tung On Street, Kowloon, Hong Kong
Hong Kong 1 November 2010 to 31 October 2012
HK$13,500 500 Warehouseand retail
Far East HK
Fung Keung
Shop A1-A2, G/F, 247 Reclamation Street, Mongkok, Kowloon, Hong Kong
Hong Kong 16 June 2010 to 15 June 2012
HK$18,800 400 Warehouseand retail
Far East HK
Choy Sai Hee & Tsui Pui Kiu
Workshop Unit No. 7 on 18/F & Storeroom, Wah Fat Industrial Building, Nos. 10-16 Kung Yip Street, Kwai Chung, New Territories, Hong Kong
Hong Kong 1 December 2008 to 30 November 2011
HK$10,000 3,000 Warehouse Far East HK
Chinhero Development(2)
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Notes:-
(1) We did not renew the lease and had shifted our previous warehouse and office at this property to our existing premise at 112 Lavender Street, Far East Refrigeration Building, Singapore 338728.
(2) Chinhero Development is an Interested Person. Please refer to the “Interested Person Transactions – Present and On-going Interested Person Transactions” section of this Offer Document for further details on the lease of this property from Chinhero Development.
Fixed Assets
We own other material fixed assets comprising mainly equipment, furniture and fittings, office equipment and motor vehicles. Our fixed assets had a net book value of approximately S$7,518,000 as at 31 December 2010.
To the best of our Directors’ knowledge, save as disclosed in the “Government Regulations” section of this Offer Document, there are no regulatory requirements or environmental issues that may materially affect our utilisation of the above properties and fixed assets.
RESEARCH AND DEVELOPMENT
Our Directors believe that we have a comprehensive range of innovative in-house manufactured heat exchangers which utilise high energy-efficient coil technologies. We place great emphasis on continual research and development efforts in order to meet changing market demands and requirements. In particular, we intend to research and develop more energy-efficient products in conjunction with our Green Program. This brings us into the next phase of expansion, in line with the increasing environmental awareness in providing fresh and hygienic food storage solutions to the community.
Our research and development activities are carried out by our research and development team at Far East Maju, and headed by Allan Ward, our COO (Engineering and Manufacturing). Our research and development activities are also supported by our technical personnel from various departments within our Group.
We have successfully developed an average of two to three series of products annually over the last five years and to-date, we have 13 series with more than 300 models of evaporators, condensers and condensing units to serve the cooling requirements of different business segments.
Please refer to “Business – Our Products” section of this Offer Document for further details on the products we developed.
All our “Eden” brand of G4 condensers and evaporators are designed with the latest smart circuitry and incorporate the inner groove tube technology, which allows the refrigerant to be evenly distributed throughout the evaporator. This maximises coil efficiency and increases internal primary coil surface area, thereby providing higher efficiency and cooling capacity with a smaller physical evaporator dimension. This may result in a reduction of the number of evaporator fan motors used, hence reducing the energy consumption of fan motors by up to 50%. In addition, our fins technology that are used in our refrigeration and air-conditioning systems are made of high-grade aluminum (Aluminum Association - AA 1100 Standard) with Double Sine Wave Pattern and Rippled Fin Edges to provide higher heat transfer efficiency, which results in greater energy efficiency as compared with conventional fin designs.
Some of the designs are patented and registered with the relevant authority in the PRC. Please refer to “Business – Intellectual Property” section of this Offer Document for further details.
During the period under review, our research and development expenses were immaterial.
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INTELLECTUAL PROPERTY
Pursuant to the IP Licence Agreement, SER has acknowledged that it has been holding all its trade marks and patents (“Intellectual Properties”) on behalf of our Company. As at the Latest Practicable Date, such Intellectual Properties are in the process of being transferred to our Company. Please refer to the “Interested Person Transactions – Present and On-going Interested Person Transactions” section of this Offer Document for further details on the IP Licence Agreement. The details of the Intellectual Properties which are in the process of being transferred to our Company are as follows:-
Trade Marks
Trade Mark ClassRegistration
numberPlace of
application Trade mark specificationsRegistration
dateDate of expiry
7 4285664 The PRC For use on machinery parts, including cutting tools, motor and generator cooling devices, pumps, valves, air compressors, hydraulic valves, welding equipment, steam and grease segregators, elevators, and condensing units
7 March 2007
6 March 2017
11 4280192 The PRC For use on refrigeration facilities, air-conditioning systems, evaporators, water purifying facilities, electrical heaters, arc lights, heat exchangers, ovens, and water cooling devices
14 May 2007
13 May 2017
11 4280166 The PRC For use on refrigeration facilities, air-conditioning systems, evaporators, water purifying facilities, electrical heaters, swirl injectors, arc lights, heat exchangers, ovens, and water cooling devices
28 February 2007
27 February 2017
11 8270743 The PRC Application submitted for use on refrigeration facilities, air-conditioning systems, evaporators, water purifying facilities, electrical heaters, arc lights, heat exchangers, ovens, and water cooling devices
-(1) -(1)
11 8270738 The PRC Application submitted for use on refrigeration facilities, air-conditioning systems, evaporators, water purifying facilities, electrical heaters, arc lights, heat exchangers, ovens, and water cooling devices
-(1) -(1)
Note:-
(1) The application for the registration of these trade marks was submitted on 12 May 2010, and are subject to the approval from the relevant government authority.
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Patents
Patent Description Patent numberDate/Place of application
Date of approval
Patent right period
Design Patent(外观设计)
Matrix Condenser(冷凝器(2))
This patent relates to the trapezium shape and design of our matrix condensers, which are different from conventional square shaped condensers. Our trapezium shaped matrix condensers prevent corrosion due to water accumulation on the exterior surface and have modern aesthetic appearance
ZL201030177809.4 21 May 2010/
the PRC
10 November 2010
10 years from
21 May 2010
Jumbo Condenser(冷凝器(1))
This patent relates to the shape and design of our jumbo condensers which prevent corrosion due to water accumulation on the exterior surface and have modern aesthetic appearance
ZL201030177815.X 21 May 2010/
the PRC
15 December 2010
10 years from
21 May 2010
Unit Cooler(冷风机)
This patent relates to the shape and design of our unit coolers. Our unit coolers have modern aesthetic appearance
ZL201030177798.X 21 May 2010/
the PRC
12 January 2011
10 years from
21 May 2010
Our Utility Model Patent(实用新型)
Heat Exchanger with Radian Character(一种具有弧度特征的热交换器)
This patent relates to our heat exchangers with curved exterior corners (as compared to sharp corners), which reduce risks of injuries and corrosion due to water accumulation on the exterior surface, and have modern aesthetic appearance
ZL201020201868.5 21 May 2010/
the PRC
15 December 2010
10 years from
21 May 2010
As at the date of this Offer Document, the applications of the transfer of the above trade marks and patents from SER to our Company are subject to approvals from the Trademark Office of the SAIC and the SIPO respectively. The Legal Advisers to our Company on the PRC Law, Victory Legal Group, has advised that the above-mentioned approvals from the relevant authorities for transfers will generally take up to six months from the date of submission of applications to the authorities. Victory Legal Group does not foresee any difficulty in obtaining the approval for the transfer of trade marks and patents within such period of time. Barring unforeseen circumstances, we expect to obtain the approval for the transfer of the trade marks and patents by end of 2011.
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Further to the above, we have applied for the registration of the following trade marks:-
Trade Mark ClassCountry of application Application number Date of application
7 and 11 Singapore T1105060B 18 April 20117 Malaysia 2011007235 21 April 201111 Malaysia 2011007236 21 April 2011
7 and 11 Singapore T1105067Z 18 April 20117 Malaysia 2011007237 21 April 201111 Malaysia 2011007238 21 April 2011
7 and 11 Indonesia D00.2011.017136 2 May 20117 and 11 Vietnam 4-2011-07388 21 April 2011
11 Singapore T1105066A 18 April 201111 Malaysia 2011007241 21 April 2011
11 Singapore T1105064E 18 April 201111 Malaysia 2011007239 21 April 2011
11 Singapore T1105065C 18 April 201111 Malaysia 2011007240 21 April 2011
As at the Latest Practicable Date, the applications to register the trade marks as stated in the table above have been submitted to the trade mark offices in the relevant jurisdictions and are subject to their approval. We do not foresee any difficulty in obtaining the approval for the registration of the above trade marks.
Save as disclosed above, our business or profitability is not materially dependent on any trademarks, patents and/or other intellectual rights.
As at the Latest Practicable Date, we have not faced any claims for our infringement of other registered intellectual properties held by third parties.
STAFF TRAINING
Our Directors believe that our employees are one of our most important assets. The technical competency and product knowledge of our employees are instrumental to the continuous growth of our Group. As such, we place great emphasis on the training and development of our employees and aim to equip them with relevant skills and knowledge to perform their respective duties effectively, thereby increasing our overall competitiveness and productivity.
For new employees, they undergo an orientation program which covers topics including our corporate working culture, our industry’s relevant rules and regulations, and our products, services and safety requirements. In addition, new employees are required to undergo a one month on-the-job training to familiarise themselves with their job scopes and duties.
In addition, our suppliers or our in-house engineers will periodically provide training for our sales personnel and/or update them on newly launched products. When necessary, we also invite external trainers and/or instructors to conduct training for our employees. To encourage our senior managers to continually upgrade themselves, we provide them partial or full sponsorship of their enrolment in personal enrichment courses. Such sponsorships will require our Executive Directors’ approval and the candidates are typically subject to a service bond with our Group.
As most of our staff trainings are conducted internally, our training costs for FY2008, FY2009 and FY2010 were immaterial.
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INSURANCE
We maintain general insurance coverage in respect of our business and employees. Our insurance policy coverage includes work injury compensation (for any mishap that occurs to our employees in the course of their work), employee medical, hospitalisation and surgical, burglary, money, public liability, fire and motor vehicles (for transport vehicles used by our Group). We are in the process of obtaining product liability insurance in relation to our “Eden” brand of heat exchangers and condensing units.
Our Directors are of the view that the above insurance policies are adequate for our existing operations. However, significant damage to our operations may still have a material adverse effect on our results of operations or financial condition. We have not experienced any difficulties obtaining or renewing our insurance policies or realising claims under any of our insurance policies. We perform an annual review of our insurance coverage to ensure that it adequately satisfies both our business and regulatory requirements, and we may increase our insurance coverage if we deem it necessary and appropriate.
COMPETITION
Our Directors believe that we operate in a competitive environment where the barriers to entry are relatively high, mainly due to the nature of our industry and business being capital intensive and competing factors such as technological know-how, track record, reputation and established relationships with our suppliers and customers. We believe that the primary elements of competition for our business are largely based on, amongst others, technological know-how, quality of our products and services, price, track record, reputation and timely delivery.
To the best of our Directors’ knowledge and belief, our competitors are as follows:-
Company name Business segment Country
Distributor
Central Refrigeration & Air-Conditioning (Pte) Ltd Commercial and light industrial (refrigeration) Singapore
Lion City Refrigeration Parts Pte Ltd Commercial and light industrial (refrigeration) Singapore
Peace Refrigeration Parts (Pte) Ltd Commercial and light industrial (refrigeration) Singapore
United Refrigeration & Air-Conditioning Commercial and light industrial (refrigeration) Malaysia
Century Equipment Co Ltd Commercial and light industrial (refrigeration) Hong Kong
Manufacturer
PT Guntner Indonesia Commercial and industrial (refrigeration) Indonesia
None of our Directors, Substantial Shareholders or their respective Associates has any interest, direct or indirect, in any of our competitors set out above.
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In view of our competitive strengths set out below, we believe that we are well-positioned to compete with our competitors.
OUR COMPETITIVE STRENGTHS
We believe that our competitive strengths are as follows:-
We are a one-stop refrigeration systems provider
Our Directors believe that we are one of the leading regional distributors of commercial and light industrial refrigeration systems and products in the SEA region with the ability to provide a one-stop solution for the refrigeration industry.
With a comprehensive range of agency products and our “Eden” brand of heat exchangers and condensing units, we are able to provide refrigeration system solutions to meet various stringent specifications and requirements of our customers. We also maintain a comprehensive range of replacement parts to provide after-sales support.
As part of our value-added services, we also provide design and consultancy services in relation to refrigeration and air-conditioning systems, as well as relevant product trainings and after-sales support.
We have an established reputation and track record
With more than 58 years of experience in the HVAC&R industry, we have successfully built up our reputation as a reliable refrigeration and air-conditioning systems provider in the commercial and light industrial (refrigeration), residential and commercial (air-conditioning) as well as oil, marine and gas (refrigeration and air-conditioning) business segments in the SEA region.
We have a diversified customer base comprising mainly distributors, dealers, refrigeration and air-conditioning contractors who supply to end-users in various industries such as retail (Carrefour, Metro, Tesco, Giant, Cold Storage and NTUC FairPrice), food and beverage (Resorts World Sentosa and Marina Bay Sands), pharmaceutical (HSA (Singapore Blood Bank)), hospitality (The St. Regis Singapore, Shangri-La Hotel Singapore and Capella Singapore), logistics (CIAS Flight Kitchen), food processing (Chun Cheng Fishery and Angliss Singapore) and shipping (Jurong Shipyard Pte Ltd, Keppel Shipyard Limited and Sembawang Shipyard Pte Ltd).
As a testament to our established reputation and track record, our Company was one of the winners of the SME500 award in Singapore in 2001, 2002, 2003 and 2010.
We have established strong business relationships with our business partners
With considerable experience in the HVAC&R industry, we have built strong relationships with an extensive network of suppliers and customers, whose support are instrumental to the success of our business.
We have more than 10 years working relationship with most of our suppliers, and in particular, we have established strong working relationships with Bitzer and Castel SRL over the past 30 years. On the back of our reputation and well-established relationships with our suppliers, we are able to enjoy timely supply of quality products at competitive price and/or better terms. We have also been recognised by our suppliers, such as Bitzer and Eliwell SPA, who conferred us with awards recognising us as one of their top distributors in the Asia Pacific Region (except for the PRC).
We have also established strong business relationships with our customers. As a testament of customer satisfaction and loyalty, 50% of our active customer base of more than 1,000 customers are our repeat customers who have regularly purchased from us for five years or more.
We have a wide distribution network
Our Group has a wide distribution network regionally including SEA, Hong Kong, the PRC, Indochina and Indonesia. Most of the companies within our Group are equipped with showrooms, retail facilities and warehouses, to provide timely deliveries, and quality products and services to our customers.
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In addition, we have appointed a number of distributors and dealers, who are well-established and have a wide business and distribution networks in their respective countries, including Malaysia, Thailand, the Philippines, Myanmar, Mauritius, Vietnam, Sri Lanka and Indonesia. As at the Latest Practicable Date, we have approximately 20 distributors and dealers who distribute our products to end users, sub-distributors and sub-dealers, refrigeration and air-conditioning contractors and/or original equipment manufacturer customers in the SEA region and other regions. Please refer to “Business - Distribution Channels” section of this Offer Document for further details.
We have strong research and development capabilities
Our research and development activities are undertaken by our research and development team at Far East Maju, and headed by Allan Ward, our COO (Engineering and Manufacturing) who has more than 48 years of experience in the HVAC&R industry. Our research and development activities are also supported by our technical personnel from various departments within our Group.
We have successfully developed an average of two to three series of products annually over the last five years and to-date, we have 13 series with more than 300 models of evaporators, condensers and condensing units to serve different business segments. Please refer to the “Business – Our Products” and “Business – Research and Development” sections of this Offer Document for further details on the products our Group has developed in the past.
We place great emphasis on continual research and development efforts in order to meet changing market demands and requirements. In particular, we intend to research and develop more energy-efficient products in conjunction with our Green Program. This brings us into the next phase of expansion, in line with the increasing environmental awareness in providing fresh and hygienic food storage solutions to the community.
We provide quality products and services at competitive prices
We place strong emphasis on the quality of our products and services, and have implemented stringent quality control measurements in our business and manufacturing processes to ensure that we are able to consistently provide quality products and services to our customers. For our agency products, we are able to sell them to our dealers and distributors at competitive prices, due to our bulk purchasing volume and well-established relationships with our suppliers. In addition, our sales and marketing department maintains regular contact with our customers so as to (i) obtain their feedback with regard to our products so that we can improve on the quality of our products and services; (ii) be updated with their business needs; and (iii) foster good business relationships. As a testament to our efforts on quality assurance, we have obtained the ISO 9001:2008 certifications. Please refer to the “Business – Quality Control and Safety Assurance” section of this Offer Document for further details on our quality controls of our products and services.
We have an experienced management team
Our success to date has been largely attributable to the efforts of our experienced management team, guided by Loh Ee Ming (our Non-executive Chairman) and spearheaded by Steven Loh (our CEO and Executive Director). Loh Ee Ming and Steven Loh have more than 60 and 20 years experience in the HVAC&R industry respectively and have been instrumental in formulating our business strategies and spearheading the growth of our business operations. They are assisted by David Leng (our COO (Sales and Marketing) and Executive Director) and our management team, including our Executive Officers, Allan Ward, Richard Chung, and Tan Su Kim, each of whom is experienced in his respective field, possess wide network of contacts within our industry, and has qualified knowledge and/or expertise in running the day-to-day operations of our Group. Please refer to the “Directors, Executive Officers and Staff” section of this Offer Document for further details on their experiences and qualifications. Our Directors believe that our experienced management team will continue to lead the growth and expansion of our Group in the future.
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PROSPECTS
With the recovery in the global and regional economies from the global financial crisis, our Directors expect the global demand for HVAC&R products to increase in tandem with the economic recovery in the next few years. The global demand for HVAC products is expected to increase by more than 6% per annum through 2014. In particular, the demand for HVAC products in the Asia Pacific region is expected to outpace the global average and increase by 6.6% per annum with the PRC contributing to the largest share of the global demand1. Similarly, our Directors believe that the growth potential in the refrigeration industry would augur well for our Group’s business.
Based on the above, our Directors believe that, barring unforeseen circumstances, the following factors will drive our growth:-
Continual growth of the global and regional economies, in particular, that of the Asia Pacific region
The GDP of Asia Pacific, as a whole, is expected to grow by 7.3% in FY20112. With continued growth, modernisation and/or industrialisation, the per-capita income is also expected to increase, leading to growing consumer affluence and higher consumer spending power.
Our Directors believe that the above factors will lead to the growth and development of some key industries which typically have strong demand for HVAC&R products and services. These industries include property (residential and commercial), food and beverage, pharmaceutical as well as hospitality and tourism. In particular, our Directors expect the growth in tourism in the Asia Pacific countries will lead to an increase in the number of hotels as well as food and beverage outlets, thus resulting in higher demand for cold storage facilities.
With our current extensive sales and distribution network which covers many countries in the Asia Pacific, our Group is well positioned to tap the growth of the Asia Pacific region.
Growth in the frozen food market
With growing affluence, consumers are increasingly demanding on the quality of food in terms of freshness and nutritional value. The cold chain process, which involves the unbroken link of processing, handling, transport, storage, distribution and retail under chilling temperatures, ensures that food (in particular, fish and meat) is preserved in a manner that retains freshness, flavour and nutritional quality. In addition, freezing will kill or reduce many potentially harmful microbes which cause food poisoning, and extends the shelf life of food.
In 2009, the global and Asia Pacific frozen food markets grew by 3.9% and 5.0% respectively. By 2014, the global and Asia Pacific frozen food markets are forecasted to grow by 20.6% and 26.9% respectively from 20093.
1 The information was derived from an article titled “Global HVAC market to hit US88bn in 2014”, obtained from the internet website of http://www.constructionweekonline.com, published by ITP Business Publishing Ltd, which was accessed on 4 May 2011. ITP Business Publishing Ltd has not consented for the inclusion of the above information in this Offer Document for the purposes of Secion 249 of the Securities and Futures Act and is therefore not liable for the relevant information under Sections 253 and 254 of the Securities and Futures Act. While our Directors have taken reasonable action to ensure that the information is extracted accurately and fairly and has been included in this Offer Document in its proper form and context, they have not independently verified the accuracy of the relevant information.
2 The information was derived from an article titled “Asia-Pacific region economic growth to reach 7.3% in 2011: UN report”, obtained from the internet website of Xinhua News Agency, which was accessed on 18 May 2011. Xinhua News Agency has not consented for the inclusion of the above information in this Offer Document for the purposes of Secion 249 of the Securities and Futures Act and is therefore not liable for the relevant information under Sections 253 and 254 of the Securities and Futures Act. While our Directors have taken reasonable action to ensure that the information is extracted accurately and fairly and has been included in this Offer Document in its proper form and context, they have not independently verified the accuracy of the relevant information.
3 The information was derived from the reports titled “Global Frozen Food” and “Frozen Food in Asia-Pacific” dated October 2010 published by Datamonitor. Datamonitor has not consented for the inclusion of the above information in this Offer Document for the purposes of Secion 249 of the Securities and Futures Act and is therefore not liable for the relevant information under Sections 253 and 254 of the Securities and Futures Act. While our Directors have taken reasonable action to ensure that the information is extracted accurately and fairly and has been included in this Offer Document in its proper form and context, they have not independently verified the accuracy of the relevant information.
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Our Directors believe that the growth in the frozen food market will lead to an increase in the demand for our refrigeration products which cater to various applications in the cold chain process. With our comprehensive range of HVAC&R products and experience in this industry, our Directors believe that we have the capability to capitalise on the growth trend in the frozen food market.
Increased demand for HVAC products due to climate change
Our Directors observe that many countries have been experiencing abnormal weather patterns, including unusually hot temperatures as well as heat waves in many parts of the world due to global warming. With increasing temperatures, people need and seek comfortable temperatures, humidity as well as ventilation and circulation in their homes, offices, stores and factories. There is increasing demand for appropriate ventilation and cooling systems in both residential and non-residential buildings.
As a result, there will be an increasing demand for our HVAC products in the consumer and industry sectors, both regionally and globally.
Increased awareness of global warming
There is increased public awareness of global warming and its negative impact on the environment in recent years, and various nations are also making concerted efforts to address resulting environmental issues. Our Directors have observed that there is a growing trend where consumers are advocating bio-energy, alternative energy and environmentally friendly products that directly or indirectly reduce greenhouse emissions which is one of the key contributors to global warming.
In view of the above, suppliers of HVAC&R products are now more aware of the urgency and importance of introducing and implementing products that are more environmentally friendly. For instance, pursuant to the Montreal Protocol, the R-22 refrigerant (a non-environmentally friendly but widely used refrigerant throughout the world) is expected to be phased out by 2015, with R-410A and R-507 as viable alternative refrigerants for air-conditioning and refrigeration applications respectively. However, with the introduction of the R-410A and R-507 refrigerants, adjustments and alterations to current refrigeration and air-conditioning systems and products are required to replace and/or retrofit those that are non-conforming.
Moving forward, our Directors believe that current HVAC&R products are expected to be re-engineered to be more environmentally friendly with the introduction of new regulatory codes and standards. We believe that the demand for re-engineered HVAC&R products and services will gradually increase in the future, replacing the current ones in the market.
Our continual research and development activities, focusing on developing more energy-efficient and environmentally friendly products in conjunction with our Green Program, should equip us with the competitive advantage to meet future market demands and expectations.
TREND INFORMATION AND ORDER BOOK
Our Directors have observed the following trends based on the sales and operations of our Group as at the Latest Practicable Date:-
(1) The demand for our products is expected to increase in FY2011, on the back of improving economic conditions, both regionally and globally.
(2) The unit costs of our agency products and raw materials (such as copper and aluminium) are expected to increase in FY2011. Such price increases may generally be passed on in the form of higher average selling prices to our customers, in particular, in the commercial and light industrial (refrigeration) and oil, marine and gas (refrigeration and air-conditioning) business segments.
(3) With increased competition in the residential and commercial (air-conditioning) business segment, generally more competitive product selling prices to our customers are expected in this business segment.
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PROSPECTS, BUSINESS STRATEGIES AND FUTURE PLANS
For the period from 1 January 2011 to the Latest Practicable Date, we have confirmed sales orders amounting to approximately S$17.4 million, of which S$13.6 million has been fulfilled as at the Latest Practicable Date. Our confirmed sales orders are usually fulfilled within a period ranging from one to five months. These confirmed sales orders are however subject to cancellation, deferral or rescheduling by our customers. As such, the state of our order books at any point in time is not fully reflective or indicative of our Group’s overall financial results and performance at the relevant point in time.
Save as disclosed above and in the “Risk Factors” and the “Management’s Discussion and Analysis of Results of Operations and Financial Position” sections of this Offer Document, and barring any unforeseen circumstances, our Directors are not aware of any significant recent trends in manufacturing, sales and inventory, and in the costs and selling prices of products and services, or other known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net sales or revenue, profitability, liquidity or capital resources, or that would cause financial information disclosed in this Offer Document to be not necessarily indicative of our future operating results or financial position.
OUR BUSINESS STRATEGIES AND FUTURE PLANS
Our business strategies and future plans for the growth and expansion of our business are set out below:-
Expansion of our sales and distribution network
We plan to extend our presence to new and emerging markets, such as Australia, New Zealand, Sri Lanka, India and the Middle East through the establishment of subsidiaries and/or representative offices as well as the appointment of new distributors.
We may also expand our sales and distribution network in our existing markets such as Malaysia, Hong Kong, Indonesia and Indochina should business opportunities arise.
We intend to utlilise approximately S$600,000 of our net proceeds from the Placement for the expansion of our sales and distribution network.
Expansion and upgrade of existing manufacturing facilities
We plan to purchase more high-tech machines and equipment (such as CNC machines for the manufacturing of sheet metals) and upgrade our existing machines and equipment at our Maju Facility to increase our manufacturing capacity.
We intend to utilise approximately S$400,000 of our net proceeds from the Placement for the expansion and upgrading of our existing manufacturing facilities.
Research and development of new products
Our Directors believe that our research and development efforts have contributed significantly to our growth. In order for us to maintain our competitive edge, we plan to continue focusing on our research and development activities to improve our existing “Eden” brand of products and develop new products that are more energy-efficient. We intend to expand our research and development team by hiring more engineers and related personnel, purchasing new testing and measuring equipment and software.
We intend to utilise approximately S$300,000 of our net proceeds from the Placement for our research and development activities.
Expansion of our business through acquisitions, joint ventures or strategic alliances
In addition to growing organically, we may consider expanding our business through acquisitions, joint ventures or strategic alliances with parties who create synergistic values with our existing business. Through such acquisitions, joint ventures and strategic alliances, we are looking to strengthen our market position, increase our network of customers as well as expand into new complementary businesses.
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Our Company had entered into option agreements dated 27 June 2011 with certain shareholders of each of the Regional Affiliates, namely UPL and SER, to acquire their respective equity interests in or the assets, businesses and undertakings of the Regional Affiliates. Please refer to the “Interested Person Transactions – Present and On-going Interested Person Transactions” section of this Offer Document for further details on the Acquisition Options.
Save for the Acquisition Options, we have not engaged in any form of discussion with any potential party to acquire its business or form joint ventures or strategic alliances as at the Latest Practicable Date. We believe that our status as a listed company will position us to take advantage of such opportunities as and when they arise. Should such opportunity arises, we will seek approval, where necessary, from our Shareholders and the relevant authorities as required by the relevant laws and regulations.
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MANAGEMENT REPORTING STRUCTURE
The following chart shows our management reporting structure as at the Latest Practicable Date:-
Steven Loh CEO and Executive Director
Richard Chung Head of Systems and Projects
Allan Ward COO (Engineering and
Manufacturing)
Tan Su Kim Financial Controller
Board of Directors
David Leng COO (Sales and Marketing) and
Executive Director
DIRECTORS
The Board of Directors is entrusted with the responsibility for the overall management of our Group. Our Directors’ particulars as at the Latest Practicable Date are listed below:-
Name Age Address Designation
Loh Ee Ming 77 90 Jellicoe Road, #36-27, Singapore 208749
Non-executive Chairman
Steven Loh 44 2A Lincoln Road, #13-08, Singapore 308364
CEO and Executive Director
David Leng 54 8 Kensington Park Drive, #06-02, Singapore 557323
COO (Sales and Marketing) and Executive Director
Karen Loh 39 Block A, 20/F, Unit A2,Flora Garden,50 Cloudview Road,Hong Kong
Non-executive Director
Hew Koon Chan 49 15C Limau Garden,Singapore 467938
Independent Director
Andrew Mak 42 8 West Coast Road, #03-05, Singapore 126823
Independent Director
Tan Hwee Kiong 45 71 Jurong West Central 3, #05-17 Singapore 648335
Independent Director
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Information on the business and working experience of our Directors is set out below:-
Loh Ee Ming is our Non-executive Chairman and the founder of our Group and has been our Director since our incorporation on 18 March 1964. As the founder, he played a pivotal role in the growth and development of our Group. With more than 60 years of experience in the HVAC&R industry, he possesses in-depth knowledge of refrigeration and air-conditioning products and has established business relationships and network of relevant contacts (such as our suppliers and customers) in the HVAC&R industry. Prior to founding our Group, he was self-employed, principally engaged in the business of the provision of repair services of refrigerators in Singapore. In 1964, he founded our Company and had been involved in the overall operations as well as the growth and expansion of our Group. In 1990, he became our Executive Chairman. In June 2011, he became our Non-executive Chairman, and will be responsible for setting our vision and objectives and providing consultancy to our Group.
Steven Loh is our CEO and Executive Director and was appointed to our Board in 1990. He has more than 20 years of experience in the HVAC&R industry. He is responsible for the formulation and execution of our Group’s business strategies, strategic directions and expansion plans, as well as managing our Group’s overall business development and financial performance. In 1990, he joined our Company as a retail sales executive. In 1993, he became our sales manager and was promoted to director of sales and business development in 1995, in charge of regional sales and business development in the SEA region. In 1997, he became our assistant managing director, overseeing our Company’s operations and financial performance. In 2000, he became our assistant Group managing director, overseeing our Group’s operations and financial performance. In 2003, he became our Group managing director. He is an associate member of the Business China Singapore (通商中国). He graduated from the University of the Pacific, Stockton, California, with a degree in Bachelor of Science in Electrical Engineering in 1987. In addition, he graduated from the University of South Australia with a Master of Business Administration in 1996. He was awarded the Outstanding Entrepreneur in the Asia Pacific Entrepreneurship Award 2011 on 24 June 2011.
David Leng is our COO (Sales and Marketing) and Executive Director and was appointed to our Board in 2005. He is responsible for overseeing our Group’s sales, strategic marketing and business development as well as growing our business in the SEA region. In 1981, he commenced his career with Tan Chong Industrial Machinery Pte Ltd as a sales engineer and subsequently promoted to the position of assistant manager. From 1991 to 1993, he was the manager of United Leasing Singapore Pte Ltd and from 1993 to 1995, he was the manager of Motor Image Enterprises Pte Ltd where he assisted the general manager in managing the company, and was also responsible for sales, service, administration and logistics functions of the company. Prior to joining our Group, he was the general manager of Barcelona Motors Pte Ltd and Perocom Motors Pte Ltd (both of which are distributors of new motor vehicles), mainly responsible for the day-to-day operations and the financial performance of the two companies from 1995 to 2003. He joined our Group as our business development director and assistant Group managing director in 2004. He obtained his Industrial Technician Certificate in Mechanical Engineering from the Singapore Technical Institute in 1977. In addition, he obtained the Certificate in Sales and Marketing from the Marketing Institute of Singapore in 1990.
Karen Loh is our Non-executive Director and was appointed to our Board on 28 June 2011. Karen Loh commenced her career as a management trainee at our Company in 1988. From 1992 to 1993, she was an accounts executive at our Company responsible for the accounts of our Company’s subsidiaries then. From 1993 to 1997, she was pursuing her studies in Australia. From 1997 and 2000 till present, she is a director of Old FER HK and Far East HK respectively, and is responsible for overseeing the companies’ finance and accounts departments. She obtained an Advanced Certificate in Accounting from Alexander College in 1994.
Hew Koon Chan is our Independent Director and was appointed to our Board on 28 June 2011. He is currently the managing director of Integer Capital Pte. Ltd., a company which provides business consultancy services on mergers and acquisitions. From 1986 to 1988, Hew Koon Chan was a process engineer at Texas Instruments Singapore (Pte) Ltd, and from 1988 to 2004, he was an investment director at Seavi Venture Services Pte Ltd, a private equity firm which is an affiliate of Advent International Corporation. Hew Koon Chan graduated from the National University of Singapore with a Bachelor of
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Engineering (Mechanical) Degree. He also holds a Certified Diploma in Accounting and Finance conferred by the Chartered Association of Certified Accountants and a Graduate Diploma in Financial Management from the Singapore Institute of Management.
Andrew Mak is our Independent Director and was appointed to our Board on 28 June 2011. He is a practising lawyer with more than 15 years’ experience in legal practice. Andrew Mak commenced his legal career as an associate with Lee & Lee in 1995. Since then, he has been practising as a corporate lawyer, with periods of practice in several prominent Singapore law firms as well as the Singapore office of Denton Wilde Sapte, an international law firm. He is currently a partner with Kelvin Chia Partnership (a commercial law firm established in Singapore with regional presence in several Asian cities including Tokyo, Shanghai, Bangkok, Hanoi, Ho Chi Minh City, Yangon, Phnom Penh and Pyongyang) and has been with the firm since July 2006. His current legal practice is focused on mergers and acquisitions, joint ventures, capital markets, listed company work, general corporate and commercial work and cross-border transactions. He has also acted for both Singapore and PRC-related companies seeking listing on the SGX-ST (including reverse takeovers). His listed company work includes acting for listed companies in mergers and acquisitions/joint ventures transactions and fund raising and advising listed companies on SGX-ST compliance. He is an independent director of Leader Environmental Technologies Limited, a company listed on the Main Board of the SGX-ST. In addition, he also volunteers his time in community service. Amongst other appointments, Andrew Mak is an assistant secretary of the Telok Blangah Citizens’ Consultative Committee. Andrew Mak graduated from the National University of Singapore in 1994 with a Bachelor of Laws (Second Class Honours Upper Division).
Tan Hwee Kiong is our Independent Director and was appointed to our Board on 28 June 2011. He has more than 16 years of experience in HVAC&R industry. He commenced his career as sales manager in LTG Air Engineering Pte Ltd from 1991 to 1997. From 1997 to 1999, he was an area sales manager in Carrier Refrigeration (S) Pte Ltd, primarily responsible for sales to the Asia Pacific region. From 1999 to 2001, he was the country sales manager of Carrier Refrigeration Taiwan branch. From 2001 to 2002, he was the general sales manager of Carrier Refrigeration Shanghai Co., Ltd.. From 2002 to 2003, he was the director of the refrigeration division (ASEAN region) in Carrier International Corporation (Singapore). During the tenure of his position at Carrier International Corporation (Singapore), he was awarded the 2003 Carrier President Award for successfully achieving a revenue growth of 34% in the Asia Pacific region. From 2003 to 2004, he was the general manager of Qingdao Haier Carrier Refrigeration (Qingdao, the PRC). From 2004 to 2005, he was a general manager (Asia) in Heatcraft Refrigeration Asia (Shanghai, the PRC), which is the refrigeration division of Lennox International Inc., responsible for manufacturing, sales and distribution as well as services networks and developing overall strategy in Asia Region. From 2005 to 2006, he was the managing director of SPX Cooling Techologies Malaysia and Singapore, responsible for developing SPX Cooling Technologies’ strategies for Asia Pacific region. From 2006 to 2008, he was the managing director of Asia Commercial Refrigeration (Singapore), responsible for the regional profit and loss of South Asia region. Since 2008, he has been the managing director of Snap-On Tools (S) Pte Ltd as well as its regional director for SEA and Korea, responsible for developing and implementing overall sales, distribution and operational strategies of the company in SEA, Hong Kong, Taiwan and Korea. Tan Hwee Kiong graduated from University of London with a Bachelor of Science (Economics) degree. He also obtained his Graduate Diploma in Marketing Management from Singapore Institute of Management.
Loh Ee Ming (our Non-executive Chairman) is the father of Steven Loh (our CEO and Executive Director) and Karen Loh (our Non-executive Director). Save as disclosed above and in the “General Information on our Group – Shareholders” section of this Offer Document, none of our Directors has any family relationship with another Director or with any Substantial Shareholder of our Company.
There was no agreement or arrangement with our Substantial Shareholders, customers or suppliers pursuant to which we will appoint any of them or any person nominated by any of them as our Director.
Experience and Training of our Directors
Our Executive Directors, namely Steven Loh and David Leng, our Non-executive Directors, namely Loh Ee Ming and Karen Loh, and our Independent Director, Tan Hwee Kiong, do not have prior experience as directors of public listed companies in Singapore, but have received relevant training to familiarise themselves with the roles and responsibilities of a director of a company listed on the SGX-ST.
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Our Independent Directors, Hew Koon Chan and Andrew Mak, have prior experience as directors of public listed companies in Singapore and are familiar with the roles and responsibilities of the directors of public listed companies on the SGX-ST.
Present and past directorships of our Directors
The present and past directorships of each Director held in the five years preceding the date of this Offer Document, excluding those held in our Company, are set out below:-
Name Present Directorships Past Directorships
Loh Ee Ming Group CompaniesFar East JBFar East KLFar East KuchingFar East MajuFar East MalaysiaFar East PenangFE&BRSP
Group CompaniesNil
Other CompaniesEnergy Xchange Pte. Ltd.Old FER HKSERUPL
Other CompaniesElektro-Metall (Singapore) Pte LtdInner Mongolia Vibronic Jade Industry (S) Pte LtdMagna-Tek Equipment (FE) Pte LtdYa Cheng Automotive Accessories Pte. Ltd.
Steven Loh Group CompaniesEdenkoolFar East JBFar East KLFar East KuchingFar East MajuFar East MalaysiaFar East PenangFE&BGreenpointRSP
Group CompaniesNil
Other CompaniesEnergy Xchange Pte. Ltd.ERMOld FER HKSERSERMUPL
Other CompaniesElektro-Metall (Singapore) Pte LtdHVAC & R Products (S) Pte. Ltd.Jas Metal Coatings Pte LtdMagna-Tek Equipment (FE) Pte LtdNaga Sumber Energi Batu Bara (S) Pte Ltd
David Leng Group CompaniesEdenkoolGreenpoint
Group CompaniesNil
Other CompaniesNil
Other CompaniesDaekk Properties Pte LtdHVAC & R Products (S) Pte. Ltd.Inner Mongolia Vibronic Jade Industry (S) Pte. Ltd.
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DIRECTORS, EXECUTIVE OFFICERS AND STAFF
Name Present Directorships Past Directorships
Karen Loh Group CompaniesFar East HK
Group CompaniesNil
Other CompaniesChinhero DevelopmentERMOld FER HKSERMYouth Boutique Ltd
Other CompaniesRSP Hong Kong Limited
Hew Koon Chan Group CompaniesNilOther CompaniesInteger Capital Pte. Ltd.Nordic Group LimitedOmega Excel LtdPlasmotech Pte LtdRoxy-Pacific Holdings LimitedSP Manufacturing Pte. Ltd.Trinity Christian Centre Limited
Group CompaniesNilOther CompaniesAction Asia LimitedNidec Component Technology Co., Ltd.
Andrew Mak Group CompaniesNil
Group CompaniesNil
Other CompaniesLeader Environmental Technologies Limited
Other CompaniesChina Vogue Casualwear Ltd.
Tan Hwee Kiong Group CompaniesNil
Group CompaniesNil
Other CompaniesSnap-on Tools Singapore Pte Ltd
Other CompaniesSPX Cooling Technologies Singapore Pte. Ltd.
EXECUTIVE OFFICERS
The day-to-day operations of our Group are entrusted to our Executive Officers who are responsible for different functions of our Group whose particulars as at the Latest Practicable Date are set out below:-
Name Age Address Position
Allan Ward 64 A-3A-13 Mozart Tower, Sophia Condominium, Jalan Kiara 1,Mont Kiara 50480, Kuala Lumpur, Malaysia
COO (Engineering and Manufacturing)
Richard Chung 42 Block 974 Hougang Street 91,#08-226, Singapore 530974
Head of Systems and Projects
Tan Su Kim 49 2B Hong San Walk, #03-03 Singapore 689048
Financial Controller
The working and business experience and areas of responsibility of our Executive Officers are set out below:-
Allan Ward is our COO (Engineering and Manufacturing) and is responsible for the overall day-to-day operations of Far East Maju and Safety Enterprises. He is also responsible for all the engineering and design of “Eden” products, research and development activities, our Group’s manufacturing activities,
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DIRECTORS, EXECUTIVE OFFICERS AND STAFF
plant design, machinery evaluation and ensuring our ISO and design philosophies are not compromised. Prior to joining our Group, he was an international business development manager of Bitzer Australia Pty Ltd in Australia from 1998 to 2000, mainly responsible for growing the export sales of heat transfer and unitary compressors to the Asia Pacific, the Middle East and India. From 1975 to 1998, he was a refrigeration division business unit manager of F Muller Pty Ltd in Australia, where he was responsible for domestic sales and international business development, product development and engineering of refrigeration products. From 1963 to 1975, he commenced his career as a cadet engineer and became the engineer director of Cooney Refrigeration Pty Ltd in Australia. He is a full member of the American Society of Heating, Refrigerating and Air-Conditioning Engineers and the Australia Institute of Refrigeration Air-Conditioning and Heating Engineers. He is the president and chairman of the Commercial Refrigeration Manufacturers Association of Australia from 1991 to 1997, where he (i) was responsible for implementing the Australia refrigeration industries codes of practice; (ii) represented the refrigeration industry at government level; and (iii) unified industry specifications for refrigeration equipment with regard to ratings, temperature regulation for food storage, and health and safety within the refrigeration industry. He is appointed as an Australian Justice of the Peace by the Governor of New South Wales, which is recognised in every state in Australia. He was awarded patents in the United States of America, Australia and New Zealand as inventor of drop-in refrigeration unit. He obtained his Diploma in Mechanical Engineering (Major in Refrigeration) from the Unversity of Technology, Sydney, in 1967 and the Advanced Heat Transfer Design Certificate from McQuay/Muller Private Institute in 1974.
Richard Chung is our Head of Systems and Projects and is responsible for the management and planning of all systems and projects. He leads our project teams, including our general managers (projects) and project managers to deliver the projects in accordance with the project commitments and ensure that the projects are properly managed and planned with sufficient staff and appropriate resources. He joined our Company as a sales and marketing executive in 1995 and became the sales and marketing manager in 1997. He was then promoted to the position of a divisional director (systems and projects) in 2006. He was invited as a speaker at various seminars, such as (i) the Asian Cold Chain Management Conference on topics of “Examining Trends in Temperature Control for the Food and Beverage Sector: An International Overview” and “Examining Trends in Temperature Control for the Healthcare and Pharmaceutical Sector: An International Overview” in 2007, (ii) the Singapore Manufacturing Association/Singapore Article Number Council/Singapore Cold Chain Workshop on the topic of “Training Workshop on Cold Chain Management” in 2004 and (iii) SPRING Singapore seminars on topic of “A Total Approach to Cold Chain Management for Milk and Dairy Products” in 2002. He is a member (individual capacity) of the Singapore Cold Chain Committee for Milk and Dairy Products and the chairman (sub-group III – technology) of the Singapore Cold Chain Committee for Pork Products. He obtained his degree in Bachelor of Science (Physics) from the National University of Singapore in 1993.
Tan Su Kim is our Financial Controller and is responsible for the financial and accounting functions, including the review of monthly reports, analysis of accounts, budget, cash flow, credit control, Group consolidation, audit, taxation and compliance with the financial reporting requirements of our Group. She is also responsible for matters relating to personnel and administration, and also oversees the corporate secretarial functions of our Group. In 1982, she joined Coopers & Lybrand (Kuala Lumpur) as an audit assistant and was gradually promoted to a senior auditor in 1986, a position she held till 1987. From 1988 to 1992, she was a senior auditor, and subsequently promoted to audit assistant manager, with Ernst and Young, where she was responsible for the planning, execution and finalisation of audit assignments, technical review, problem solving and was also involved in conducting staff training and advancement. From 1992 to 1994, she was a group internal auditor with Crystal Time (S) Pte Ltd, where she was responsible for the internal audit of the group with subsidiaries in Malaysia and Hong Kong. Prior to joining our Group in 1997, she was a senior accountant with Sembawang Engineering and Construction Group from 1995 to 1996. She is a Certified Public Accountant of Malaysia as well as member of the Malaysian Institute of Certified Public Accountants and the Malaysian Institute of Accountants. She obtained her Higher School Certificate from the University of Cambridge Local Examinations Syndicate in 1981.
None of our Executive Officers has any family relationship with another Executive Officer nor are they so related to any Director or Substantial Shareholder of our Company.
There was no agreement or arrangement with our Substantial Shareholders, customers, suppliers or others pursuant to which we will appoint any of them or any person nominated by any of them as our Executive Officer.
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Present and past directorships of our Executive Officers
The present and past directorships held by our Executive Officers in the last five years preceding the date of this Offer Document, excluding those held in our Company, are set out below:-
Name Present directorships Past directorships
Allan Ward Group Companies Group CompaniesFar East MajuFar East MalaysiaSafety Enterprises
Nil
Other Companies Other CompaniesNil SERM
Richard Chung Group Companies Group CompaniesGreenpointRSP
Nil
Other Companies Other CompaniesNil RSP Systems HK Ltd
Tan Su Kim Group Companies Group CompaniesNil Nil
Other Companies Other CompaniesNil Nil
EMPLOYEES
As at the Latest Practicable Date, we had 118 full-time employees. Our employees are not unionised. The relationship and cooperation between the management and employees have been good and are expected to continue in the future. There has not been any incidence of work stoppages or major labour disputes which affected our operations.
The breakdown of our full-time employees by function and geographical location as at the end of each of FY2008, FY2009 and FY2010 are as follows:-
Function FY2008 FY2009 FY2010
Senior Management 10 9 9Sales and marketing 33 44 41Administrative 34 36 31Research and development 2 2 2General staff and technicians 35 32 32
Total 114 123 115
Geographical Location FY2008 FY2009 FY2010
Singapore 47 53 47Malaysia 60 64 59Hong Kong 5 4 5Vietnam – – 2Indonesia 2 2 2
Total 114 123 115
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REMUNERATION OF DIRECTORS, EXECUTIVE OFFICERS AND RELATED EMPLOYEES
The remuneration (including salary, bonus, directors’ fees and benefits-in-kind) paid or payable to each of our Director and Executive Officer for services rendered to us in all capacities for FY2009, FY2010 and FY2011 (estimated) in remuneration bands(1) are as follows:-
FY2009 FY2010FY2011
(Estimated)(2)
DirectorsLoh Ee Ming A A ASteven Loh B B BDavid Leng A A AKaren Loh A A AHew Koon Chan N.A. N.A. AAndrew Mak N.A. N.A. ATan Hwee Kiong N.A. N.A. A
Executive OfficersAllan Ward B B BRichard Chung A A ATan Su Kim A A A
Notes:-
(1) Band A means up to S$250,000 per annum. Band B means from S$250,001 to S$500,000 per annum.
(2) The estimated amount of remuneration payable in FY2011 excludes any bonus or any other profit-linked agreement or arrangement.
We have not set aside or accrued any amounts to provide for pension, retirement or similar benefits for our Directors, Executive Officers or any of our employees, except as required for purposes of compliance with the relevant laws of the jurisdictions in which our Group operates.
Related Employees
As at the Latest Practicable Date, we did not have employees who were related to our Directors or Substantial Shareholders.
Should we employ any employee who is related to our Directors or Substantial Shareholders in the future, his employment and the proposed terms of his employment will be subject to the review and approval of our Remuneration Committee. In addition, his remuneration will be reviewed annually by our Remuneration Committee to ensure that his remuneration package is in line with our staff remuneration guidelines and commensurate with his job scopes and level of responsibilities. Any bonus, pay increase and/or promotion for such related employee will also be subject to the review and approval of our Remuneration Committee. In the event that a member of our Remuneration Committee is related to the employee under review, he will abstain from the review.
SERVICE AGREEMENTS
Our Company entered into respective Service Agreements with our Executive Directors, Steven Loh and David Leng (each an “Appointee”) in June 2011.
The Service Agreements are valid for an initial period of three years with effect from 1 January 2011 (“Initial Term”). Upon the expiry of the Initial Term, the Service Agreements are automatically renewed annually unless either party gives notice of its intention to terminate in the manner set out below. During the Initial Term, either party may, as the case may be, terminate the Service Agreements at any time by giving to the other party not less than six months’ notice in writing, or in lieu of notice, payment of an
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amount equivalent to six months’ salary based on the Appointees’ last drawn monthly salary. Our Group may also terminate the employment of the Appointees at any time without notice or payment in lieu of notice under the following circumstances:-
(i) if the Appointees are guilty of any gross default or grave misconduct in connection with or affecting the business of our Group;
(ii) in the event of any serious or repeated breach or non-observance by the Appointees of any of the stipulations contained in the Service Agreements;
(iii) if the Appointees become bankrupt or make any composition or enter into any deed of arrangement with their creditors;
(iv) if the Appointees shall become of unsound mind; or
(v) if the Appointees commit any act of criminal breach of trust or dishonesty.
The Service Agreements provided for, amongst other things, the salary payable to the Appointees, annual leave, medical benefits, grounds of termination and certain restrictive covenants (including non-compete obligations). Under the terms of the respective Service Agreements, Steven Loh and David Leng are entitled to a monthly fixed salary of S$30,800 and S$16,200 respectively.
Our Group will also provide each of the Appointee with a motor vehicle allowance and all related expenses incurred in connection with the motor vehicle shall be borne by us. All reasonable travelling, hotel and other expenses incurred by the Appointee in connection with our Group’s business will also be borne by us.
Each Appointee will also be paid an incentive bonus based on our PBT. For this purpose, “PBT” shall refer to our Group’s audited consolidated PBT before payment of incentive bonus, excluding any gains from extraordinary items and after minority interests for the relevant financial year.
The amount of incentive bonus that each Appointee will receive in each financial year will be determined as follows:-
PBT Incentive bonus Steven Loh David Leng
Where PBT is S$3.0 million or less Nil Nil
Where PBT is above S$3.0 million and up to S$6.0 million
4.0% of PBT in excess of S$3.0 million
3.0% of PBT in excess of S$3.0 million
Where PBT is above S$6.0 million S$120,000 plus 5.0% of the actual PBT in excess of S$6.0 million
S$90,000 plus 3.5% of the actual PBT in excess of S$6.0 million
Under the Service Agreements, the remuneration of the Appointee is subject to annual review by the Remuneration Committee.
Had the Service Agreements been in place with effect from 1 January 2010, the aggregate remuneration (including CPF contributions and other benefits, if any) paid to the Appointees for FY2010 would have been approximately S$839,000 (instead of S$426,000), and our PBT, net profit for the year and net profit attributable to equity holders of our Company would have been S$5,036,000 (instead of S$5,449,000), S$4,210,000 (instead of S$4,553,000) and S$4,163,000 (instead of S$4,506,000) respectively.
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Save as disclosed above, there are no bonus or profit-sharing plans or any other profit-linked agreements or arrangements between our Company, our subsidiaries and any of our Directors, Executive Officers or employees. There are no existing or proposed service agreement entered or to be entered into by our Directors which provide for benefits upon termination of employment.
CORPORATE GOVERNANCE
Our Directors recognise the importance of corporate governance and the offering of high standards of accountability to our Shareholders. As such, our Board of Directors has formed three committees: (i) the Audit Committee, (ii) the Remuneration Committee and (iii) the Nominating Committee.
Board of Directors
We currently have seven Directors on our Board, comprising two Executive Directors, two Non-executive Directors and three Independent Directors.
Our Articles of Association provide that our Board of Directors will consist of not less than two Directors. None of our Directors are appointed for any fixed terms.
Our Directors are appointed by our Shareholders at general meeting, and an election of Directors takes place annually. One-third (or the number nearest to one-third) of our Directors, are required to retire from office at each annual general meeting. Every Director must retire from office at least once every three years. However, a retiring Director is eligible for re-election at the meeting at which he retires.
Audit Committee
Our Audit Committee comprises Hew Koon Chan, Andrew Mak and Tan Hwee Kiong. The Chairman of the Audit Committee is Hew Koon Chan.
Our Independent Directors do not have any existing business or professional relationship of a material nature with our Group, other Directors or Substantial Shareholders. They are also not related to the other Directors or Substantial Shareholders.
Our Audit Committee will assist our Board of Directors in discharging their responsibility to safeguard our assets, maintain adequate accounting records and develop and maintain effective systems of internal control, with the overall objective of ensuring that our management creates and maintains an effective control environment in our Group.
Our Audit Committee will provide a channel of communication between our Board of Directors, our management and our external auditors on matters relating to audit.
Our Audit Committee shall meet semi-annually to perform the following functions:-
(a) review the audit plans of the external auditors and our internal auditors, including the results of our external and internal auditors’ review and evaluation of our system of internal controls;
(b) review the annual consolidated financial statements and the external auditors’ report on those financial statements, and discuss any significant adjustments, major risk areas, changes in accounting policies, compliance with international financial reporting standards, concerns and issues arising from their audits including any matters which the auditors may wish to discuss in the absence of management, where necessary, before submission to our Board of Directors for approval;
(c) review the periodic consolidated financial statements comprising the profit and loss statements and the balance sheets and such other information required by the Catalist Rules, before submission to our Board of Directors for approval;
(d) review and discuss with external and internal auditors (if any), any suspected fraud, irregularity or infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on our Group’s operating results or financial position and our management’s response;
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DIRECTORS, EXECUTIVE OFFICERS AND STAFF
(e) review the co-operation given by our management to our external auditors;
(f) review the report of the internal control review to be conducted within one year after our Company’s admission to Catalist and to consider and make recommendations to our Board whether to continue such reviews;
(g) consider the appointment and re-appointment of the external auditors and matters relating to resignation or dismissal thereof;
(h) review and ratify any interested person transactions falling within the scope of Chapter 9 of the Catalist Rules;
(i) review the guidelines and review procedures set out in the “Interested Person Transactions – Guidelines and Review Procedures for Future Interested Person Transactions other than those covered in the Shareholders’ Mandate” section of this Offer Document and future interested person transactions, if any;
(j) monitor all the undertakings and agreements described in the “Potential Conflicts of Interests – Interests of Directors, Controlling Shareholder or their Associates” section of this Offer Document;
(k) review any potential conflicts of interest;
(l) review the adequacy and supervision of the finance and accounting team on an annual basis;
(m) review the procedures by which employees of our Group may, in confidence, report to the Chairman of our Audit Committee, possible improprieties in matters of financial reporting or other matters and ensure that there are arrangements in place for independent investigation and follow-up actions in relation thereto;
(n) undertake such other reviews and projects as may be requested by our Board of Directors, and will report to our Board its findings from time to time on matters arising and requiring the attention of our Audit Committee; and
(o) undertake generally such other functions and duties as may be required by law or the Catalist Rules, and by such amendments made thereto from time to time.
Apart from the duties listed above, our Audit Committee shall commission and review the findings of internal investigations into matters where there is any suspected fraud or irregularity, or failure of internal controls or infringement of any Singapore law, rule or regulation which has or is likely to have a material impact on our Group’s operating results and/or financial position. Each member of our Audit Committee shall abstain from voting on any resolutions in respect of matters in which he is interested.
Our Audit Committee shall also commission an annual internal control audit until such time as our Audit Committee is satisfied that our Group’s internal controls are robust and effective enough to mitigate our Group’s internal control weaknesses (if any). Prior to the decommissioning of such annual audit, our Board is required to report to the SGX-ST and the Sponsor on how the key internal control weaknesses have been rectified, and the basis for the decision to decommission the annual internal control audit. Thereafter, such audits may be initiated by our Audit Committee as and when it deems fit to satisfy itself that our Group’s internal controls remain robust and effective. Upon completion of the internal control audit, appropriate disclosure will be made via SGXNET of any material, price-sensitive internal control weaknesses and any follow-up actions to be taken by our Board.
Our Audit Committee, (a) having conducted an interview with Tan Su Kim; (b) considered her qualifications and past working experience (as described in the “Directors, Management and Staff – Executive Officers” section of this Offer Document; (c) observed her abilities, familiarity and diligence in relation to the financial matters and information on our Group; and (d) noted the absence of any negative feedback from Ernst & Young LLP, is of the view that Tan Su Kim is suitable for the position of Financial Controller.
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Remuneration Committee
Our Remuneration Committee comprises Tan Hwee Kiong, Andrew Mak and Hew Koon Chan. The Chairman of the Remuneration Committee is Tan Hwee Kiong. Our Remuneration Committee will recommend to our Board of Directors a framework of remuneration for our Directors and Executive Officers and determine specific remuneration packages for each Executive Director. The recommendations of our Remuneration Committee should be submitted for endorsement by the entire Board of Directors. All aspects of remuneration, including but not limited to Directors’ fees, salaries, allowances, bonuses and benefits-in-kind shall be covered by our Remuneration Committee. In addition, our Remuneration Committee will perform an annual review of the remuneration of employees related to our Directors and Substantial Shareholders to ensure that their remuneration packages are in line with our staff remuneration guidelines and commensurate with their respective job scope and level of responsibilities. They will also review and approve any bonuses, pay increases and/or promotion for these employees. Each member of the Remuneration Committee shall abstain from voting on any resolution in respect of his remuneration package. Our Remuneration Committee shall also review the remuneration of our senior management.
Nominating Committee
Our Nominating Committee comprises Andrew Mak, Hew Koon Chan and Tan Hwee Kiong. The Chairman of the Nominating Committee is Andrew Mak.
The Nominating Committee is responsible for the following:-
(a) to make recommendations to the Board on all board appointments, including re-nominations, having regard to the Director’s contribution and performance (for example, attendance, preparedness, participation and candour);
(b) to determine annually whether or not a Director is independent;
(c) in respect of a Director who has multiple board representations on various companies, to decide whether or not such Director is able to and has been adequately carrying out his/her duties as Director, having regard to the competing time commitments that are faced when serving on multiple boards;
(d) to decide how the Board’s performance may be evaluated and propose objective performance criteria, as approved by the Board that allows comparison with its industry peers, and address how the Board has enhanced long term shareholders’ value; and
(e) to assess the performance of the Board and contribution of each Director to the effectiveness of the Board.
Each member of the Nominating Committee shall abstain from voting on any resolution relating to the assessment of his performance or his re-nomination as Director.
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Save as disclosed in the “General Information on our Group – Share Capital” section of this Offer Document and below, none of our Directors, Controlling Shareholder and their respective Associates (each, an “Interested Person”) was or is interested in any transaction undertaken by our Group which is considered material in itself within the period under review and up to the Latest Practicable Date (the “Relevant Period”).
INTERESTED PERSONS
Particulars of the Interested Persons (save for the particulars of our Directors, Executive Officers or Controlling Shareholder of our Company, which are disclosed in the “General Information on our Group – Shareholders” and/or “Directors, Management and Staff” sections of this Offer Document, respectively) are as follows:-
SER
SER, a company established in the PRC on 28 November 2002, is primarily engaged in the marketing and distribution of “Eden” brand of heat exchangers and condensing units, as well as “Eliwell” brand of temperature controllers in the PRC. SER also exports the “Eden” brand of heat exchangers and condensing units exclusively to Far East Group. SER is wholly owned by UPL (our Controlling Shareholder) which is in turn owned by Loh Ee Ming (our Non-executive Chairman), Steven Loh (our CEO and Executive Director), Karen Loh (our Non-executive Director), Lum Soo Mooi (spouse of Loh Ee Ming) and Sharon Loh (daughter of Loh Ee Ming and Lum Soo Mooi, and sibling of Steven Loh and Karen Loh) with shareholding interests of 40.68%, 27.42%, 10.68%, 10.33% and 10.89% respectively. The directors of SER are Loh Ee Ming, Steven Loh and Wong Thiam Hock (an unrelated third party). The legal representative of SER is Steven Loh.
SERM
SERM, a company established in the PRC on 4 April 2007, is primarily engaged in the manufacturing of “Eden” brand of heat exchangers and condensing units. The shareholders of SERM are SER, Sam Cheung (a Pre-IPO Investor and spouse of Karen Loh, our Non-executive Director) and Fuco Rudyanto Chandra (an unrelated third party), with shareholding interests of 80.0%, 5.0% and 15.0% respectively. The directors of SERM are Steven Loh, Karen Loh and Fuco Rudyanto Chandra. The legal representative of SERM is Steven Loh.
ERM
ERM, a company established in the PRC on 1 June 2010, is primarily engaged in the manufacturing of “Eden” brand of heat exchangers and condensing units. The shareholders of ERM are UPL, Sam Cheung and Fuco Rudyanto Chandra, with shareholding interests of 80.0%, 5.0% and 15.0% respectively. The directors of ERM are Steven Loh, Karen Loh and Fuco Rudyanto Chandra. The legal representative of ERM is Steven Loh.
PT Far East Indonesia (“Far East Indonesia”)
Far East Indonesia, a company incorporated in Indonesia on 8 October 2001, was primarily engaged in the trading of refrigeration and air-conditioning parts in Indonesia. Far East Indonesia had ceased operations since 2008. The shareholders of Far East Indonesia are Steven Loh and two unrelated third parties, namely Karisma Kamdani and Karesna Kamdani, with shareholding interests of 60%, 20% and 20% respectively. The directors of Far East Indonesia are Steven Loh and Karesna Kamdani. As at the Latest Practicable Date, Far East Indonesia is in the process of winding up.
Far East Refrigeration (Hong Kong) Limited (“Old FER HK”)
Old FER HK, a company incorporated in Hong Kong on 24 May 1988, was primarily engaged in the trading of refrigeration and air-conditioning parts in Hong Kong. Old FER HK had ceased operations since 2007. Prior to 2009, the shareholders of Old FER HK were our Company, UPL, Karen Loh and two unrelated third parties, namely Mak Hon Chong and Kadir Chandra, with shareholding interests of 93.88%, 3.20%, 0.86%, 0.34% and 1.72% respectively. Our Company and UPL had disposed of their respective shareholding interests in Old FER HK to Karen Loh on 1 June 2009. The current shareholders of Old FER HK are Karen Loh (97.94%), Mak Hon Chong (0.34%) and Kadir Chandra (1.72%). The directors of Old FER HK are Loh Ee Ming, Steven Loh and Karen Loh.
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INTERESTED PERSON TRANSACTIONS
Chinhero Development Limited (“Chinhero Development”)
Chinhero Development, a company incorporated in Hong Kong on 19 October 1990, is primarily an investment holding company. The shareholders of Chinhero Development are Sam Cheung and Tsui Shui Ngan (mother of Sam Cheung), with shareholding interests of 95.0% and 5.0% respectively. The directors of Chinhero Development Ltd are Sam Cheung, Karen Loh and Tsui Shui Ngan.
PAST INTERESTED PERSON TRANSACTIONS
(1) Disposal of Old FER HK to our Non-executive Director, Karen Loh
Pursuant to an instrument of transfer dated 1 June 2009, our Company disposed of its entire 93.88% equity interest in Old FER HK to Karen Loh for a cash consideration of HK$1.00. The 3.2% equity interest in Old FER HK which was held by UPL was also sold to Karen Loh for a cash consideration of HK$1.00. The disposal considerations were on a willing buyer willing seller basis, taking into consideration the fact that Old FER HK was loss making prior to 2005 and had ceased operations since 2007.
The transactions were not conducted on an arm’s length basis as the aggregate consideration was at a nominal value of HK$2.00.
(2) Provision of personal guarantees by certain Interested Persons
During the Relevant Period, Loh Ee Ming, Steven Loh, David Leng, Lim Keng Ann (our Shareholder) and Sharon Loh (a shareholder of UPL, daughter of Loh Ee Ming and sibling of Steven Loh and Karen Loh) (collectively the “Guarantors”) had provided joint and several personal guarantees to secure banking facilities for our Group as follows:-
Financial institution
Type of facility
Amount of facilities
guaranteed (’000)
Interest rate(%)
Details of guarantee(1)
Singapore
Bank of China Overdraft
Trade facilities
S$100
S$1,200
Prime(2) + 1.75
Prime(2) + 0.25
Joint and several guarantees by Steven Loh, Lim Keng Ann, Loh Ee Ming, Sharon Loh and David Leng
Citibank Overdraft
Trade facilities
US$100
US$800
Prime(2) + 0.50
COF(3) + 2.25
Joint and several guarantees by Loh Ee Ming, Steven Loh and David Leng
Oversea-Chinese Banking Corporation Limited
Overdraft
Trade facilities
S$500
S$1,400
Prime(2) + 0.375
Prime(2)
Joint and several guarantees by Loh Ee Ming, Steven Loh, David Leng, Sharon Loh and Lim Keng Ann
The Bank of East Asia, Limited
Overdraft and trade facilities
S$750 Prime(2) + 1.00 (overdraft)
SIBOR(4) + 2.00 (trade facilities)
Joint and several guarantees by Loh Ee Ming, Steven Loh, David Leng, Sharon Loh and Lim Keng Ann
United Overseas Bank Limited
Overdraft S$30 Prime(2) + 0.50 Joint and several guarantees by Steven Loh and David Leng
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Financial institution
Type of facility
Amount of facilities
guaranteed (’000)
Interest rate(%)
Details of guarantee(1)
Malaysia
Maybank Overdraft
Trade facilities
RM300
RM300
BLR(5) + 1.25
BLR(5) + 1.75
Joint and several guarantees by Loh Ee Ming, Steven Loh and an unrelated third party, Dato’ Hee Ching@Hei Wah
Notes:-
(1) These facilities were also supported by other guarantees and securities provided by our Group.
(2) Prime rate refers to the respective banks’ prime rates.
(3) COF refers to the respective banks’ cost of funds.
(4) SIBOR refers to the Singapore Interbank Offer Rate.
(5) BLR refers to base lending rate of Malaysia.
The largest aggregate outstanding amount guaranteed during the Relevant Period, based on month-end balances, was approximately S$2.7 million. As at the Latest Practicable Date, the above facilities had been fully settled and the guarantees provided by the Interested Persons had been discharged.
As no fees were charged by the Interested Persons for the provision of the guarantees, the above arrangements were not carried out on an arm’s length basis.
(3) Provision of guarantees to certain Interested Persons
During the Relevant Period, our Company had provided corporate guarantees for the banking facilities granted to SER and SERM as set out below:-
Financial institutionType of facilities
Amount of facilities
guaranteed Interest rate Details of guarantee
SER
United Overseas Bank (China) Limited, Shanghai Branch
Working capital loan and trade finance
US$200,000 or RMB1,450,000
115% of the People’s Bank of China base rate
(i) Corporate guarantee by Far East Group; and
(ii) Personal guarantee by Steven Loh
SERM
United Overseas Bank (China) Limited, Shanghai Branch
Working capital loan
US$300,000 and
RMB3,000,000
115% of the People’s Bank of China base rate
100% of the People’s Bank of China base rate
(i) Corporate guarantee by Far East Group;
(ii) Corporate guarantee by SER; and
(iii) Personal guarantee by Steven Loh
The largest aggregate outstanding amount guaranteed during the Relevant Period, based on month-end balances, was equivalent to approximately S$425,000. As at the Latest Practicable Date, the aggregate outstanding amount guaranteed was equivalent to approximately S$388,007. As at the date of this Offer Document, our Company has been discharged of the above guarantees.
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As no fees were charged by Far East Group for the provision of the guarantees, the above arrangements were not carried out on an arm’s length basis. We do not intend to enter into similar arrangements in the future.
(4) Advances to certain Interested Persons
During the Relevant Period, our Company had extended advances to SER and SERM for their working capital requirements. Details of such advances as at the end of FY2008, FY2009 and FY2010, and as at the Latest Practicable Date, and the largest aggregate amount outstanding during the Relevant Period, based on month-end balances were as follows:-
(S$’000)
As at 31 December
2008
As at 31 December
2009
As at 31 December
2010
As at the Latest
Practicable Date
Largest amount
outstanding during the Relevant Period
SER 168 9 – – 207
SERM 3 – – – 242
Such advances were not carried out on arm’s length basis as they were on unsecured, interest-free basis and had no fixed terms of repayment. We do not intend to enter into such transactions in the future.
(5) Commission income from the Regional Affiliates
During the Relevant Period, we had received commission income from the Regional Affiliates for referral of customers to them. The commission income ranged from 7% to 15% of the purchases made by such customers from the Regional Affiliates. The commission income received from the Regional Affiliates during the Relevant Period were as follows:-
(S$’000) FY2008 FY2009 FY2010
From 1 January 2011 to Latest
Practicable Date
SER 4 40 43 –
SERM 42 84 92 –
Our Executive Directors are of the opinion that the above transactions were conducted on an arm’s length basis and were on normal commercial terms. In the event that such arrangements occur in the future, we will comply with the procedures set out in the “Interested Person Transactions – Guidelines and Review Procedures for Future Interested Person Transactions other than those covered in the Shareholders’ Mandate” section of this Offer Document and be subject to the relevant provisions of Chapter 9 of the Catalist Rules and/or other applicable provisions of the Catalist Rules.
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INTERESTED PERSON TRANSACTIONS
PRESENT AND ON-GOING INTERESTED PERSON TRANSACTIONS
(1) Advances to and from certain Interested Persons
During the Relevant Period, UPL had procured advances from us for its working capital requirements. Such advances were on unsecured, interest-free basis and had no fixed terms of repayment. In addition, we had received advances from Loh Ee Ming, David Leng and Old FER HK from time to time for our working capital requirements.
Details of such advances as at the end of FY2008, FY2009 and FY2010, and as at the Latest Practicable Date, and the largest aggregate amount outstanding during the Relevant Period, based on month-end balances were as follows:-
(S$’000)
As at 31 December
2008
As at 31 December
2009
As at 31 December
2010
As at the Latest
Practicable Date
Largest amount outstanding during the
Relevant Period
Amounts due to:-
Loh Ee Ming 2,366 1,866 1,432 1,211 2,610
David Leng 177 150 150 – 677
Old FER HK – – 111 107 111
Amounts due from:-
UPL 121 22 – – 584
Save for an advance granted by David Leng to our Company in February 2009 of S$500,000 (“Interest-bearing Loan”) which was interest-bearing for two months at an interest rate of 4.5% per annum, the advances from the aforementioned Interested Persons during the Relevant Period were made on a preferential basis as they were unsecured and interest-free. The Interest-bearing Loan was made on an arm’s length basis and was repaid to David Leng in May 2009.
The outstanding amount of $107,000 owing to Old FER HK as at the Latest Practicable Date has no fixed terms of repayment.
The outstanding amount of S$1.2 million owing to Loh Ee Ming as at the Latest Practicable Date is currently being repaid by monthly repayments of S$40,000. Pursuant to an undertaking by Loh Ee Ming, our Company shall have the right to renegotiate such monthly repayment arrangement in the event our Audit Committee is of the view that our Group is not in the financial position to make such monthly repayments, taking into account our working capital and gearing position.
(2) Dividends payable to certain Interested Persons
The amount of dividends due to certain Interested Persons, namely UPL, Steven Loh and David Leng, as at the end of FY2010 and as at the Latest Practicable Date, and the largest aggregate amount outstanding during the Relevant Period, based on month-end balances were as follows:-
(S$’000)
As at 31 December
2010
As at the Latest Practicable
Date
Largest amount outstanding during the Relevant Period
UPL 1,308 1,754 3,062
Steven Loh 27 27 54
David Leng 138 138 275
The amount of dividends due to the aforesaid Interested Persons as at the Latest Practicable Date relate to the interim dividends declared by our Company in respect of FY2011. We intend to repay 50% of such amounts outstanding in FY2011 and the remaining 50% in FY2012, using internally generated funds.
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INTERESTED PERSON TRANSACTIONS
(3) Provision of personal guarantees by certain Interested Persons
As at the Latest Practicable Date, Loh Ee Ming, Steven Loh, David Leng, Lim Keng Ann and Sharon Loh (collectively the “Guarantors”) had provided joint and several personal guarantees to secure banking facilities granted to our Group as follows:-
Financial institution
Type of facility/tenure
Amount of facilities granted(’000)
Amount outstanding
as at the Latest
Practicable Date(’000)
Interest rate(%)
Facilities used by Security(1)
Singapore
United Overseas Bank Limited
Term loan (commencing on 1 October 2003 and expiring on 30 September 2028)
Overdraft
Trade facilities
S$1,599
S$1,000
S$6,000
S$1,489
–
S$1,049
5.25
Prime(2) + 0.25
COF(3) + 2.50
Far East Group
Joint and several guarantees by Loh Ee Ming, Steven Loh and Lim Keng Ann
DBS Bank Ltd
Term loan (commencing on 1 March 2009 and expiring on 28 February 2014)
Overdraft
Trade facilities
Bridging loan (commencing on 1 May 2009 and expiring on 28 February 2012)
S$600
S$600
S$2,000
S$1,000
S$340
–
S$1,839
S$27
2.35
Prime(2) + 0.75
Prime(2) + 0.50
5.00
Far East Group
Joint and several guarantees by Loh Ee Ming, Steven Loh and Sharon Loh
Standard Chartered Bank
Overdraft
Trade facilities
S$100
S$1,200
–
S$611
Prime(2) + 0.25
COF(3) + 3.00
Far East Group
Joint and several guarantees by Loh Ee Ming, Steven Loh, David Leng, Lim Keng Ann and Sharon Loh
RHB Bank Berhad
Trade facilities
Short term revolving credit
S$800
S$100
S$418
S$100
COF(3) + 2.50
COF(3) + 2.50
Far East Group
Joint and several guarantees by Loh Ee Ming, Steven Loh, David Leng and Sharon Loh
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INTERESTED PERSON TRANSACTIONS
Financial institution
Type of facility/tenure
Amount of facilities granted(’000)
Amount outstanding
as at the Latest
Practicable Date(’000)
Interest rate(%)
Facilities used by Security(1)
CIMB Bank Berhad
Trade facilities and overdraft
S$500 – COF(3) + 2.50Prime(2) + 0.50
Far East Group
Joint and several guarantees by Loh Ee Ming, Steven Loh and David Leng
Malaysia
United Overseas Bank (Malaysia) Berhad
Trade facilities
Overdraft
RM2,000
RM1,000
RM810
–
BLR(4) + 1.25
BLR(4) + 1.00
Far East Maju
Joint and several guarantees by Loh Ee Ming and Steven Loh
OCBC Bank (Malaysia) Berhad
Trade facilities
Overdraft
RM600
RM400
–
–
BLR(4) + 0.50
BLR(4) + 0.75
Far East KL
Joint and several guarantees by Loh Ee Ming, Steven Loh, Dato Hee Ching@Hei Wah and Au Yong Peng Kwan
CIMB Bank Berhad
Overdraft RM140 – BLR(4) + 2.00 Far East Penang
Joint and several guarantees by Loh Ee Ming, Dato Hee Ching@Hei Wah and Steven Loh
Hong Kong
DBS Bank (Hong Kong) Limited
Overdraft and trade facilities
HK$4,000 HK$1,458 Prime(2) (overdraft)
Standard rate quoted by
banks (trade facilities)
Far East HK
Joint and several guarantees by Loh Ee Ming, Steven Loh and Karen Loh
Notes:-
(1) These facilities were also supported by other guarantees and securities provided by our Group.
(2) Prime rate refers to the respective banks’ prime rates.
(3) COF refers to the respective banks’ cost of funds.
(4) BLR refers to base lending rate of Malaysia.
The largest aggregate outstanding amount guaranteed by the Guarantors during the Relevant Period, based on month-end balances, was approximately S$11.9 million. As as the Latest Practicable Date, the aggregate outstanding amount guaranteed was approximately S$7.7 million.
As no fees were charged by the Guarantors for the provision of the guarantees, the above arrangements were not carried out on an arm’s length basis.
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Subsequent to the Placement, the Guarantors intend to procure the discharge of the above personal guarantees. In the event that the banks do not agree to release the Guarantors from the above personal guarantees, and we are unable to secure alternative bank facilities on similar terms, the Guarantors have undertaken to continue to provide the relevant personal guarantees until such time when we are able to secure alternative facilities on similar terms from other financial institutions.
(4) Lease of property from Chinhero Development
On 21 November 2008, we entered into a lease agreement with Chinhero Development pursuant to which our subsidiary, Far East HK leased the premises located at Workshop Unit No. 7 on 18/F & Storeroom, Wah Fat Industrial Building, Nos. 10-16 Kung Yip Street, Kwai Chung, New Territories, Hong Kong, at monthly rental of HK$10,000 for three years until 30 November 2011. For further details on this leased property, please refer to the “Business – Properties and Fixed Assets” section of this Offer Document.
The rental rate was derived at on an arm’s length basis, taking into consideration the prevailing rental rates of similar properties in the market.
Future renewal of the lease shall be subject to the review procedures set out in “Interested Person Transactions – Guidelines and Review Procedures for Future Interested Person Transactions other than those covered in the Shareholders’ Mandate” section of this Offer Document.
(5) Transactions with the Regional Affiliates
(a) Technical and management services agreement
On 27 June 2011, the Regional Affiliates entered into a technical and management services agreement with our Company (the “Technical and Management Services Agreement”) pursuant to which our Company shall provide technical support, business development and general management services to the Regional Affiliates, for a period of two years commencing from the date of our admission to Catalist (the “Service Period”).
The persons assigned by our Company to provide such services (“Assigned Persons”) are Steven Loh, Allan Ward (our COO (Engineering and Manufacturing)) and Wong Thiam Hock (our Regional Manager).
In consideration of the provision of the technical and management services, the Regional Affiliates shall pay our Company an annual fee of S$95,000 (“Annual Consideration”). The Annual Consideration has been derived by imputing a certain mark-up on the time costs of the Assigned Persons, taking into consideration that Steven Loh, Allan Ward and Wong Thiam Hock shall spend no more than 30, 15 and 50 business days respectively per annum at the premises of the Regional Affiliates in the PRC in discharging their services.
The Technical and Management Services Agreement shall terminate in any of the following events, whichever is the earliest:-
(i) UPL (and its Associates) ceases to be our Controlling Shareholder;
(ii) our Company exercises all the Acquisition Options; or
(iii) our Company ceases to be listed on the SGX-ST (whether on the Main Board or Catalist).
Our Directors are of the view that the Technical and Management Services Agreement was negotiated on an arm’s length basis and is on normal commercial terms.
The terms of the Technical and Management Services Agreement shall be subject to review and approval of our Audit Committee every two years.
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(b) Intellectual properties licence agreement
On 27 June 2011, the Regional Affiliates entered into an intellectual properties licence agreement with our Company (the “IP Licence Agreement”). SER has acknowledged in the IP Licence Agreement that it has been holding all its trade marks and patents (“Intellectual Properties”) on behalf of our Company. Such Intellectual Properties are in the process of being transferred to our Company for an aggregate consideration of US$400, being the administrative costs of the transfer process. For further details on the Intellectual Properties, please refer to the “Business – Intellectual Property” section of this Offer Document.
Pursuant to the IP Licence Agreement, the Regional Affiliates shall be entitled to use the Intellectual Properties for their manufacture, distribution, promotion and sale of “Eden” brand of heat exchangers and condensing units in the PRC and sale of these products to our Group. A licencing fee (“Licencing Fee”) shall be payable to our Company on a quarterly basis, with a credit term of 60 days. The Licencing Fee shall be computed based on 2.0% of the revenue which the Regional Affiliates derive from their sale of “Eden” brand of heat exchangers and condensing units in the PRC. The Licencing Fee has been determined by our Company after taking into consideration the results of a benchmarking analysis undertaken by an independent accounting firm commissioned by our Company. The tenure of the IP Licence Agreement is for a perpetual period commencing from 1 January 2011.
The Regional Affiliates have undertaken to make available supporting documents to us, including their quarterly management accounts, annual audited accounts and sales invoices, for purpose of facilitating the computation of the Licencing Fee payable by the Regional Affiliates.
The other salient terms and conditions of the IP Licence Agreement are, inter alia, as follows:-
(i) the Regional Affiliates shall protect and enhance the value of the goodwill of the Intellectual Properties, failing which, the Regional Affiliates shall be liable for and will indemnify our Company against any and all liability, loss, costs and other expenses of similar nature suffered, directly or indirectly, by our Company over any misappropriation of the intellectual property rights licenced to the Regional Affiliates; and
(ii) the Regional Affiliates are not allowed to grant or sub-licence to any other party the use of the Intellectual Properties, unless prior written consent of our Company has been obtained.
To safeguard the interests of our Group, Loh Ee Ming and Steven Loh have jointly and severally undertake to indemnify our Group against any misappropriation of the intellectual property rights by any of the Regional Affiliates pursuant to the IP Licence Agreement (“Indemnity Undertaking”).
The Independent Financial Adviser has been appointed to advise our Audit Committee on whether the IP Licence Agreement is on normal commercial terms and is not prejudicial to the interest of our Company and our minority Shareholders. Please refer to the “Interested Person Transactions - Opinion of the Independent Financial Adviser” section of this Offer Document for the opinion of the Independent Financial Adviser. Our Audit Committee, having considered the opinion of the Independent Financial Adviser, is of the view that the IP Licence Agreement is on normal commercial terms and is not prejudicial to the interest of our Company and our minority Shareholders.
The IP Licence Agreement which constitutes an interested person transaction shall be deemed to have been specifically approved by Shareholders upon their subscription of our Shares in connection with the Placement and will thereafter not be subject to Rules 905 and 906 of the Catalist Rules to the extent that there is no variation or amendment to the terms of the IP Licence Agreement (including the fees charged) which is adverse to our Group.
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Any future variation or amendment or renewal of the terms of the IP Licence Agreement, including any changes to the Licencing Fee, shall be subject to the approval of our Audit Committee.
The Indemnity Undertaking shall subsist and be effective without limit in point of time, but shall terminate in any of the following events, whichever is the earliest:-
(i) UPL (and its Associates) ceases to be our Controlling Shareholder;
(ii) our Company exercises all the Acquisition Options;
(iii) our Company ceases to be listed on the SGX-ST (whether on the Main Board or Catalist); or
(iv) the termination of the IP Licence Agreement.
(c) Options to acquire the equity interests of Regional Affiliates
Pursuant to three separate option agreements dated 27 June 2011 entered into between our Company and certain shareholders of each of the Regional Affiliates, namely, UPL and SER (the “Acquisition Option Agreements”), our Company was granted options to acquire their respective equity interests in or the assets, businesses and undertakings of the Regional Affiliates (the “Acquisition Options”). In addition, our Company shall have the first right of refusal to acquire the respective shareholdings of UPL and SER in the Regional Affiliates in the event UPL and SER intend to dispose of the same. The purchase consideration shall be determined by reference to at least two independent valuers to be appointed by our Audit Committee.
The exercise of the Acquisition Options shall be subject to the relevant provisions of the Catalist Rules and approval of Shareholders. UPL and its Associates (being Interested Persons) shall abstain from voting on resolutions concerning the Acquisition Options. Our Audit Committee shall also appoint an independent financial adviser to advise on whether the exercise of the Acquisition Options will be in the interest of our Company and our minority Shareholders.
The Acquisition Options shall terminate in any of the following events, whichever is the earliest:-
(i) when UPL (and its Associates) ceases to be our Controlling Shareholder; or
(ii) our Company ceases to be listed on the SGX-ST (whether on the Main Board or Catalist).
Our Directors are of the view that the Acquisition Options are beneficial to our Group and are not prejudicial to the interests of our Company and our minority Shareholders.
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(d) Trade Transactions
During the Relevant Period, there were trade transactions between our Company, and SER and SERM. The aggregate amounts of such transactions with SER and SERM in FY2008, FY2009 and FY2010 and from 1 January 2011 to the Latest Practicable Date were as follows:-
(S$’000) FY2008 FY2009 FY2010
From 1 January 2011 to Latest
Practicable Date
Transactions with SER
Purchases from SER(1) 861 898 793 366
Sales to SER(2) 23 1 35 28
Transactions with SERM
Sales to SERM(3) 26 27 199 14
Notes:-
(1) These relate mainly to our “Eden” brand of heat exchangers and condensing units.
(2) These relate to refrigeration and air-conditioning parts for the assembly of condensing units.
(3) These relate mainly to fan motors for SERM’s urgent requirements to be assembled onto the heat exchangers.
Our purchases from and sales to SER and SERM were on normal commercial terms. We intend to continue with trade transactions with SER and SERM in the future. We may also enter into trade transactions with ERM in the future. Such transactions shall be subject to the guidelines and review procedures under the Shareholders’ Mandate set out in the “Interested Person Transactions – Shareholders’ Mandate” section of this Offer Document.
SHAREHOLDERS’ MANDATE
Chapter 9 of the Catalist Rules states that where the value of a single interested person transaction or the aggregate value of all transactions entered into with the same Interested Person during a financial year reaches or exceeds:-
(a) 3% of the group’s latest audited net tangible assets, the listed company is required to make an immediate announcement of the transaction; and
(b) 5% of the group’s latest audited net tangible assets, the listed company is required to make an immediate announcement and seek shareholders’ approval for that transaction.
Interested person transactions of value less than S$100,000 are not required to be aggregated.
Under Chapter 9 of the Catalist Rules, a listed company may seek a shareholders’ mandate for recurrent transactions of a revenue or trading nature or those necessary for its day-to-day operations, which may be carried out with the listed company’s interested persons, but not for the purchase or sale of assets, undertakings or businesses.
We anticipate that our Group would, in the ordinary course of business, enter into transactions including but not limited to the transactions set out in this section with persons which are considered “interested persons” as defined in Chapter 9 of the Catalist Rules. It is likely that such transactions will occur with some degree of frequency and could arise at any time and from time to time.
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Due to the time-sensitive nature of commercial transactions, obtaining a shareholders’ mandate will enable our Group, in our normal course of business, to enter into categories of interested person transactions set out below with certain categories of Interested Persons (as defined below), provided such interested person transactions are made on an arm’s length basis and on normal commercial terms and are not prejudicial to the interests of our Company and our minority Shareholders.
Pursuant to Rule 920(2) of the Catalist Rules, Far East Group may treat a general mandate as having been obtained from our Shareholders for us to enter into interested person transactions with the Interested Persons, if the information required under Rule 920(1)(b) of the Catalist Rules is included in the offer document. The information required under Rule 920(1)(b) is as follows:-
(i) the classes of Interested Persons with which the entity at risk will be transacting;
(ii) the nature of the transactions contemplated under the mandate;
(iii) the rationale for, and benefits to, the entity at risk;
(iv) the methods or procedures for determining transaction prices;
(v) the independent financial adviser’s opinion on whether the methods or procedures in (iv) above are sufficient to ensure that the transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of our Company and our minority Shareholders;
(vi) an opinion from the audit committee if it takes a different view to the independent financial adviser;
(vii) a statement from us that we will obtain a fresh mandate from Shareholders if the methods and procedures in (iv) become inappropriate; and
(viii) a statement that the Interested Person will abstain, and has undertaken to ensure that its associates will abstain, from voting on the resolution approving the transaction.
On 22 July 2011, our Shareholders approved a mandate (the “Shareholders’ Mandate”) for us to enter into the following categories of interested person transactions with the following Interested Persons (as explained below). Accordingly, our new Shareholders who subscribe for our New Shares in the Placement are deemed to have approved the Shareholders’ Mandate.
The Shareholders’ Mandate will take effect from the admission of our Company to Catalist and will be effective until the earlier of the following: (i) the first annual general meeting following our admission to Catalist, or (ii) first anniversary of our date of admission to Catalist. Thereafter, approval from Shareholders for renewal of the Shareholders’ Mandate will be sought at each subsequent annual general meeting.
UPL, Steven Loh and Sam Cheung will abstain, and have undertaken that their Associates will abstain, from voting on the resolutions for the renewal of the Shareholders’ Mandate in respect of any Shares respectively held by them and their Associates.
Loh Ee Ming, Steven Loh, Karen Loh and Sam Cheung will also decline to accept nomination as proxy or otherwise from any Shareholder to vote on the resolutions for the renewal of the Shareholders’ Mandate, unless given specific instructions by the Shareholder in the relevant proxy form as to how his votes are to be casted.
Categories of Interested Persons
The Shareholders’ Mandate will apply to our Group’s transactions with SER, SERM and ERM (the “Mandated Interested Persons”).
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Categories of interested person transactions
The transactions with the Mandated Interested Persons covered by the Shareholders’ Mandate relate to the purchase and sale of products in the normal course of our business (of a revenue or trading nature or which are necessary for our day-to-day operations), comprising the following:-
(a) purchase of “Eden” brand of products (comprising heat exchangers and condensing units) from the Mandated Interested Persons (through SER); and
(b) sale of agency products for the assembly of condensing units to the Mandated Interested Persons.
Transactions with Interested Persons that do not fall within the ambit of the Shareholders’ Mandate shall be subject to the relevant provisions of Chapter 9 and/or other applicable provisions of the Catalist Rules.
Rationale for and benefits of the Shareholders’ Mandate
The Mandated Interested Persons are engaged primarily in the manufacture and distribution of our “Eden” brand of heat exchangers and condensing units in the PRC pursuant to the IP Licence Agreement. Please refer to the “Business – Intellectual Property” and “Interested Person Transactions – Present and On-going Interested Person Transactions” sections of this Offer Document for further details.
We purchase such products from the Mandated Interested Persons, in the ordinary course of our business, for distribution in markets outside the PRC. Our Maju Facility manufactures the “Eden” brand of heat exchangers but not condensing units. As such, the Mandated Interested Persons are the only suppliers of our “Eden” brand of condensing units.
We also engage in sale of refrigeration and air-conditioning products to the Mandated Interested Persons for their assembly of heat exchangers and condensing units. The Directors believe that such sale transactions would, to a large extent, ensure that parts and components used in the manufacture of the heat exchangers and condensing units by the Mandated Interested Persons will meet our technical and quality specifications.
The Shareholders’ Mandate and the renewal of the Shareholders’ Mandate on an annual basis will eliminate the need to convene general meetings from time to time to seek Shareholders’ approval as and when potential transactions with the relevant Interested Persons arise, thereby eliminating the administrative time and expenses in convening such meetings, without compromising the corporate objectives and adversely affecting the business opportunities available to our Group.
The Shareholders’ Mandate is intended to facilitate recurrent transactions of a revenue or trading nature or those necessary for day-to-day operations, provided that they are carried out on an arm’s length basis and on normal commercial terms and are not prejudicial to the interests of our Company and our minority Shareholders.
Disclosure will be made in our annual report of the aggregate value of interested person transactions conducted pursuant to the Shareholders’ Mandate during the financial year and in the annual reports for subsequent years that the Shareholders’ Mandate continues in force. In addition, we will announce the aggregate value of transactions conducted pursuant to the Shareholders’ Mandate during the relevant financial period within the required time frame stipulated in the Catalist Rules.
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Guidelines and review procedures under Shareholders’ Mandate
We shall implement the following procedures to supplement existing internal control procedures to ensure that interested person transactions are undertaken on an arm’s length basis and on normal commercial terms consistent with our usual business practice and policies:-
Purchases from the Mandated Interested Persons
(a) Our “Eden” brand of condensing units can only be purchased from the Mandated Interested Persons (through SER) whereas our “Eden” brand of heat exchangers can be purchased from the Mandated Interested Persons and our Maju Facility. As such products are proprietary in nature, our Executive Directors believe that we would not be able to obtain comparable quotations from independent third parties for the same or similar products.
(b) When there is a need to make a purchase (whether upon the receipt of an enquiry from our customers or to stock up our inventory), we will check with our Maju Facility and the Mandated Interested Persons on their ability to fulfil our requirements taking into consideration pricing, delivery schedule and payment terms. We will give priority to purchasing from our Maju Facility if it is able to fulfil our orders based on our price and delivery schedule requirements. In the event such orders are unable to be fulfilled by our Maju Facility, we will purchase from the Mandated Interested Persons.
(c) Purchases from the Mandated Interested Persons shall be based on a price list which has been evaluated and pre-approved by an Executive Officer who does not have an interest in such transaction at the start of each financial year (the “Pre-approved Price List”). Any revisions of the Pre-approved Price List during the year shall be subject to re-evaluation and approval by an Executive Director who does not have an interest in such transaction. The Pre-approved Price List shall be compared to the prices for similar products quoted by our Maju Facility. Prior to purchasing from the Mandated Interested Persons, we will ensure that the prices are comparable or lower than those of our Maju Facility.
(d) In assessing the price for purchases from the Mandated Interested Person, references shall also be made to the prices of the same or reasonably similar products sold to independent third parties, contemporaneously in time, by the Mandated Interested Persons. The Mandated Interested Persons shall provide our Group with two recent invoices for the same or reasonably similar products sold to independent third parties for comparison. In general, the prices and terms extended to our Group by the Mandated Interested Persons shall be no less favourable than to their respective third party customers.
In determining whether the price and terms offered by the Mandated Interested Persons are fair and reasonable, factors such as, but not limited to, delivery schedules, specification requirements, quality, payment terms, track record, preferential rates, discounts and/or rebates offered for bulk purchases will be taken into consideration.
(e) All purchases from the Mandated Interested Persons shall be recorded in an interested person transaction register (“IPT Register”) setting out details of the transactions, relevant evaluations in paragraph (d) above and approvals.
Sales to the Mandated Interested Persons
(a) When selling products to the Mandated Interested Persons, the price and terms of two other successful transactions of a similar nature with independent third party customers will be used for comparison, taking into consideration the credit worthiness and repayment history of the customers and sales volume.
(b) The sale price to the Mandated Interested Persons shall not be lower than the lowest sale price of the two other comparable successful transactions with independent third party customers.
In reviewing the prices and terms offered to the Mandated Interested Persons, all pertinent factors, including but not limited to, delivery schedules and requirements, specification requirements and payment terms, will be taken into consideration.
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(c) All sales transactions with the Mandated Interested Persons shall be recorded in the IPT Register, setting out details of the transactions, relevant evaluations in paragraph (b) above and approvals.
In addition, to supplement internal control procedures to ensure that all interested person transactions covered by the Shareholders’ Mandate will be carried out on normal commercial terms and will not be prejudicial to the interests of our Company and our minority Shareholders, the following limits for transactions with the Mandated Interested Persons shall be applied:-
(i) where an individual transaction is below US$200,000, such transaction shall be subject to the review and prior approval by an Executive Director who does not have an interest in such transaction; and
(ii) where an individual transaction is equal to or in excess of US$200,000, such transaction shall be subject to the review and prior approval by our Audit Committee.
Our Audit Committee shall review the IPT Register on a half-yearly basis, to ensure that all transactions with the Mandated Interested Persons are carried out in accordance with the guidelines and procedures set out above.
Our Audit Committee shall review from time to time such guidelines and procedures to determine if they continue to be adequate and/or commercially practicable in ensuring that transactions between the Mandated Interested Persons and our Group are conducted on normal commercial terms, and are not prejudicial to the interests of our Company and minority Shareholders.
Our Audit Committee may also engage external parties to carry out such periodic reviews if deemed necessary or appropriate. Further, if during these periodic reviews, our Audit Committee is of the view that the above guidelines and procedures are not sufficient to ensure that transactions with Mandated Interested Persons will be conducted on normal commercial terms and will not be prejudicial to the interests of our Company and minority Shareholders, we will revert to our Shareholders for a fresh mandate based on new guidelines and procedures. During the period prior to obtaining a fresh mandate from Shareholders, all transactions with the Mandated Interested Persons shall be subject to the review and prior approval by our Audit Committee.
OPINION OF THE INDEPENDENT FINANCIAL ADVISER
SAC Capital has been appointed as the Independent Financial Adviser to the Audit Committee to express an opinion, for the purposes of Chapter 9 of the Catalist Rules, on whether (i) the method and review procedures for determining the transaction prices of the interested person transactions under the Shareholders’ Mandate, if applied strictly, are sufficient to ensure that these interested person transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of our Company and our minority Shareholders, and (ii) the IP Licence Agreement was entered into on normal commercial terms and will not be prejudicial to the interests of our Company and our minority Shareholders.
Based on its evaluation of the Shareholders’ Mandate and the IP Licence Agreement, and subject to the qualifications and assumptions as set out in its letter, SAC Capital is of the opinion that:-
(i) the guidelines and review procedures of our Company as set out in the “Interested Person Transactions – Shareholders’ Mandate: Guidelines and review procedures under Shareholders’ Mandate” section of this Offer Document for determining the transaction prices of the interested person transactions under the Shareholders’ Mandate, if applied strictly, are sufficient to ensure that such transactions will be conducted on normal commercial terms and will not be prejudicial to the interests of our Company and our minority Shareholders; and
(ii) the IP Licence Agreement was entered into on normal commercial terms and is not prejudicial to the interests of our Company and our minority Shareholders.
Please refer to Appendix F – “Letter from SAC Capital Private Limited to the Audit Committee” of this Offer Document for the full text of the letter from the Independent Financial Adviser.
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GUIDELINES AND REVIEW PROCEDURES FOR FUTURE INTERESTED PERSON TRANSACTIONS OTHER THAN THOSE COVERED IN THE SHAREHOLDERS’ MANDATE
To ensure that interested person transactions not covered by the Shareholders’ Mandate (“Other Interested Person Transactions”) are undertaken on an arm’s length basis, on normal commercial terms and will not be prejudicial to our Company and our minority Shareholders, our Audit Committee will adopt the following procedures when reviewing Other Interested Person Transactions:–
(a) Where practicable, when purchasing products from or engaging the services of an Interested Person, two other quotations from non-Interested Persons will be obtained for comparison to ensure that the interests of minority Shareholders are not compromised. The purchase price or fee for services shall not be higher than the most competitive price or fee of the two other quotations from non-Interested Persons. In determining the most competitive price or fee, all pertinent factors, including but not limited to quality, delivery time and track record will be taken into consideration. Where it is not practicable to obtain two other quotations from non-Interested Persons for any particular transaction, our Audit Committee shall be consulted on the procedures to be adopted in order to ensure that the proposed transaction with the Interested Person is carried out at arm’s length and on normal commercial terms.
(b) When selling products or providing services to an Interested Person, the price and terms of two other successful transactions of a similar nature with independent third party customers will be used for comparison, taking into consideration the credit worthiness and repayment history of the customers and sales volume. The sale price to the Interested Person shall not be lower than the lowest sale price of the two comparable successful transactions with independent third party customers. In reviewing the prices and terms offered to the Interested Person, all pertinent factors, including but not limited to, delivery schedules and requirements, specification requirements and payment terms will be taken into consideration. Where it is not practicable to obtain two other successful transactions of a similar nature with other third party customers, our Audit Committee shall be consulted on the procedures to be adopted in order to ensure that the proposed transaction with the Interested Person is carried out at arm’s length and on normal commercial terms.
(c) When leasing properties from or to an Interested Person, our Directors shall take appropriate steps to ensure that such rent is commensurate with the prevailing market rates, including adopting measures such as making relevant enquiries with landlords of similar properties, engaging an independent valuer to ascertain the market rental for the relevant properties or obtaining suitable reports or reviews published by property agents (as necessary). The rent payable shall be based on the most competitive market rental rate of similar properties in terms of size and location, based on the results of the relevant enquiries.
Such transactions with an Interested Person equal to or exceeding $100,000 will be reviewed and approved by a Director or our Financial Controller, who shall not be an Interested Person in respect of the particular transaction. In addition, any Other Interested Person Transaction of a value equal to or more than 3% of our latest audited NTA value will be approved by our Audit Committee prior to entry into such transactions, and will be announced.
Should the value of any Other Interested Person Transaction exceed 5% of our Group’s last audited NTA, it must be announced and made subject to approval by Shareholders of our Company. All Other Interested Person Transactions above $100,000 (or its equivalent) must be recorded in the IPT Register. In the event that these transactions are entered into with the same Interested Person (including his Associates) during the current financial year, such transactions are to be aggregated for purposes of determining whether shareholder approvals and/or announcements are necessary.
Our Audit Committee will review all Other Interested Person Transactions, if any, and examine any supporting documents or such other data deemed necessary by our Audit Committee for such review, at least half yearly to ensure that they are carried out at arm’s length and in accordance with the procedures outlined above. It will take into account all relevant non-quantitative factors. In the event that a member of our Audit Committee is interested in any Other Interested Person Transaction, he will abstain from
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reviewing that particular transaction. Furthermore, if during these periodic reviews, our Audit Committee believes that the guidelines and procedures as stated above are not sufficient to ensure that interests of minority Shareholders are not prejudiced, our Company will adopt new guidelines and procedures.
In addition, our Audit Committee will include the review of Other Interested Person Transactions as part of its standard procedures while examining the adequacy of internal controls. Our Directors will also ensure that all disclosure, approval and other requirements on interested person transactions, including those required by prevailing legislation, the Catalist Rules and accounting standards, are complied with. In addition, such transactions will also be subject to Shareholders’ approval if deemed necessary by the Catalist Rules.
Should there be recurring transactions between any Interested Person(s) and our Group, and our Audit Committee deems fit that a mandate be obtained from the Shareholders, we shall proceed to obtain the necessary Shareholders’ mandate for such transactions.
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INTERESTS OF DIRECTORS, CONTROLLING SHAREHOLDER OR THEIR ASSOCIATES
UPL (our Controlling Shareholder) wholly owns SER while UPL and its Associates have an aggregate 85% shareholding interests in SERM and ERM respectively. Please refer to the “Interested Person Transactions – Interested Persons” section of this Offer Document for details on the businesses and shareholder structure of the Regional Affiliates.
Our Directors believe that any potential conflict of interests resulting from UPL (our Controlling Shareholder) and its Associates having substantial shareholding interests in the Regional Affiliates is mitigated in view of the following:-
(a) The Regional Affiliates, under the IP Licence Agreement, are principally engaged in the manufacture and sale of the “Eden” brand of heat exchangers and condensing units solely in the PRC market (save for sale of such products to our Group outside the PRC). Our Group’s business activities in the PRC, on the other hand, are focused on the distribution of agency products (excluding the “Eliwell” brand of temperature controllers which is carried by the Regional Affiliates). As such, there is a clear product differentiation in the geographical markets where the Regional Affiliates and our Group operate;
(b) Pursuant to a deed of undertaking dated 27 June 2011, the Regional Affiliates have each irrevocably undertaken and undertaken to procure, to the fullest possible extent, that they shall endeavour to fulfil or give priority to our Group’s orders of the “Eden” brand of products manufactured by the Regional Affiliates. The aforesaid deed of undertaking shall subsist and be effective without limit in point of time, but shall terminate in any of the following events, whichever is the earliest:-
(i) UPL (and its Associates) ceases to be our Controlling Shareholder;
(ii) when our Company exercises all Acquisition Options; or
(iii) our Company ceases to be listed on the SGX-ST (whether on the Main Board or Catalist);
(c) Pursuant to the IP Licence Agreement, our Company shall be entitled to the Licencing Fee which is based on 2.0% of the revenue which the Regional Affiliates derive from their sale of “Eden” brand of heat exchangers and condensing units in the PRC. For further details of the IP Licence Agreement, please refer to the “Interested Person Transactions – Interested Persons” section of this Offer Document;
(d) The Regional Affiliates as well as UPL, the shareholders of UPL and Sam Cheung (the “Affiliates’ Shareholders”) have, pursuant to a deed of non-compete undertaking dated 27 June 2011 (the “Non-compete Deed”), irrevocably undertaken and undertaken to procure, to the fullest possible extent, that:-
(i) the Regional Affiliates, the Affiliates’ Shareholders and their present or future subsidiaries or associated companies (where applicable) shall not, solely or jointly with or on behalf of any other person or entity, directly or indirectly, carry on or be engaged in any business or activity which is outside its existing scope of business;
(ii) the Regional Affiliates and the Affiliates’ Shareholders shall not, without the prior written consent of our Company, either solely or jointly with or on behalf of any other person directly or indirectly solicit or entice away, or endeavour to solicit or entice away, any employee of our Group or any related company. The Regional Affiliates and the Affiliates’ Shareholders shall not cause or permit any person directly or indirectly under its control or its directors, employees or shareholders to directly or indirectly solicit or entice away, or endeavour to solicit or entice away, any employee of our Group or any related company;
(iii) the Affiliates’ Shareholders have agreed that they will disclose any conflict and will abstain from voting and discussions on matters in which there is a conflict of interest between our Group and the Regional Affiliates; and
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POTENTIAL CONFLICTS OF INTERESTS
(iv) SER and the Affiliates’ Shareholders undertake to grant us or our nominee(s) the first right of refusal in the event that any of them intend or decide to dispose of all or any part of their respective interests in the Regional Affiliates or its businesses, assets and/or undertakings (as may be applicable) subject to applicable rules and regulations.
The Non-compete Deed shall subsist and be effective without limit in point of time, but shall terminate in any of the following events, whichever is the earliest:-
(i) UPL (and its Associates) ceases to be our Controlling Shareholder;
(ii) when our Company exercises all the Acquisition Options; or
(iii) our Company ceases to be listed on the SGX-ST (whether on the Main Board or Catalist).
Any changes in the scope of the Non-compete Deed shall be subject to the review and approval of our Audit Committee;
(e) Pursuant to the Acquisition Option Agreements dated 27 June 2011, our Company shall have the options to acquire the respective equity interests in, or the assets, businesses and undertakings, held by UPL and SER in the Regional Affiliates, as the case may be. For further details on the Acquisition Option Agreements, please refer to the “Interested Person Transactions – Present and On-going Interested Person Transactions” section of this Offer Document;
(f) Pursuant to the Technical and Management Services Agreement dated 27 June 2011, the Assigned Persons have each irrevocably undertaken and undertaken to procure, to the fullest possible extent:-
(i) to monitor and ensure that the businesses of the Regional Affiliates are not competing with our Group;
(ii) to highlight any potential conflicts of interests arising from our Regional Affiliates to our Board; and
(iii) to act in the best interests of our Group, and to place the interests of our Group above that of the Regional Affiliates at all times.
For further details on the Technical and Management Services Agreement, please refer to the “Interested Person Transactions – Present and On-going Interested Person Transactions” section of this Offer Document; and
(g) Under the terms and conditions of the IP Licence Agreement, the Regional Affiliates shall protect and enhance the value of the goodwill of the Intellectual Properties, failing that, the Regional Affiliates shall be liable for and will indemnify our Company against any liability, loss, costs and other expenses of similar nature suffered, directly or indirectly, by our Company over any misappropriation of the intellectual property rights licenced to the Regional Affiliates.
To further safeguard the interests of our Group, Loh Ee Ming and Steven Loh have jointly and severally provided the Indemnity Undertaking. For further details on the Indemnity Undertaking, please refer to the “Interested Person Transactions – Present and On-going Interested Person Transactions” section of this Offer Document.
Save as disclosed above and in the “Interested Person Transactions” section of this Offer Document, during the period under review and from 1 January 2011 to the Latest Practicable Date:-
(a) none of our Directors, Controlling Shareholder or any of their Associates has any interest, direct or indirect, in any material transactions to which our Company or any of our subsidiary was or is a party;
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POTENTIAL CONFLICTS OF INTERESTS
(b) none of our Directors, Controlling Shareholder or any of their Associates has any interest, direct or indirect, in any entity carrying on the same business or dealing in similar services which competes materially or directly with the existing business of our Group; and
(c) none of our Directors, Controlling Shareholder or any of their Associates has any interest, direct or indirect, in any enterprise or company that is our customer or supplier of goods or services.
INTERESTS OF EXPERTS
None of the experts named in this Offer Document:-
(i) is employed on a contingent basis by our Company or our subsidiaries;
(ii) has a material interest, whether direct or indirect, in our Shares or in the shares of our subsidiaries; or
(iii) has a material economic interest, whether direct or indirect, in our Company, including an interest in the success of the Placement.
INTERESTS OF THE SPONSOR AND THE PLACEMENT AGENT
In the reasonable opinion of our Directors, the Sponsor and the Placement Agent do not have a material relationship with our Company save that the Placement is managed by the Sponsor and the Placement is undertaken by the Placement Agent. Please refer to the “Management and Placement Arrangements” section of this Offer Document for details on our management and placement arrangements.
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POTENTIAL CONFLICTS OF INTERESTS
Upon listing and quotation on Catalist, our Shares will be traded under the book-entry settlement system of the CDP, and all dealings in and transactions of our Shares through Catalist will be effected in accordance with the terms and conditions for the operation of securities accounts with the CDP, as amended from time to time.
Our Shares will be registered in the name of CDP or its nominee and held by CDP for and on behalf of persons who maintain, either directly or through depository agents, securities accounts with CDP. Persons named as direct securities account holders and depository agents in the depository register maintained by the CDP, rather than CDP itself, will be treated, under our Articles of Association and the Companies Act, as members of our Company in respect of the number of Shares credited to their respective securities accounts.
Persons holding our Shares in securities account with CDP may withdraw the number of Shares they own from the book-entry settlement system in the form of physical share certificate(s). Such share certificate(s) will, however, not be valid for delivery pursuant to trades transacted on Catalist, although they will be prima facie evidence of title and may be transferred in accordance with our Articles of Association. A fee of S$10.00 for each withdrawal of 1,000 Shares or less and a fee of S$25.00 for each withdrawal of more than 1,000 Shares is payable upon withdrawing the Shares from the book-entry settlement system and obtaining physical share certificates. In addition, a fee of S$2.00 or such other amount as our Directors may decide, is payable to the share registrar for each share certificate issued and a stamp duty of S$10.00 is also payable where our Shares are withdrawn in the name of the person withdrawing our Shares or S$0.20 per S$100.00 or part thereof of the last-transacted price where it is withdrawn in the name of a third party. Persons holding physical share certificates who wish to trade on Catalist must deposit with CDP their share certificates together with the duly executed and stamped instruments of transfer in favour of CDP, and have their respective securities accounts credited with the number of Shares deposited before they can effect the desired trades. A fee of S$10.00 is payable upon the deposit of each instrument of transfer with CDP. The above fees may be subject to such charges as may be in accordance with CDP’s prevailing policies or the current tax policies that may be in force in Singapore from time to time.
Transactions in our Shares under the book-entry settlement system will be reflected by the seller’s securities account being debited with the number of Shares sold and the buyer’s securities account being credited with the number of Shares acquired. No transfer of stamp duty is currently payable for the Shares that are settled on a book-entry basis.
A Singapore clearing fee for trades in our Shares on Catalist is payable at the rate of 0.04% of the transaction value subject to a maximum of S$600.00 per transaction. The clearing fee, instrument of transfer deposit fee and share withdrawal fee may be subject to Singapore GST at the prevailing 7.0% (or such other rate prevailing from time to time).
Dealings of our Shares will be carried out in S$ and will be effected for settlement on CDP on a scripless basis. Settlement of trades on a normal “ready” basis on Catalist generally takes place on the third Market Day following the transaction date, and payment for the securities is generally settled on the following business day. CDP holds securities on behalf of investors in securities accounts. An investor may open a direct account with CDP or a sub-account with a CDP depository agent. The CDP depository agent may be a member company of the SGX-ST, bank, merchant bank or trust company.
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CLEARANCE AND SETTLEMENT
INFORMATION ON DIRECTORS AND EXECUTIVE OFFICERS
1. None of our Directors, Executive Officers and Controlling Shareholder:-
(a) has, at any time during the last 10 years, had an application or a petition under any bankruptcy laws of any jurisdiction filed against him or against a partnership of which he was a partner at the time when he was a partner or at any time within two (2) years from the date he ceased to be a partner;
(b) has, at any time during the last 10 years, had an application or a petition under any law of any jurisdiction filed against an entity (not being a partnership) of which he was a director or an equivalent person or a key executive, at the time when he was a director or an equivalent person or a key executive of that entity or at any time within 2 years from the date he ceased to be a director or an equivalent person or a key executive of that entity, for the winding up or dissolution of that entity or, where that entity is the trustee of a business trust, that business trust, on the ground of insolvency;
(c) has any unsatisfied judgement against him;
(d) has ever been convicted of any offence, in Singapore or elsewhere, involving fraud or dishonesty which is punishable with imprisonment, or has been the subject of any criminal proceedings (including any pending criminal proceedings of which he is aware) for such purpose;
(e) has ever been convicted of any offence, in Singapore or elsewhere, involving a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, or has been the subject of any criminal proceedings (including any pending criminal proceedings of which he is aware) for such breach;
(f) has, at any time during the last 10 years, had judgement entered against him in any civil proceedings in Singapore or elsewhere involving a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, or a finding of fraud, misrepresentation or dishonesty on his part, nor has he been the subject of any civil proceedings (including any pending civil proceedings of which he is aware) involving an allegation of fraud, misrepresentation or dishonesty on his part;
(g) has ever been convicted in Singapore or elsewhere of any offence in connection with the formation or management of any entity or business trust;
(h) has ever been disqualified from acting as a director or an equivalent person of any entity (including the trustee of a business trust), or from taking part directly or indirectly in the management of any entity or business trust;
(i) has ever been the subject of any order, judgement or ruling of any court, tribunal or governmental body permanently or temporarily enjoining him from engaging in any type of business practice or activity;
(j) has ever, to his knowledge, been concerned with the management or conduct, in Singapore or elsewhere, of affairs of:-
(i) any corporation which has been investigated for a breach of any law or regulatory requirement governing corporations in Singapore or elsewhere;
(ii) any entity (not being a corporation) which has been investigated for a breach of any law or regulatory requirement governing such entities in Singapore or elsewhere;
(iii) any business trust which has been investigated for a breach of any law or regulatory requirement governing business trusts in Singapore or elsewhere; or
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(iv) any entity or business trust which has been investigated for a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere,
in connection with any matter occurring or arising during the period when he was so concerned with the entity or business trust; and
(k) has been the subject of any current or past investigation or disciplinary proceedings, or has been reprimanded or issued any warning, by the Authority or any other regulatory authority, exchange, professional body or governmental agency, whether in Singapore or elsewhere.
Loh Ee Ming (our Non-executive Chairman)
In 2004, Loh Ee Ming was charged under Section 67(1)(b) of the Road Traffic Act for driving a motor vehicle whilst under the influence of alcohol. He pleaded guilty to this charge and was fined a total of S$1,800 and suspended from driving for one year and four months.
Steven Loh (our CEO and Executive Director)
In 2006, Steven Loh was charged under Section 67(1)(b) of the Road Traffic Act for driving a motor vehicle whilst under the influence of alcohol. He pleaded guilty to the charge and was fined a total of S$2,500 and suspended from driving for one and a half years.
David Leng (our COO (Sales and Marketing) and Executive Director)
In 2003, David Leng was charged under Section 67(1)(b) of the Road Traffic Act for driving a motor vehicle whilst under the influence of alcohol. He pleaded guilty to this charge and was fined a total of S$5,000 and suspended from driving for two and a half years.
SHARE CAPITAL
2. Save as disclosed below and in the “General Information on our Group – Share Capital” section of this Offer Document, there were no changes in the issued and paid-up share capital of our Company and our subsidiaries within the three years preceding the Latest Practicable Date:-
Date of issueNumber of shares
issuedConsideration per
share PurposeResultant issued
share capital
Our Company
15 March 2011 8,312 S$142.86 Pre-IPO investment S$9,322,192.32
Edenkool
26 May 2009 2 S$1.00 Incorporation S$2.0017 July 2009 199,998 S$1.00 Capital injection S$200,000.00
Far East HK
30 April 2009 1,000,000 HK$1.00 Capital injection HK$3,000,000.00
3. Save as disclosed above and in the “General Information on our Group – Share Capital” section of this Offer Document, no shares in, or debentures of, our Company or our subsidiaries have been issued, or are proposed to be issued, as fully or partly paid for cash or for a consideration other than cash, during the last three years preceding the date of lodgement of this Offer Document.
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GENERAL AND STATUTORY INFORMATION
MATERIAL CONTRACTS
4. The following contracts, not being contracts entered into in the ordinary course of business, have been entered into by our Company and our subsidiaries within the two years preceding the date of lodgement of this Offer Document and are or may be material:-
(a) three separate agreements dated 27 June 2011 entered into between our Company, UPL and SER pursuant to which our Company was granted options to acquire their respective equity interests in, or the assets, businesses and undertakings of, the Regional Affiliates (please refer to the “Interested Person Transactions – Present and On-going Interested Person Transactions” section of this Offer Document for further details);
(b) an agreement dated 27 June 2011 entered into between our Company and the Regional Affiliates pursuant to which our Company shall provide technical support, business development and general management services to the Regional Affiliates for a period of two years commencing from the date of our admission to Catalist (please refer to the “Interested Person Transactions – Present and On-going Interested Person Transactions” section of this Offer Document for further details);
(c) an agreement dated 27 June 2011 entered into between our Company and the Regional Affiliates for the use of trade marks and patents (please refer to the “Interested Person Transactions – Present and On-going Interested Person Transactions” section of this Offer Document for futher details);
(d) an agreement dated 23 March 2011 entered into between our Company and SER pursuant to which SER shall transfer all its patents to our Company (please refer to the “Business – Intellectual Property” section of this Offer Document for further details of the transfer of patents); and
(e) an agreement dated 1 February 2011 entered into between our Company, the majority Shareholders of our Company (being UPL, Steven Loh, David Leng and Lim Keng Ann) and the Pre-IPO Investors pursuant to which the Pre-IPO Investors agreed to subscribe for an aggregate of 8,312 new Shares (before Sub-Division) to be issued by our Company (please refer to the “General Information on our Group – Share Capital” section of this Offer Document for further details).
Save as disclosed above, our Group has not entered into any material contracts, not being contracts entered into in the ordinary course of business within the two years preceding the date of lodgement of this Offer Document.
LITIGATION
5. There are no legal or arbitration proceedings, including those which are pending or known to be contemplated, which may have or have had during the last 12 months before the date of this Offer Document, a material effect on our Group’s financial position or profitability.
MISCELLANEOUS
6. Save as disclosed in this Offer Document, our Directors are not aware of any relevant material information including trading factors or risks which are unlikely to be known or anticipated by the general public and which could materially affect the profits of our Company and our subsidiaries.
7. Save as disclosed in this Offer Document, the financial condition and operations of our Group are not likely to be affected by any of the following:-
(a) known trends or demands, commitments, events or uncertainties that will result in or are reasonably likely to result in our Group’s liquidity increasing or decreasing in any material way;
(b) material commitments for capital expenditure;
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(c) unusual or infrequent events or transactions or any significant economic changes that materially affected the amount of reported income from operations; and
(d) known trends or uncertainties that have had or that we reasonably expect will have a material favourable or unfavourable impact on revenues or operating income.
8. Save as disclosed in this Offer Document, our Directors are not aware of any event which has occurred since 31 December 2010 (being the end of the period covered by the most recent financial statements of our Group included in this Offer Document) to the Latest Practicable Date which may have a material effect on the financial position and results of our Group.
9. Details, including the name, address and professional qualifications (including membership in a professional body) of our auditors for the period under review are as follows:-
Name and addressPartner-in-charge/ Professional qualification
Membership in professional body
Ernst & Young LLPOne Raffles QuayNorth Tower, Level 18Singapore 048583
Philip Ling Soon Hwa / Certified Public Accountant
Institute of Certified Public Accountants of Singapore
We currently have no intention of changing our auditors after the admission of our Company to Catalist.
CONSENTS
10. Ernst & Young LLP, the Independent Auditors and Reporting Accountants, has given and have not withdrawn their written consent to the issue of this Offer Document with the inclusion herein of the “Independent Auditors’ Report on the Audited Consolidated Financial Statements of Far East Group Limited and Subsidiary Companies for the Financial Years Ended 31 December 2008, 2009 and 2010” in the form and context in which it is included and references to their name in the form and context in which it appears in this Offer Document and to act in such capacity in relation to this Offer Document.
11. Collins Stewart Pte. Limited, the Sponsor and the Placement Agent, has given and has not withdrawn its written consent to the issue of this Offer Document with the inclusion herein of its name and references thereto in the form and context in which it appears in this Offer Document and to act in such capacity in relation to this Offer Document.
12. Loo & Partners LLP, the Solicitors to the Placement and Legal Advisers to our Company on Singapore Law, has given and has not withdrawn its written consent to the issue of this Offer Document with the inclusion herein of its name and references thereto in the form and context in which it appears in this Offer Document and to act in such capacity in relation to this Offer Document.
13. Naqiz and Partners, the Legal Advisers to our Company on Malaysia Law, has given and has not withdrawn its written consent to the issue of this Offer Document with the inclusion herein of its name and references thereto in the form and context in which it appears in this Offer Document and to act in such capacity in relation to this Offer Document.
14. Pang & Co. in association with Salans LLP, the Legal Advisers to our Company on Hong Kong Law, has given and has not withdrawn its written consent to the issue of this Offer Document with the inclusion herein of its name and references thereto in the form and context in which it appears in this Offer Document and to act in such capacity in relation to this Offer Document.
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15. Victory Legal Group, the Legal Advisers to our Company on PRC Law, has given and has not withdrawn its written consent to the issue of this Offer Document with the inclusion herein of the statement in the “Business - Intellectual Property” section of this Offer Document, in the form and context in which they are included and references to its name in the form and context in which it appears in this Offer Document and to act in such capacity in relation to this Offer Document.
16. SAC Capital, as the Independent Financial Adviser to the Audit Committee, has given and has not withdrawn its written consent to the issue of this Offer Document with the inclusion herein of the statement in the “Interested Person Transactions - Opinion of the Independent Financial Adviser” section of this Offer Document and the “Letter from SAC Capital Private Limited to the Audit Committee” set out in Appendix F of this Offer Document, in the form and context in which it is included and references to their name in the form and context in which it appears in this Offer Document and to act in such capacity in relation to this Offer Document.
17. Each of the Share Registrar and Share Transfer Office, the Principal Bankers and the Receiving Banker do not make or purport to make any statement in this Offer Document or any statement upon which a statement in this Offer Document is based and each of them makes no representation regarding any statement in this Offer Document and to the maximum extent permitted by law, expressly disclaims and takes no responsibility for any liability to any person which is based on, or arises out of, any statement, information or opinions in, or omission from, this Offer Document.
RESPONSIBILITY STATEMENT BY OUR DIRECTORS
18. This Offer Document has been seen and approved by our Directors and they individually and collectively accept full responsibility for the accuracy of the information given herein and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, the facts stated and the opinions expressed herein are fair and accurate in all material respects as of the date hereof and there are no material facts the omission of which would make any statements in this Offer Document misleading and that this Offer Document constitutes full and true disclosure of all material facts about the Placement and our Group.
DOCUMENTS AVAILABLE FOR INSPECTION
19. The following documents or copies thereof may be inspected at our registered office at 112 Lavender Street, #04-00, Far East Refrigeration Building, Singapore 338728, during normal business hours for a period of six months from the date of Registration:-
(a) the Memorandum and Articles of Association of our Company;
(b) the “Independent Auditors’ Report on the Audited Consolidated Financial Statements of Far East Group Limited and Subsidiary Companies for the Financial Years Ended 31 December 2008, 2009 and 2010” set out in Appendix A of this Offer Document;
(c) the “Letter from SAC Capital Private Limited to the Audit Committee” set out in Appendix F of this Offer Document;
(d) the material contracts referred to in paragraph 4 above;
(e) the letters of consent referred to in paragraphs 10 to 17 above; and
(f) the Service Agreements.
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We are subject to all relevant laws and regulations of the countries where our business operations are located. Save as disclosed below, as at the Latest Practicable Date, our business operations were not subject to any special legislations or regulatory controls other than those generally applicable to companies and businesses incorporated and/or operating in Singapore, Malaysia and Hong Kong. We have thus far not experienced any adverse effect on our business in complying with these regulations.
Singapore
We have identified the main laws and regulations that materially affect our operations and the relevant regulatory bodies in the following countries (apart from those pertaining to general business requirements) as set out below.
Regulation of Imports and Exports Act (Cap. 272A)
Under the Regulation of Imports and Exports Act (Cap. 272A), the Director-General of Customs appointed under Section 4(1) of the Customs Act (Cap. 70) may make regulations for the registration, regulation and control of all or any class of goods imported into, exported from, transshipped in or in-transit through Singapore. The Regulation of Imports and Exports Regulations (“RIER”) was prescribed in 1999 to control the import, export or trans-shipment of goods through requirements of permits. We are, by virtue of our import and export business, subject to the RIER.
Pursuant to Regulation 37(1) of the RIER, the Director-General of Customs may maintain a register containing the particulars of importers, exporters, common carriers or any other person who desires to apply for a permit or any other form of approval under the RIER.
Workplace Safety and Health Act 2006
Under the Ministry of Manpower’s (“MOM”) Workplace Safety and Health Act 2006 (“WSHA”), every employer has the duty to take, so far as is reasonably practicable, such measures as are necessary to ensure the safety and health of his employees at work. These measures include providing and maintaining for the employees a work environment which is safe, without risk to health, and has adequate facilities and arrangements for their welfare at work, ensuring that sufficient safety measures are taken in respect of any machinery, equipment, plant, article or process used by the employees, ensuring that the employees are not exposed to hazards arising out of the arrangement, disposal, manipulation, organisation, processing, storage, transport, working or use of things in their workplace or near their workplace and under the control of the employer, developing and implementing procedures for dealing with emergencies that may arise while those persons are at work and ensuring that the person at work has adequate instruction, information, training and supervision as is necessary for that person to perform his work.
More specific duties imposed by the MOM on employers are laid out in the Workplace Safety and Health (General Provisions) Regulations. Some of these duties include taking effective measures to protect persons at work from the harmful effects of any exposure to any bio-hazardous material which may constitute a risk to their health and ensuring that machineries and equipment in the workplace are safe for use. In addition to the above, under the WSHA, inspectors appointed by the Commissioner for Workplace Safety and Health (“CWSH”) may, inter alia, enter, inspect and examine any workplace and any machinery, equipment, plant, installation or article at any workplace, to make such examination and inquiry as may be necessary to ascertain whether the provisions of the WSHA are complied with. In connection with the foregoing, an authorised examiner has inspected a lifting equipment that we use for our operations and has issued a Certificate of Test/Thorough Visual Examination of Lifting Equipment which is valid until 23 May 2012. In the said certificate, the examiner declared that the lifting equipment complies with all of the requirements under the Workplace Safety and Health (General Provisions) Regulations.
Under the WSHA, the CWSH may serve a remedial order or a stop-work order in respect of a workplace if he is satisfied that (i) the workplace is in such condition, or is so located, or any part of the machinery, equipment, plant or article in the workplace is so used, that any process or work carried on in the workplace cannot be carried on with due regard to the safety, health and welfare of the persons at work; (ii) any person has contravened any duty imposed by the WSHA; or (iii) any person has done any act, or has refrained from doing any act which, in the opinion of the CWSH, poses or is likely to pose a risk to
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the safety, health and welfare of persons at work. The remedial order shall direct the person served with the order to take such measures, to the satisfaction of the CWSH, to inter alia remedy any danger so as to enable the work or process in the workplace to be carried on with due regard to the safety, health and welfare of the persons at work, whilst the stopwork order shall direct the person served with the order to immediately cease to carry on any work indefinitely or until such measures as are required by the CWSH have been taken to remedy any danger so as to enable the work in the workplace to be carried on with due regard to the safety, health and welfare of the persons at work.
Workplace Safety and Health (Registration of Factories) Regulations 2008 (“2008 WSH Factories Regulations”)
Pursuant to the 2008 WSH Factories Regulations which came into operation on 1 November 2008 repealing the Workplace Safety and Health (Registration of Factories) Regulations 2006, any person who desires to occupy or use any premises as a factory falling within any of the classes of factories described in the First Schedule of the 2008 WSH Factories Regulations must apply to the CWSH to register the premises as a “factory” one month before the factory starts operations. A certificate of registration issued by the CWSH is valid for a period of one year, or such other period as the CWSH may determine, and may be renewed subsequently upon the payment of a renewal fee.
Under the 2008 WSH Factories Regulations, any person who desires to occupy or use any premises as a factory not falling within any of the classes of factories described in the First Schedule of the 2008 WSH Factories Regulations must, before the commencement of operation of the factory, submit a notification to the CWSH informing the CWSH of his intention to occupy or use those premises as such a factory. The notification is not subject to any renewal requirements.
However, in the event that the CWSH is of the view that the factory in respect of which a notification has been submitted is to pose or likely to pose a risk to the safety, health and welfare of persons at work in the factory, the CWSH may, by notice in writing, (i) specify the date from which the notification shall cease to be valid; and (ii) direct the occupier of the factory to register the factory notwithstanding that the factory does not fall within any of the classes of the factories described in the First Schedule.
As our premises at 5 Third Lok Yang Road, Singapore 628000, does not fall under any of the classes of the factories described in the First Schedule, a notification to the CWSH will suffice. However, the 2008 WSH Factories Regulations states that notwithstanding the revocation of the Workplace Safety and Health (Registration of Factories) Regulations, any certificate of registration or factory permit issued under the revoked Regulations which was valid immediately before 1st November 2008 shall, if it was issued in respect of a factory not falling within any of the classes of factories described in the First Schedule, be deemed to be a notification made under Regulation 5 in respect of that factory. In a letter dated 14 October 2010, the CWSH confirmed that our premises at 5 Third Lok Yang Road is under the Factory Notification Scheme.
Work Injury Compensation Act (Cap. 354)
The Work Injury Compensation Act (Cap. 354) (“WICA”), as regulated by the MOM, applies to all employees (with the exception of those set out in the Fourth Schedule of the WICA), who have entered into or works under a contract of service or apprenticeship with an employer, in respect of injury suffered by them in the course of their employment and sets out, inter alia, the amount of compensation that they are entitled to and the method(s) of calculating such compensation.
The WICA provides that if in any employment, personal injury by accident arising out of and in the course of the employment is caused to an employee, his employer shall be liable to pay compensation in accordance with the provisions of the WICA. The amount of compensation shall be computed in accordance with a fixed formula as set out in the Third Schedule of the WICA, subject to a maximum and minimum limit.
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Employment of Foreign Workers
The availability and the employment cost of skilled and unskilled foreign workers are affected by the Government’s policies and regulations on the immigration and employment of foreign workers in Singapore. The policies and regulations are set out in, inter alia, the Employment of Foreign Manpower Act (Cap. 91A) and the relevant Government Gazettes.
The availability of foreign workers is regulated by the MOM through the following policy instruments:-
(a) approved source countries;
(b) issuance of work permits;
(c) the imposition of security bonds and levies;
(d) dependency ceilings based on the ratio of local to foreign workers; and
(e) skill trade test requirement whereby the foreign worker will need to meet a basic skill requirement before he can work in Singapore.
Under the work permit conditions, employers are required to provide acceptable accommodation for their foreign workers. Such accommodation must meet the statutory requirements set by various government agencies, including the National Environment Agency, the Public Utilities Board, the Singapore Civil Defence Force and the Building & Construction Authority.
In relation to the employment of foreign mid-level skilled workers, employers must ensure that such persons apply for a “S Pass”. The S Pass is intended for foreigners who:-
earn a monthly fixed income of at least S$1,800; and
have degree or diploma level educational qualifications.
In relation to the employment of foreign professionals and executives, employers must ensure that such persons apply for an employment pass. The employment pass is intended for foreigners who:-
earn a monthly fixed income of at least S$2,500; and
have recognised qualifications.
An employer of foreign workers is also subject to, inter alia, the provisions set out in the Employment Act (Cap. 91), the Immigration Act (Cap. 133) and the regulations issued pursuant to the Immigration Act.
From 1 January 2008, employers are required to purchase and maintain insurance for the medical expenses of their work permit and S Pass holders during their stay in Singapore. The requirement to purchase and maintain insurance is included as a condition of the work permit or S Pass.
Hazardous Substances Licence (“HS Licence”)
The HS Licence is required for any person who wishes to import, use, keep in storage and supply hazardous substances controlled under Section 22 of the Environmental Protection and Management Act (Cap. 94A) (“EPMA”). Our Company is currently a holder of a HS Licence for the following Annex C GPI ozone depleting substances: 1) 1-chloro-1,1-difluoro-ethane (100% purity) and 2) chlorodifluoromethane (100% purity). The licence is subject to the provisions of the EPMA, the EPMA (Hazardous Substances) Regulations, the EPMA (Ozone Depleting Substances) Regulations and to the following conditions, inter alia:-
1) the licence holder shall state, among other things, the type of controlled ozone depleting substances imported and/or exported, the weight in metric tonne, the calculated level of import and/or export, the country of origin and/or final destination and the value in S$ in his application for import and/or export;
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2) annually and not later than 31 January of each year, the licence holder must submit to the Pollution Control Department, National Environmental Agency (“PCD-NEA”) the certified calculated level of imports and/or exports of the controlled substance, with such details as the type, the country of origin, and/or final destination and value of the imports and/or exports in S$;
3) prior approval from PCD-NEA shall be obtained for the import or export of the hazardous substance under the licence. Misdeclaration shall constitute a prosecutable offence;
4) the licence holder shall maintain an up-to-date inventory of the controlled hazardous substance imported and/or exported and shall submit a monthly return of such inventory records to the PCD-NEA; and
5) the licence holder shall properly label the containers of the controlled substances. Any licence holder found mislabeling will be liable for prosecution. Random checks will be conducted by PCD-NEA officials.
Electrical Installation Licence
Our Company is a holder of an Electrical Installation Licence. The Electricity Act (Cap. 89A) and the Electricity (Electrical Installations) Regulations 2002 require an electrical installation licence when for the use or operation of an electrical installation of approved load exceeding 45 kilo volt ampere (kVA) for non-domestic purposes.
Malaysia
Manufacturing Licence under the Industrial Co-Ordination Act 1975 issued by the Ministry of International Trade and Industry (“MITI”)
Malaysia’s manufacturing sector is governed by the Industrial Co-ordination Act 1975 (“ICA 1975”). The ICA 1975 was introduced with the aim to maintain an orderly development and growth in the country’s manufacturing sector. The ICA 1975 requires manufacturing companies with shareholders’ funds of RM2.5 million and above or engaging 75 or more full-time paid employees to apply for a manufacturing licence for approval by the Ministry of International Trade and Industry (“MITI”). Applications for manufacturing licences are to be submitted to the Malaysian Industrial Development Authority (“MIDA”), an agency under MITI in charge of the promotion and coordination of industrial development in Malaysia.
As at the date of this Offer Document, MITI has issued a manufacturing licence to Far East Maju for the manufacturing of “packaged refrigeration systems and parts thereof” (“Manufacturing Licence”) effective from 31 July 2004. Some of the standard conditions attached to the Manufacturing Licence are as follows:-
(i) any sale of shares in Far East Maju must be notified to MITI;
(ii) Far East Maju is required to train Malaysian citizens so as to channel a transfer in technology and skills in all levels and positions; and
(iii) Far East Maju is required to carry out the approved activities in accordance with all applicable Malaysian laws and regulations.
The Manufacturing Licence is valid for an indefinite period subject to MITI’s right to revoke the Manufacturing Licence for breach of any of the conditions imposed.
We confirm that all our licences, registrations and permits are current and existing. We have also not committed any offences in relation to:-
(a) the terms or conditions of our licences, registrations or permits; or
(b) any Malaysian laws or regulations to which we or our business is subject.
150
GOVERNMENT REGULATIONS
We have also not received any notices from or been subject to any penalties imposed by any regulatory body or authority in Malaysia administering or having responsibility or jurisdiction over our licences (or the lack thereof).
Occupational Safety and Health
Under the Malaysian Occupational Safety and Health Act 1994 (“OSHA 1994”) and the Occupational Safety and Health (Safety and Health Officer) Order 1997 (P.U.(A) 316/1997), an employer involved in a manufacturing activity utilising specific heavy equipment and machinery employing more than 100 employees shall employ a safety and health officer. An “employee” under the OSHA 1994 is defined to include an independent contractor engaged by an employer or a self-employed person and any employee of the independent contractor.
Section 30 of the OSHA 1994 also states that an employer is required to establish a safety and health committee at the place of work if there are 40 or more persons employed at the place of work. The Occupational Safety and Health (Safety and Health Committee) Regulations 1996 stipulates that a safety and health committee shall consist of a chairman, secretary, representatives of employer and representatives of employees. Where there are 100 persons or less employed, there shall not be less than two representatives each from the employees and the management on the committee.
As at Latest Practicable Date, all the Malaysian companies in our Group employ less than 40 employees and is therefore exempted from employing a safety and health officer or establishing a safety and health committee.
Employment Laws and Regulations
The main legislation, the Employment Act 1955 applies to all employees in Peninsular Malaysia and the Federal Territory of Labuan whose monthly wages do not exceed RM1,500 and all manual labourers irrespective of their wages. Employers may draw up the contract of service but it should not contravene the minimum benefits stipulated under the law.
Some of the obligations of an employer under the Employment Act 1955 are as follows:-
(i) every employee must be given a written contract of service containing the terms and conditions of the employment, including provisions relating to the termination of contract;
(ii) maintenance of labour register pertaining to personal particulars of employees, payment of wages and deduction of wages;
(iii) special provisions for the protection of female employees pertaining to night work and maternity benefits;
(iv) normal hours of work and other provisions relating to numbers of working hours;
(v) entitlement of paid annual leave, sick leave and public holidays; and
(vi) rate of payment for overtime and extra work.
We have entered into letters of engagement with all our employees and the terms of employment for our employees are consistent with general Malaysian practice and do not contravene Malaysian employment regulations.
Hong Kong
Ozone Layer Protection Ordinance (Chapter 403 of the Laws of Hong Kong)
Far East HK is engaged in the trade and provision of refrigeration and air-conditioning parts in Hong Kong. As part of its business, it imports hydrochlorofluorocarbons (“HCFCs”). The Ozone Layer Protection Ordinance (the “Ordinance”), Chapter 403 of the Laws of Hong Kong, requires any person who imports or exports a scheduled substance, HCFC being one of such scheduled substance, to be registered under
151
GOVERNMENT REGULATIONS
the Ordinance and to obtain a licence for each import or export of such scheduled substance. Far East HK has been registered under Section 5 of the Ordinance and the registration is valid until 31 December 2011.
As at the Latest Practicable Date and to the best of our Directors’ knowledge, we are in compliance with all applicable laws and regulations which are material to our business operations in the countries we operate, and we have obtained all the necessary business licences and permits for our business operations in the countries we operate.
152
GOVERNMENT REGULATIONS
Singapore
Currently, there are no Singapore governmental laws, decrees, regulations or other legislation that may affect the following:-
(i) the import or export of capital, including the availability of cash and cash equivalents for use by our Group; and
(ii) the remittance of dividends, interest or other payments to non-resident holders of our Company’s securities.
Malaysia
There are no restrictions on the repatriation of capital, profits, dividends, interest, fees or rental by foreign direct investors or portfolio investors, subject to the applicable reporting requirements, and any withholding tax, and provided such remittance is effected through authorised channels, such as licensed banks or licensed remittance operators. Such remittance should be in foreign currency (save for the currency of Israel) as the remittance of RM in excess of RM10,000 will require prior permission from the Foreign Exchange Administration Department of Bank Negara Malaysia.
Hong Kong
There are no exchange controls in Hong Kong.
153
EXCHANGE CONTROLS
Co. Reg. No. 196400096C
Far East Group Limited(formerly known as Far East Group Pte. Ltd.)And Subsidiary Companies
Report on Audited Consolidated Financial Statements31 December 2008, 2009 and 2010
A-1
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
Index
Page
Statement by Directors A-3
Independent Auditors’ Report A-4
Consolidated Balance Sheets A-5
Consolidated Profit and Loss Accounts A-8
Consolidated Statement of Comprehensive Income A-9
Consolidated Statement of Changes in Equity A-10
Consolidated Cash Flows Statement A-13
Notes to the Financial Statements A-16
A-2
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
Statement by Directors
We, Loh Mun Yew and Leng Chee Keong, being two of the directors of Far East Group Limited (formerly known as Far East Group Pte. Ltd.), do hereby state that, in the opinion of the directors,
(a) the accompanying consolidated financial statements together with notes thereto are drawn up so as to give a true and fair view of the state of affairs of the Group as at 31 December 2008, 2009 and 2010 and of the results of the business and changes in equity and cash flows of the Group for the years ended 31 December 2008, 2009 and 2010; 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,
Loh Mun YewDirector
Leng Chee KeongDirector
Singapore25 July 2011
A-3
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
The Board of DirectorsFar East Group Limited112 Lavender Street #04-00Far East Refrigeration BuildingSingapore 338728
Dear Sirs,
We have audited the accompanying consolidated financial statements of Far East Group Limited (formerly known as Far East Group Pte. Ltd.) (the Company) and its subsidiary companies (collectively, the Group) set out on pages A-5 to A-76, which comprise the balance sheets of the Group as at 31 December 2008, 2009 and 2010, the consolidated profit and loss accounts, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated cash flows statements of the Group for the financial years ended 31 December 2008, 2009 and 2010, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Singapore Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements 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 consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements of the Group are properly drawn up in accordance with Singapore Financial Reporting Standards so as to present fairly, in all material respects, the state of affairs of the Group as at 31 December 2008, 2009 and 2010 and the results, changes in equity and cash flows of the Group for the years ended on those dates.
Other matter
This report has been prepared solely in connection with the proposed listing of the Company’s shares on the Singapore Exchange Securities Trading Limited for inclusion in the Offer Document. This report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.
Ernst & Young LLPPublic Accountants andCertified Public AccountantsSingapore
25 July 2011
A-4
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
CONSOLIDATED BALANCE SHEETS as at 31 December 2008, 2009 and 2010
(In Singapore dollars)
Note 2010 2009 2008$ $ $
Non-current assetsFixed assets 4 7,518,145 7,402,526 7,523,044Investment properties 5 – 214,146 244,936Unquoted investments 7 88,968 91,183 102,424Deferred tax assets 8 174,014 199,231 171,998Other receivables 11 18,329 – –
Current assets
Inventories 9 8,199,554 8,108,720 11,164,269Trade debtors 10 6,646,543 4,213,089 6,150,983Other receivables 11 136,827 143,635 403,546Deposits 101,384 98,420 65,037Prepayments 1,253,187 555,843 231,028Due from holding company (non-trade) 12 – 21,978 120,814Due from affiliated companies (trade) 12 217,647 86,447 289,747Due from affiliated companies (non-trade) 12 – 8,832 301,373Tax recoverable 6,052 22,887 68,062Fixed deposits 1,399,779 409,785 151,501Cash and bank balances 2,350,114 2,778,697 1,686,888
20,311,087 16,448,333 20,633,248
A-5
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
CONSOLIDATED BALANCE SHEETSas at 31 December 2008, 2009 and 2010 (cont’d)
(In Singapore dollars)
Note 2010 2009 2008$ $ $
Current liabilities
Trade payables 13 1,495,044 1,361,692 1,974,489Gross amount due to customers for contract
work-in-progress 14 593,000 – –Trust receipts and bills payable (secured) 15 3,423,536 4,164,239 8,083,933Other creditors 767,512 268,734 538,472Accruals and other liabilities 16 1,749,428 1,929,602 1,209,338Provision for warranty 17 50,000 – –Dividends payable 1,636,087 82,295 82,254Due to affiliated company (trade) 12 255,143 90,968 234,433Due to affiliated company (non-trade) 12 110,958 16,148 22,706Loan from related party 18 – – 150,000Provision for income tax 596,973 125,095 164,364Finance lease obligations (current) 19 17,927 – 4,350Loans from shareholders and directors (current) 21 550,000 390,000 703,772Term loans (current) 20 447,641 748,947 286,571Derivative financial instruments 35 203 – –Bank overdrafts (secured) 15 57,374 30,981 1,291,985
11,750,826 9,208,701 14,746,667
Net current assets 8,560,261 7,239,632 5,886,581
Non-current liabilitiesDeferred tax liabilities 8 152,307 144,600 177,807Finance lease obligations (non-current) 19 58,480 – 9,737Loans from shareholders and directors
(non-current) 21 1,032,397 1,625,897 1,838,773Term loans (non-current) 20 1,742,490 2,679,591 2,315,304
Total net assets 13,374,043 10,696,630 9,587,362
A-6
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
CONSOLIDATED BALANCE SHEETSas at 31 December 2008, 2009 and 2010 (cont’d)
(In Singapore dollars)
Note 2010 2009 2008$ $ $
Share capital and reservesShare capital 22 8,134,740 8,134,740 8,134,740Accumulated profits 5,812,040 3,305,706 1,993,269Capital reserve 322,393 322,393 322,393Translation reserve 23 (1,051,441) (1,175,957) (964,689)
13,217,732 10,586,882 9,485,713Non-controlling interests 156,311 109,748 101,649
13,374,043 10,696,630 9,587,362
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
A-7
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
CONSOLIDATED PROFIT AND LOSS ACCOUNTS for the financial years ended 31 December 2008, 2009 and 2010
(In Singapore dollars)
Note 2010 2009 2008$ $ $
Turnover 24 32,616,138 26,805,412 29,191,390Cost of sales (21,897,153) (19,617,616) (22,088,842)
Gross profit 10,718,985 7,187,796 7,102,548Other operating income 25 1,452,735 712,498 603,450Distribution and selling expenses (2,654,288) (2,077,241) (2,290,990)Administrative expenses (3,555,725) (3,484,476) (3,284,443)Other operating expenses 26 (225,125) (215,788) (158,768)
Profit from operations 27 5,736,582 2,122,789 1,971,797Financial expenses 29 (301,659) (486,697) (622,949)Interest income 14,489 3,004 8,936
Profit before tax 5,449,412 1,639,096 1,357,784Tax expense 30 (896,600) (296,930) (393,875)
Profit for the year 4,552,812 1,342,166 963,909
Attributable to:Equity holders of the Company 4,506,334 1,312,437 933,165Non-controlling interests 46,478 29,729 30,744
4,552,812 1,342,166 963,909
Earnings per shareBasic and diluted (cents) 31 9.3 2.7 1.9
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
A-8
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the financial years ended 31 December 2008, 2009 and 2010
(In Singapore dollars)
2010 2009 2008$ $ $
Profit for the year 4,552,812 1,342,166 963,909
Other comprehensive incomeExchange differences on translating foreign operations 124,601 (214,613) (320,923)
Total comprehensive income for the year 4,677,413 1,127,553 642,986
Attributable to:Equity holders of the Company 4,630,850 1,101,169 613,562Non-controlling interests 46,563 26,384 29,424
4,677,413 1,127,553 642,986
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
A-9
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the financial years ended 31 December 2008, 2009 and 2010
(In Singapore dollars)
Attributable to equity holders of the Company
Equity,total
Equity attributable to owners of the parent,
totalSharecapital
Accumulated profits
Capitalreserve
Translation reserve
Non-controlling interests
$ $ $ $ $ $ $
As at 1 January 2008 8,948,676 8,872,151 8,134,740 1,060,104 322,393 (645,086) 76,525
Profit for the year 963,909 933,165 – 933,165 – – 30,744
Other comprehensive income (320,923) (319,603) – – – (319,603) (1,320)
Total comprehensive income for the year 642,986 613,562 – 933,165 – (319,603) 29,424
Dividends declared to non-controlling interest, representing total contributions by and distributions to owners (1,097) – – – – – (1,097)
Non-controlling interest discharged arising from the disposal of interest in a subsidiary, representing total changes in ownership interests in subsidiaries (3,203) – – – – – (3,203)
Total transactions with owners in their capacity as owners (4,300) – – – – – (4,300)
As at 31 December 2008 9,587,362 9,485,713 8,134,740 1,993,269 322,393 (964,689) 101,649
A-10
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the financial years ended 31 December 2008, 2009 and 2010 (cont’d)
(In Singapore dollars)
Attributable to equity holders of the Company
Equity,total
Equity attributable to owners of the parent,
totalSharecapital
Accumulated profits
Capitalreserve
Translation reserve
Non-controlling interests
$ $ $ $ $ $ $
As at 1 January 2009 9,587,362 9,485,713 8,134,740 1,993,269 322,393 (964,689) 101,649
Profit for the year 1,342,166 1,312,437 – 1,312,437 – – 29,729
Other comprehensive income (214,613) (211,268) – – – (211,268) (3,345)
Total comprehensive income for the year 1,127,553 1,101,169 – 1,312,437 – (211,268) 26,384
Dividends declared to non-controlling interest, representing total contributions by and distributions to owners (6,006) – – – – – (6,006)
Non-controlling interest discharged arising from the disposal of interest in a subsidiary, representing total changes in ownership interests in subsidiaries (12,279) – – – – – (12,279)
Total transactions with owners in their capacity as owners (18,285) – – – – – (18,285)
As at 31 December 2009 10,696,630 10,586,882 8,134,740 3,305,706 322,393 (1,175,957) 109,748
A-11
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the financial years ended 31 December 2008, 2009 and 2010 (cont’d)
(In Singapore dollars)
Attributable to equity holders of the Company
Equity,total
Equity attributable to owners of the parent,
totalSharecapital
Accumulated profits
Capitalreserve
Translation reserve
Non-controlling interests
$ $ $ $ $ $ $
As at 1 January 2010 10,696,630 10,586,882 8,134,740 3,305,706 322,393 (1,175,957) 109,748
Profit for the year 4,552,812 4,506,334 – 4,506,334 – – 46,478
Other comprehensive income 124,601 124,516 – – – 124,516 85
Total comprehensive income for the year 4,677,413 4,630,850 – 4,506,334 – 124,516 46,563
Dividends (Note 32), representing total transactions with owners in their capacity as owners (2,000,000) (2,000,000) – (2,000,000) – – –
As at 31 December 2010 13,374,043 13,217,732 8,134,740 5,812,040 322,393 (1,051,441) 156,311
A-12
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
CONSOLIDATED CASH FLOWS STATEMENT for the financial years ended 31 December 2008, 2009 and 2010
(In Singapore dollars)
Note 2010 2009 2008$ $ $
Cash flows from operating activitiesProfit before tax 5,449,412 1,639,096 1,357,784Adjustments:
Allowance for doubtful trade debts 33,367 456,233 119,381Allowance for doubtful trade debts written back (66,996) (176,827) (505,015)Sundry debts written off 12,273 – 11,848Allowance for doubtful sundry debts – 80,474 222,928Allowance for doubtful sundry debts written back (8,914) (222,402) –Allowance for doubtful debts due from an affiliated
company – – 180,639Allowance for doubtful debts due from an affiliated
company written back (49,991) (43,928) –Inventories written down – 557,059 1,074,247Inventories written back (1,154,215) – –Fixed asset written off 342 – 50Loss on disposal of subsidiary – 33,814 –Loss on disposal of unquoted investment – 38 –Gain on disposal of investment in associated
company – – (1)Gain on disposal of investment properties, net (1,062,245) – –Gain on disposal of fixed assets, net (7,881) (53,747) (4,474)Depreciation of fixed assets 432,741 416,336 412,725Depreciation of investment properties 24,999 12,008 12,897Net fair value loss on derivatives 203 – –Interest expense 301,659 486,697 622,949Interest income (14,489) (3,004) (8,936)Negative goodwill written off – – (1,512)Warranty expense 50,000 – –Translation difference 47,081 (200,749) (249,797)
Operating profit before working capital changes 3,987,346 2,981,098 3,245,713
A-13
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
CONSOLIDATED CASH FLOWS STATEMENT for the financial years ended 31 December 2008, 2009 and 2010 (cont’d)
(In Singapore dollars)
Note 2010 2009 2008$ $ $
Cash flows from operating activities (cont’d)(Increase)/decrease in:
Gross amount due to customers for contract work-in-progress 593,000 – –
Inventories 1,063,381 2,498,490 (1,485,834)Other receivables (14,878) 401,839 274,465Deposits and prepayments (700,308) (358,198) 466,620Trade debtors (2,399,825) 1,659,976 442,510Due from affiliated company, net 186,608 441,623 285,669Due from associated company, net – – 329,586Due from holding company, net 21,978 46,959 (332,276)
Increase/(decrease) in:Trade payables 133,352 (612,797) (793,832)Trust receipts and bills payable (740,703) (3,919,694) (672,923)Other creditors 498,778 (269,738) 31,360Accruals and other liabilities (180,174) 720,264 (176,006)
Cash generated from operations 2,448,555 3,589,822 1,615,052Interest paid (301,659) (486,697) (622,949)Income taxes paid (389,192) (462,286) (211,380)Income taxes refunded 26,015 110,822 –Interest income 14,489 3,004 8,936
Net cash generated from operating activities 1,798,208 2,754,665 789,659
Cash flows from investing activitiesProceeds from disposal of unquoted investment – 11,059 –Acquisition of additional equity interest in subsidiary
companies – – (1,691)Proceeds from disposal of investment properties 1,203,002 – –Proceeds from disposal of associated company – – 1Proceed from sale of fixed assets 13,526 56,872 5,730Purchase of fixed assets 4 (344,410) (341,462) (309,202)
Net cash generated from/(used in) investing activities 872,118 (273,531) (305,162)
A-14
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
CONSOLIDATED CASH FLOWS STATEMENT for the financial years ended 31 December 2008, 2009 and 2010 (cont’d)
(In Singapore dollars)
Note 2010 2009 2008$ $ $
Cash flows from financing activitiesDividends paid (446,208) (5,965) (16,112)Repayment of loans from shareholders and directors (433,500) (526,648) (111,051)Repayment of loans from related party – (150,000) –Repayment of finance lease obligations (17,193) (14,087) (26,102)Repayment of term loans (1,238,407) (773,337) (129,676)Proceeds from term loans – 1,600,000 507,920
Net cash (used in)/generated from financing activities (2,135,308) 129,963 224,979
Net increase in cash and cash equivalents 535,018 2,611,097 709,476Cash and cash equivalents at beginning of year 3,157,501 546,404 (163,072)
Cash and cash equivalents at end of year 33 3,692,519 3,157,501 546,404
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.
A-15
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010
1. Corporate information
Far East Group Limited (formerly known as Far East Group Pte. Ltd.) (the Company) is a private limited company domiciled and incorporated in Singapore. The address of the Company’s registered office and principal place of business is 112 Lavender Street, #04-00 Far East Refrigeration Building, Singapore 338728.
The Company’s holding and ultimate holding company is Universal Pte. Ltd., incorporated in Singapore.
The principal activities of the Company consist of trading of refrigeration parts, servicing of refrigerators and cold rooms, construction and installation of commercial refrigerators and cold rooms and all other incidental business of refrigeration.
The principal activities of the subsidiary companies are shown in Note 6.
2. Summary of significant accounting policies
2.1 Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with Singapore Financial Reporting Standards (FRS).
The financial statements have been prepared on a historical cost basis except as disclosed in the accounting policies below.
The financial statements are presented in Singapore Dollars (SGD or $).
2.2 Changes in accounting policies
The accounting policies adopted have been consistently applied by the Group during the financial years ended 31 December 2008, 2009 and 2010, except for the adoption of the following standards and interpretations that are mandatory for annual periods beginning on or after 1 January 2008, 2009 and 2010:
Amendments to FRS 1 (Revised) Presentation of Financial Statements (Capital Disclosures)
FRS 107 Financial Instruments: Disclosures
FRS 1 Presentation of Financial Statements (Revised)
Amendments to FRS 18 Revenue
Amendments to FRS 23 Borrowing Costs
Amendments to FRS 32 Financial Instruments: Presentation and FRS 1 Puttable Financial Instruments and Obligations Arising on Liquidation
Amendments to FRS 101 First-time Adoption of Financial Reporting Standards and FRS 27 Consolidated and Separate Financial Statements – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate
A-16
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.2 Changes in accounting policies (cont’d)
Amendments to FRS 102 Share-based Payment – Vesting Conditions and Cancellations
Amendments to FRS 107 Financial Instruments: Disclosures
FRS 108 Operating Segments
INT FRS 113 Customer Loyalty Programmes
INT FRS 116 Hedges of a Net Investment in a Foreign Operation
INT FRS 118 Transfer of Assets from Customers
Improvements to FRSs issued in 2008
FRS 103 Business Combinations (revised) and FRS 27 Consolidated and Separate Financial Statements (revised)
Amendments to FRS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Item
Amendments to FRS 105 Non-current Assets Held for Sale and Discontinued Operations
INT FRS 117 Distribution of Non-cash Assets to Owners
Improvements to FRSs issued in 2009
Adoption of these standards and interpretations did not have any effect on the financial performance or position of the Group. They did however give rise to additional disclosures, including, in some cases, revisions to accounting policies.
The principal effect of these changes are as follows:
Amendments to FRS 1 Presentation of Financial Statements (Capital Disclosures)
Amendments to FRS 1 require the Group to make new disclosures to enable users of the financial statements to evaluate the Group’s objectives, policies and processes for managing capital. These new disclosures are shown in Note 36.
FRS 107 Financial Instruments: Disclosure
This standard requires disclosures that enable users to evaluate the significance of the Group’s financial instruments and the nature and extent of risks arising from those financial instruments. The new disclosures are included throughout the financial statements.
FRS 1 Presentation of Financial Statements – Revised presentation
The revised FRS 1 separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with all non-owner changes in equity presented in the statement of other comprehensive income. In addition, the Standard introduces the statement of comprehensive income which presents income and expense recognised in the period. This statement may be presented in one single statement, or two linked statements. The Group has elected to present this statement as two linked statements.
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APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.2 Changes in accounting policies (cont’d)
Amendments to FRS 107 Financial Instruments: Disclosures
The amendments enhance disclosures about fair value measurement and liquidity risk. The amendments introduce a three-level hierarchy for fair value measurement disclosures for each class of financial instruments recorded at fair value. For liquidity disclosure, the amendments permit derivative liabilities to be excluded from maturity analysis, unless the contractual maturities are essential for an understanding of the timing of the cash flows. The amendments also require issued financial guarantee contracts to be recorded in the contractual maturity analysis based on the maximum amount guaranteed, and allocated to the earliest date the financial guarantee can be drawn down, irrespective of whether it is likely that the guarantees will be drawn or the amount that is expected to be paid. The liquidity disclosures and fair value measurement disclosures are presented in Notes 36 and 37.
FRS 103 Business Combinations (revised)
The revised FRS 103 introduces a number of changes to the accounting for business combinations that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. Changes in significant accounting policies resulting from the adoption of the revised FRS 103 include:
- Transaction costs would no longer be capitalised as part of the cost of acquisition but will be expensed immediately;
- Consideration contingent on future events are recognised at fair value on the acquisition date and any changes in the amount of consideration to be paid will no longer be adjusted against goodwill but recognised in profit or loss;
- The Group elects for each acquisition of a business, to measure non-controlling interest at fair value, or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets, and this impacts the amount of goodwill recognised; and
- When a business is acquired in stages, the previously held equity interests in the acquiree is remeasured to fair value at the acquisition date with any corresponding gain or loss recognised in profit or loss, and this impacts the amount of goodwill recognised.
According to its transitional provisions, the revised FRS 103 has been applied prospectively. Assets and liabilities that arose from business combinations whose acquisition dates are before 1 January 2010 are not adjusted.
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APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.2 Changes in accounting policies (cont’d)
FRS 27 Consolidated and Separate Financial Statements (revised)
Changes in significant accounting policies resulting from the adoption of the revised FRS 27 include:
- A change in the ownership interest of a subsidiary that does not result in a loss of control is accounted for as an equity transaction. Therefore, such a change will have no impact on goodwill, nor will it give rise to a gain or loss recognised in profit or loss;
- Losses incurred by a subsidiary are allocated to the non-controlling interest even if the losses exceed the non-controlling interest in the subsidiary’s equity; and
- When control over a subsidiary is lost, any interest retained is measured at fair value with the corresponding gain or loss recognised in profit or loss.
- According to its transitional provisions, the revised FRS 27 has been applied prospectively, and does not impact the Group’s consolidated financial statements in respect of transactions with non-controlling interests, attribution of losses to non-controlling interests and disposal of subsidiaries before 1 January 2010. The changes will affect future transactions with non-controlling interests.
2.3 FRS and INT FRS not yet effective
The Group has not adopted the following standards and interpretations that have been issued but not yet effective:
Description
Effective for annualperiods beginning
on or after
Amendment to FRS 32 Financial Instruments: Presentation - Classification of Rights Issues
1 February 2010
Amendments to FRS 101 Additional Exemptions for First-time Adopters 1 July 2010
INT FRS 119 Extinguishing Financial Liabilities with Equity Instruments 1 July 2010
Revised FRS 24 Related Party Disclosures 1 January 2011
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
Improvements to FRSs 2010 1 January 2011
Amendments to FRS 101 Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters
1 July 2011
Amendments to FRS 107 Disclosures: Transfer of Financial Assets 1 July 2011
Amendments to FRS 101 Severe Hyperinflation and Removal of FixedDates for First-time Adopters
1 January 2012
Amendments to FRS 12 Deferred Tax: Recovery of Underlying Assets 1 January 2012
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APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.3 FRS and INT FRS not yet effective (cont’d)
Except for the revised FRS 24, the directors expect that the adoption of the other standards and interpretations above will have no material impact on the financial statements in the period of initial application. The nature of the impending changes in accounting policy on adoption of the revised FRS 24 is described below.
Revised FRS 24 Related Party Disclosures
The revised FRS 24 clarifies the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised FRS 24 expands the definition of a related party and would treat two entities as related to each other whenever a person (or a close member of that person’s family) or a third party has control or joint control over the entity, or has significant influence over the entity. The revised standard also introduces a partial exemption of disclosure requirements for government-related entities. The Group is currently determining the impact of the changes to the definition of a related party has on the disclosure of related party transaction. As this is a disclosure standard, it will have no impact on the financial position or financial performance of the Group when implemented in 2011.
2.4 Foreign currency
The Group’s financial statements are presented in Singapore dollars, which is also the Company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statement of each entity are measured using that functional currency.
(a) Foreign currency transactions
Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in profit or loss except for exchange differences arising on monetary items that form part of the Group’s net investment in foreign operations, which are recognised initially in other comprehensive income and accumulated under foreign currency translation reserve in equity. The foreign currency translation reserve is reclassified from equity to profit or loss of the Group on disposal of the foreign operation.
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APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.4 Foreign currency (cont’d)
(b) Group companies
On consolidation, the results and financial position of foreign operations are translated into SGD using the following procedures:
- Assets and liabilities are translated at the rate ruling at that balance sheet date; and
- Income and expenses are translated at average exchange rates for the year, which approximates the exchange rates at the dates of the transactions.
All resulting exchange differences are recognised initially in other comprehensive income and accumulated under a separate component of equity as foreign currency translation reserve.
On disposal of a foreign operation, the cumulative amount recognised in foreign currency translation reserve relating to that foreign operation is recognised in profit or loss.
In the case of a partial disposal without loss of control of a subsidiary that includes a foreign operation, the proportionate share of the cumulative amount of the exchange differences are re-attributed to non-controlling interest and are not recognised in profit or loss.
2.5 Subsidiaries and basis of consolidation
(a) Subsidiaries
A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities. The Group generally has such power when it, directly or indirectly, holds more than 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of the board of directors.
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APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.5 Subsidiaries and basis of consolidation (cont’d)
(b) Basis of consolidation
Business combinations from 1 January 2010
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the end of the reporting period. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Company. Consistent accounting policies are applied to like transactions and events in similar circumstances.
All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full.
Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.
Business combinations are accounted for by applying the acquisition method. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Acquisition-related costs are recognised as expenses in the periods in which the costs are incurred and the services are received.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with FRS 39 either in profit or loss or as change to other comprehensive income. If the contingent consideration is classified as equity, it is not be remeasured until it is finally settled within equity.
In business combinations achieved in stages, previously held equity interests in the acquiree are remeasured to fair value at the acquisition date and any corresponding gain or loss is recognised in profit or loss.
The Group elects for each individual business combination, whether non-controlling interest in the acquiree (if any) is recognised on the acquisition date at fair value, or at the non-controlling interest’s proportionate share of the acquiree identifiable net assets.
Any excess of the sum of the fair value of the consideration transferred in the business combination, the amount of non-controlling interest in the acquiree (if any), and the fair value of the Group’s previously held equity interest in the acquiree (if any), over the net fair value of the acquiree’s identifiable assets and liabilities is recorded as goodwill. In instances where the latter amount exceeds the former, the excess is recognised as gain on bargain purchase in profit or loss on the acquisition date.
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APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.5 Subsidiaries and basis of consolidation (cont’d)
(b) Basis of consolidation (cont’d)
Business combinations before 1 January 2010
In comparison to the above mentioned requirements, the following differences applied:
Business combinations are accounted for by applying the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The non-controlling interest (formerly known as minority interest) was measured at the proportionate share of the acquiree’s identifiable net assets.
Business combinations achieved in stages were accounted for as separate steps. Adjustments to those fair values relating to previously held interests are treated as a revaluation and recognised in equity.
When the Group acquired a business, embedded derivatives separated from the host contract by the acquiree are not reassessed on acquisition unless the business combination results in a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required under the contract.
Contingent consideration was recognised if, and only if, the Group had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. Subsequent measurements to the contingent consideration affected goodwill.
2.6 Transactions with non-controlling interests
Non-controlling interest represents the equity in subsidiaries not attributable, directly or indirectly, to owners of the Group, and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated balance sheet, separately from equity attributable to owners of the Group.
Changes in the Group owners’ ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. In such circumstances, the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the parent.
2.7 Affiliated companies
An affiliated company is a company, not being a subsidiary company, associated company or joint venture company in which one or more of the directors or shareholders of the Company or its subsidiaries have a significant equity interest or exercise significant influence.
A-23
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.8 Related parties
A party is considered to be related to the Group if:
(a) The party, directly or indirectly through one or more intermediaries,
(i) controls, is controlled by, or is under common control with, the Group;
(ii) has an interest in the Group that gives it significant influence over the Group; or
(iii) has joint control over the Group;
(b) The party is an associate;
(c) The party is a jointly-controlled entity;
(d) The party is a member of the key management personnel of the Group or its parent;
(e) The party is a close member of the family of any individual referred to in (a) or (d); or
(f) The party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or
(g) The party is a post-employment benefit plan for the benefit of the employees of the Group, or of any entity that is a related party of the Group.
2.9 Fixed assets
All fixed assets are initially recorded at cost. Such cost includes the cost of replacing part of the fixed asset and borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying fixed asset. The accounting policy for borrowing cost is set out in Note 2.18. The cost of an item of fixed asset is recognised as an asset, if and only if, it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measure reliably.
Subsequent to recognition, fixed assets are measured at cost less accumulated depreciation and any accumulated impairment losses.
Freehold land has an unlimited useful life and therefore is not depreciated. Depreciation is computed on a straight-line basis over the estimated useful life of the asset as follows:
Buildings 50 yearsLeasehold land and buildings Lease termPlant and machinery 5 to 10 yearsMotor vehicles 5 yearsOffice equipment, furniture and fittings 3 to 10 yearsRenovation 3 to 10 yearsComputers 3 years
A-24
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.9 Fixed assets (cont’d)
The carrying values of fixed assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
The residual value, useful life and depreciation method are reviewed at each financial year-end, and adjusted prospectively, if appropriate.
A fixed asset is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in profit or loss in the year the asset is derecognised.
2.10 Investment properties
Investment properties are properties that are either owned by the Group or leased under a finance lease in order to earn rentals or for capital appreciation, or both, rather than for use in the production or supply of goods or services, or for administrative purposes, or in the ordinary course of business. Investment properties comprise completed investment properties and properties that are being constructed or developed for future use as investment properties. Properties held under operating leases are classified as investment properties when the definition of investment properties is met and they are accounted for as finance leases. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria is met.
Investment properties are initially recorded at cost including transaction costs. Subsequent to recognition, the Group’s investment properties are measured at cost less accumulated depreciation and accumulated impairment losses.
Freehold land that is classified as investment property has an unlimited useful life and therefore is not depreciated. Depreciation of other investment properties is computed on a straight-line basis over the estimated useful life of 50 years.
Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or loss on the retirement or disposal of an investment property are recognised in profit or loss in the year of retirement or disposal.
A-25
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.11 Impairment of non-financial assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount.
An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows expected to be generated by the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognised in profit or loss in those expense categories consistent with the function of the impaired asset.
An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses recognised for an asset may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash generating unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increase cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised previously. Reversal of an impairment loss is recognised in profit or loss. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
2.12 Financial assets
Initial recognition and measurement
Financial assets are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. The Group determines the classification of its financial assets at initial recognition.
When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs.
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APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.12 Financial assets (cont’d)
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:
(a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by FRS 39. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
The Group has not designated any financial assets upon initial recognition at fair value through profit or loss.
Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value. Any gains or losses arising from changes in fair value of the financial assets are recognised in profit or loss. Net gains or net losses on financial assets at fair value through profit or loss include exchange differences, interest and dividend income.
(b) Loans and receivables
Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less impairment. Gains and losses are recognised profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process.
(c) Available-for-sale financial assets
Available-for-sale financial assets include equity and debt securities. Equity investments classified as available-for-sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss.
The Group classifies its unquoted investment as available-for-sale financial assets.
After initial recognition, available-for-sale financial assets are measured at fair value. Any gains or losses from changes in fair value of the financial asset are recognised in other comprehensive income, except that impairment losses, foreign exchange gains and losses on monetary items and interest calculated using the effective interest method are recognised in profit or loss. The cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment when the financial asset is derecognised.
Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less impairment loss.
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APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.12 Financial assets (cont’d)
Derecognition
A financial asset is derecognised where the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.
2.13 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. These also include bank overdrafts that form an integral part of the Group’s cash management.
2.14 Impairment of financial assets
The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset is impaired.
(a) Financial assets carried at amortised cost
For financial assets carried at amortised cost, the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognised are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss on financial assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. The impairment is recognised in profit or loss.
When the asset becomes uncollectible, the carrying amount of impaired financial assets is reduced directly or if an amount was charged to the allowance account, the amounts charged to the allowance account are written off against the carrying value of the financial asset.
To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in profit or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.
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APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.14 Impairment of financial assets (cont’d)
(b) Financial assets carried at cost
If there is objective evidence (such as significant adverse changes in the business environment where the issuer operates, probability of insolvency or significant financial difficulties of the issuer) that an impairment loss on a financial asset carried at cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods.
(c) Available-for-sale financial assets
In the case of equity investments classified as available-for-sale, objective evidence of impairment include (i) significant financial difficulty of the issuer or obligor, (ii) information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in equity instrument may not be recovered; and (iii) a significant or prolonged decline in the fair value of the investment below its costs. ‘Significant’ is to be evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost.
If an available-for-sale financial asset is impaired, an amount comprising the difference between its acquisition cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from other comprehensive income and recognised in profit or loss. Reversals of impairment losses in respect of equity instruments are not recognised in profit or loss; increase in their fair value after impairment are recognised directly in other comprehensive income.
In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increases can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed in profit or loss.
A-29
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.15 Inventories
Inventories are stated at the lower of cost and net realisable value.
Cost is determined using the weighted average method. The cost of raw materials includes cost of purchase. The cost of work-in-progress and finished goods includes materials, all direct expenditure and an attributable proportion of overheads.
Where necessary, allowance is provided for damaged, obsolete and slow moving items to adjust the carrying value of inventories to the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
2.16 Financial liabilities
Initial recognition and measurement
Financial liabilities are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. The Group determines the classification of its financial liabilities at initial recognition.
All financial liabilities are recognised initially at fair value plus, in the case of financial liabilities not at fair value through profit or loss, directly attributable transaction costs.
Subsequent measurement
The measurement of financial liabilities depends on their classification as follows:
(a) Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value. Any gains or losses arising from changes in fair value of the financial liabilities are recognised in profit or loss.
The Group has not designated any financial liabilities upon initial recognition at fair value through profit or loss.
A-30
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.16 Financial liabilities (cont’d)
Subsequent measurement (cont’d)
(b) Other financial liabilities
After initial recognition, other financial liabilities are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.
2.17 Financial guarantee
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due.
Financial guarantees are recognised initially at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequent to initial recognition, financial guarantees are recognised as income in profit or loss over the period of the guarantee. If it is probable that the liability will be higher than the amount initially recognised less amortisation, the liability is recorded at the higher amount with the difference charged to profit or loss.
2.18 Borrowing costs
Borrowing costs are expenses when incurred except for borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset which are capitalised. Capitalisation of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are capitalised until the assets are substantially completed for their intended use or sale. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
2.19 Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) where, as a result of a past event, it is probable that an outfl ow of resources embodying economic benefi ts will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic resources will be required to settle the obligation, the provision is reversed. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
A-31
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.20 Employee benefits
(a) Defined contribution plans
The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. In particular, the Singapore companies in the Group make contributions to the Central Provident Fund scheme in Singapore, a defined contribution pension scheme. Contributions to national pension schemes are recognised as an expense in the period in which the related service is performed.
(b) Employee leave entitlement
Employee entitlements to annual leave are recognised as a liability when they accrue to employees. The estimated liability for leave is recognised for services rendered by employees up to balance sheet date.
2.21 Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date: whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2005 in accordance with the transitional requirements of INT FRS 104.
(a) As lessee
Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss. Contingent rents, if any, are charged as expenses in the periods in which they are incurred.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.
Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis.
(b) As lessor
Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. The accounting policy for rental income is set out in Note 2.22(e). Contingent rents are recognised as revenue in the period in which they are earned.
A-32
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.22 Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at fair value of consideration received or receivable, excluding discounts, rebates, and sales taxes or duty. The Group assesses its revenue arrangements to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognised:
(a) Sale of goods
Revenue is recognised upon the transfer of significant risk and rewards of ownership of the goods to the customer. Revenue is not recognised to the extent where there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.
(b) Installation work on projects
Project revenue is recognised by reference to the stage of completion at the balance sheet date. Stage of completion is determined by reference to cost incurred as a percentage of total estimated cost for each contract. Where the contract outcome cannot be measured reliably, revenue is recognised to the extent of the expenses recognised that are recoverable.
(c) Interest income
Interest income is recognised using the effective interest method.
(d) Dividend income
Dividend income is recognised when the Group’s right to receive payment is established.
(e) Rental income
Rental income is accounted for on a straight-line basis over the lease terms. The aggregate costs of incentives provided to lessees are recognised as a reduction of rental income over the lease term on a straight-line basis.
2.23 Income taxes
(a) Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date, in the countries where the Group operates and generates taxable income.
Current taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretations and establishes provisions where appropriate.
A-33
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.23 Income taxes (cont’d)
(b) Deferred tax
Deferred tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all temporary differences, except:
- where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
- In respect of temporary differences associated with investments in subsidiary, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:
- where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
- in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
A-34
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
2. Summary of significant accounting policies (cont’d)
2.23 Income taxes (cont’d)
(c) Sales tax
Revenues, expenses and assets are recognised net of the amount of sales tax except:
- where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
- receivables and payables that are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.
2.24 Share capital and share issue expense
Proceeds from issuance of ordinary shares are recognised as share capital in equity. Incremental costs directly attributable to the issuance of ordinary shares are deducted against share capital.
2.25 Government grants
Government grants are recognised at their fair value when there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised in profit or loss as “other operating income” over the period necessary to match them on a systematic basis to the costs that it is intended to compensate.
2.26 Segment reporting
For management purposes, the Group is organised into operating segments based on their products and services which are independently managed by the respective segment managers responsible for the performance of the respective segments under their charge. The segment managers report directly to the management of the Company who regularly review the segment results in order to allocate resources to the segments and to assess the segment performance. Additional disclosures on each of these segments are shown in Note 39, including the factors used to identify the reportable segments and the measurement basis of segment information.
A-35
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
3. Significant accounting estimates and judgements
Estimates, assumptions concerning the future and judgements are made in the preparation of the financial statements. They affect the application of the Group’s accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures made. They are assessed on an on-going basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future periods.
(a) Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, 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) Estimated useful lives of fixed assets
Fixed assets are depreciated on a straight-line basis over their estimated useful lives. The estimated useful life reflects the management’s estimate of the periods that the Group intends to derive future economic benefits from the use of the fixed assets. The carrying amount of the Group’s fixed assets as at 31 December 2010 were $7,518,145 (2009: $7,402,526; 2008: $7,523,044). Changes in the business plans and strategies, expected level of usage and future technological developments could impact the economic useful lives of these assets, therefore future depreciation charges could be revised.
(ii) Impairment of receivables
The Group assesses at each balance sheet whether there is objective evidence that receivables have been impaired. Impairment loss is calculated based on a review of the current status of existing receivables and historical collections experience. Such allowances are adjusted periodically to reflect the actual and past experience. As at 31 December 2010, the carrying amount of trade and other receivables of the Group, including balances with affiliated, associated and holding companies amounted to $7,019,346 (2009: $4,473,981; 2008: $7,266,463).
(iii) Income taxes
The Group has exposure to income taxes in numerous jurisdictions. Significant judgement is involved in determining the group-wide provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. As at 31 December 2010, the carrying amounts of the Group’s provision for income tax, deferred tax assets and deferred tax liabilities were $596,973 (2009: $125,095; $164,364), $174,014 (2009: $199,231; 2008: $171,998) and $152,307 (2009: $144,600; 2008: $177,807) respectively.
A-36
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
3. Significant accounting estimates and judgements (cont’d)
(a) Key sources of estimation uncertainty (cont’d)
(iv) Allowance for inventories
The management of the Group reviews an aging analysis of inventories at each balance sheet date and makes allowance for obsolete and slow-moving inventory items that are identified as obsolete and slow-moving. The carrying value of inventories as at 31 December 2010 for the Group amounted to $8,199,554 (2009: $8,108,720; 2008: $11,164,269).
(v) Provision for warranty
The provision for warranty is recognised for expected warranty claims, based on past experience of the level of warranty claims. It is expected that all of these costs will have been incurred within 1 year from the balance sheet date. The Group provided $50,000 (2009: $Nil; 2008: $Nil) of warranty provisions as at 31 December 2010.
(vi) Gross amount due to customers for contract work-in-progress
The Group recognises project sales and installation works by reference to the stage of completion at the balance sheet date, when the outcome of a contract can be estimated reliably. The stage of completion is measured by reference to the proportion that costs incurred for work performed to date bear to the estimated total contract costs. Significant assumptions are required to estimate the total contract costs, and these estimates are made based on experience and knowledge of project managers. The carrying amounts of assets and liabilities arising from project sales and installation works at the balance sheet date are disclosed in Note 14.
(b) Critical judgements made in applying accounting policies
The following are the judgements made by management in the process of applying the Group’s accounting policies that have a significant effect on the amounts recognised in the financial statements.
Impairment of investment
The Group follows the guidance of FRS 36 in determining when an investment is impaired. This determination requires significant judgement. The Group evaluates, among other factors, 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.
A-37
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
4. Fixed assets
Freehold land Buildings
Leasehold landand
buildings
Plantand
machineryMotor
vehicles
Office equipment,
furnitureand fittings
Reno-vation Computers Total
$ $ $ $ $ $ $ $ $
CostAs at 1.1.2008 2,775,973 3,841,526 630,014 1,703,813 571,792 1,043,595 978,059 1,000,238 12,545,010
Additions – – – 195,147 26,235 50,752 17,260 19,808 309,202
Disposals – – – – – (2,946) – – (2,946)
Write off – – – – – (1,871) – – (1,871)
Translation difference – (90,543) (12,060) (81,969) (16,749) (29,087) (8,573) (8,952) (247,933)
As at 31.12.2008 and 1.1.2009 2,775,973 3,750,983 617,954 1,816,991 581,278 1,060,443 986,746 1,011,094 12,601,462
Additions – 1,105 – – 212,649 73,794 30,190 23,724 341,462
Disposals – – – – (154,327) (491) – (1) (154,819)
Write off – – – – – – – (13,468) (13,468)
Translation difference – (27,410) (9,201) (27,800) (5,472) (9,694) (3,022) (2,923) (85,522)
As at 31.12.2009 and 1.1.2010 2,775,973 3,724,678 608,753 1,789,191 634,128 1,124,052 1,013,914 1,018,426 12,689,115
Additions – 16,819 – 2,838 196,012 102,192 81,250 38,899 438,010
Disposals – – – (922) (13,784) – (7,409) (2,932) (25,047)
Write off – – – – – (5,489) – (717) (6,206)
Translation difference – 35,389 18,839 35,871 8,433 11,942 1,875 3,026 115,375
As at 31.12.2010 2,775,973 3,776,886 627,592 1,826,978 824,789 1,232,697 1,089,630 1,056,702 13,211,247
A-38
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
4. Fixed assets (cont’d)
Freehold land Buildings
Leasehold landand
buildingsPlant and machinery
Motor vehicles
Office equipment,
furnitureand fittings
Reno-vation Computers Total
$ $ $ $ $ $ $ $ $
Accumulated depreciation and impairment loss
At 1.1.2008 – 398,465 397,664 1,383,820 507,067 735,873 437,361 935,895 4,796,145
Charge for the year – 57,779 6,893 126,737 37,476 63,473 85,557 34,810 412,725
Disposals – – – – – (1,690) – – (1,690)
Write off – – – – – (1,821) – – (1,821)
Translation difference – (10,092) (4,031) (66,575) (14,449) (17,535) (6,607) (7,652) (126,941)
As at 31.12.2008 and 1.1.2009 – 446,152 400,526 1,443,982 530,094 778,300 516,311 963,053 5,078,418
Charge for the year – 57,500 6,545 128,825 36,597 66,255 86,287 34,327 416,336
Disposals – – – – (151,496) (197) – (1) (151,694)
Write off – – – – – – – (13,468) (13,468)
Translation difference – (3,339) (1,751) (22,093) (4,833) (6,106) (2,263) (2,618) (43,003)
As at 31.12.2009 and 1.1.2010 – 500,313 405,320 1,550,714 410,362 838,252 600,335 981,293 5,286,589
Charge for the year – 58,021 10,357 96,385 86,109 67,538 85,987 28,344 432,741
Disposals – – – (323) (13,784) – (3,992) (1,303) (19,402)
Write off – – – – – (5,147) – (717) (5,864)
Translation difference – 4,673 (54,734) 31,090 4,444 8,299 2,386 2,880 (962)
As at 31.12.2010 – 563,007 360,943 1,677,866 487,131 908,942 684,716 1,010,497 5,693,102
Net book valueAs at
31.12.2008 2,775,973 3,304,831 217,428 373,009 51,184 282,143 470,435 48,041 7,523,044
As at 31.12.2009 2,775,973 3,224,365 203,433 238,477 223,766 285,800 413,579 37,133 7,402,526
As at 31.12.2010 2,775,973 3,213,879 266,649 149,112 337,658 323,755 404,914 46,205 7,518,145
A-39
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
4. Fixed assets (cont’d)
The following fixed assets are used as collateral for the Group’s term loans and other bank facilities such as trust receipts and bank overdrafts:
(a) Freehold land and buildings of the Group with net book values amounting to $5,989,852 (2009: $6,000,338; 2008: $6,080,804); and
(b) Leasehold land and buildings of the Group with net book value amounting to $266,649 (2009: $203,433; 2008: $217,428).
During the financial year ended 31 December 2010, the Group acquired fixed assets with an aggregate cost of $93,600 (2009: $Nil; 2008: $Nil) by means of finance leases. The cash outflow on acquisition of fixed assets amounted to $344,410 (2009: $341,462; 2008: $309,202).
Net book values of fixed assets under finance leases are as follows:
2010 2009 2008$ $ $
Motor vehicles 107,822 – 9,444
5. Investment properties
2010 2009 2008$ $ $
CostAt beginning of year 696,784 717,139 726,875Disposal (640,577) – –Translation difference (56,207) (20,355) (9,736)
At end of year – 696,784 717,139
Accumulated depreciationAt beginning of year 482,638 472,203 460,571Charge for the year 24,999 12,008 12,897Disposal (499,819) – –Translation difference (7,818) (1,573) (1,265)
At end of year – 482,638 472,203
Net book valueAs at 31 December – 214,146 244,936
The property rental income earned by the Group for the year ended 31 December 2010 from its investment properties, all of which are leased out under operating leases, amounted to $42,539 (2009: $62,245; 2008: $61,015). Direct operating expenses (including repairs and maintenance) arising on the rental-earning investment properties amounted to $3,222 (2009: $5,557; 2008: $5,006).
A-40
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
5. Investment properties (cont’d)
Investment properties with net book values amounting to $Nil (2009: $214,146; 2008: $244,936) are pledged with banks to secure the Group’s bank facilities such as trust receipts and bank overdrafts as disclosed in Note 15.
The fair value of investment properties as at 31 December 2010 were approximately $Nil (2009: $1,074,000; 2008: $1,032,000). Valuations are performed by accredited independent valuers with recent experience in the location and category of the properties being valued.
6. Investments in subsidiary companies
The Group had the following subsidiary companies as at 31 December 2010:
Name ofsubsidiarycompany Principal activities
Country of incorporation and place of business
Effective equityheld by the Group
2010 2009 2008% % %
Held by the Company
Far East Refrigeration (M) Sdn Bhd #
Investment holding Malaysia 100 100 100
Far East Refrigeration (Hong Kong) Limited *
Trading of refrigeration parts
Hong Kong Nil Nil 93.88
Far East Refrigeration Limited +
Trading of refrigeration and air-conditioning parts
Hong Kong 100 100 100
RSP Systems Pte Ltd @ Supply and solutions provider of refrigeration and air-conditioning monitoring and energy management systems
Singapore 57.1 57.1 57.1
Edenkool Pte. Ltd. @ Trading of refrigeration and air-conditioning parts
Singapore 100 100 Nil
Green Point (Singapore) Pte. Ltd. @
Repair and maintenance for refrigeration and air-conditioning compressors
Singapore 100 100 Nil
A-41
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
6. Investments in subsidiary companies (cont’d)
Name ofsubsidiarycompany Principal activities
Country of incorporation and place of business
Effective equityheld by the Group
2010 2009 2008% % %
Held by subsidiary company
Far East Maju Engineering Works Sdn. Bhd. #
Manufacturing and trading of electrical, refrigeration and air-conditioning equipment and parts
Malaysia 100 100 100
Far East Enterprises (K.L.) Sdn Bhd #
Trading of electrical, refrigeration and air-conditioning equipment and parts
Malaysia 100 100 100
Far East Enterprises (Penang) Sdn. Bhd. #
Trading of electrical, refrigeration and air-conditioning equipment and parts
Malaysia 93.88 93.88 93.88
FE & B Engineering (M) Sdn. Bhd. #
Trading of electrical, refrigeration and air-conditioning equipment and parts
Malaysia 100 100 100
Far East Refrigeration (Kuching) Sdn. Bhd. #
Trading of electrical, refrigeration and air-conditioning equipment and parts
Malaysia 100 100 100
Far East Enterprises (J.B.) Sdn Bhd # †
Trading of electrical, refrigeration and air-conditioning equipment and parts
Malaysia 100 100 100
Safety Enterprises Sdn. Bhd. #
Trading of electrical, refrigeration and air-conditioning equipment and parts
Malaysia 100 100 100
+ Audited by Ho & Chung CPA Limited for 2008 and 2009. Audited by a member firm of Ernst & Young Global for 2010.
* Audited by Ho & Chung CPA Limited.
# Audited by a member firm of Ernst & Young Global.
† This subsidiary ceased trading activities in the financial year ended 31 December 2007.
@ Audited by Wong, Lee and Associates.
During the financial year ended 31 December 2009, the Group disposed off its entire interest in Far East Refrigeration (Hong Kong) Limited to a related party for a cash consideration of HK$1.
A-42
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
7. Unquoted investments
(a) Available-for-sale financial assets
2010 2009 2008$ $ $
Unquoted equity shares, at cost 95,865 371,865 383,945Allowance for impairment in value – (276,000) (276,000)Translation difference (6,897) (4,682) (5,521)
88,968 91,183 102,424
(b) The Group had the following unquoted investments as at 31 December 2010:
Name ofcompany
Country of incorporation and place of business
Effective equityheld by the Group Cost of investment
2010 2009 2008 2010 2009 2008% % % $ $ $
Held by the Company
Yantai Acme Refrigeration Equipment Co. Ltd
People’s Republic of China
Nil 10.80 10.80 – 276,000 276,000
Held by subsidiary companies
Guangzhou Fayi Trading Limited Company
People’s Republic of China
30.00 30.00 30.00 95,865 95,865 95,865
RSP Systems HK Limited
Hong Kong Nil Nil 28.55 – – 12,080
95,865 371,865 383,945Allowance for impairment in value – (276,000) (276,000)Translation difference (6,897) (4,682) (5,521)
88,968 91,183 102,424
A-43
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
7. Unquoted investments (cont’d)
Investments in unquoted investment are measured at cost less impairment losses as there is no quoted market price in an active market and the fair value of these investments cannot be reliably measured.
The Group’s interest in Guangzhou Fayi Trading Limited Company is held in trust for the Group by the majority shareholder of the investee. Notwithstanding that the Group has an effective shareholding of 30% in Guangzhou Fayi Trading Limited Company, the investment is not classified as associated company as the Group does not have significant influence in the operating and financing policies of the company.
During the financial year ended 31 December 2009, the Group disposed off its entire 28.55% interest in RSP Systems HK Limited for a cash consideration of $11,059.
During the financial year ended 31 December 2010, the Group wrote off its 10.8% interest in Yantai Acme Refrigeration Equipment Co. Ltd against allowance for impairment in value. Yantai Acme Refrigeration Equipment Co. Ltd have ceased operations as their business license has expired.
8. Deferred taxation
Deferred tax assets arise as a result of:
2010 2009 2008$ $ $
Unabsorbed capital allowance – – (12,713)Provisions 174,014 199,231 184,711
174,014 199,231 171,998
Deferred tax liabilities arise as a result of:
Excess of net book value over tax written down value of fixed assets 152,307 144,600 177,807
9. Inventories
2010 2009 2008$ $ $
Balance sheet
Finished goods 6,065,458 6,020,334 9,243,470Finished goods-in-transit 721,201 936,389 291,749Raw materials 995,780 993,919 1,420,189Work-in-progress 417,115 158,078 208,861
8,199,554 8,108,720 11,164,269
A-44
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
9. Inventories (cont’d)
2010 2009 2008$ $ $
Profit or loss
Inventories recognised as an expense in cost of sales 20,593,610 18,837,872 19,343,569Inclusive of the following charge: - Inventories written down – 557,059 1,074,247 - Inventories written back (1,154,215) – –
The management of the Group reviews an aging analysis of inventories to identify obsolete and slow-moving inventory items at each balance sheet date. An allowance for obsolete and slow-moving inventory items amounting to $Nil (2009: $557,059; 2008, $1,074,247) was provided with inventories written down to adjust the carrying value of inventories to the lower of cost and net realisable value. In 2010, allowance for obsolete and slow-moving inventory items amounting to $1,154,215 (2009: $Nil; 2008: $Nil) was written back as previously identified obsolete and slow-moving inventory items were sold during the financial year.
10. Trade debtors
2010 2009 2008$ $ $
Third party trade debtors 7,387,906 5,252,491 7,603,924Allowance for doubtful debts (741,363) (1,039,402) (1,452,941)
6,646,543 4,213,089 6,150,983
Trade debtors are non-interest bearing and are generally on 30 to 90 days’ terms. They are recognised at their original invoice amounts which represent their fair values on initial recognition.
Debtors that are past due but not impaired
The Group has trade debtors amounting to $3,836,260 (2009: $1,898,907; 2008: $3,329,057) that are past due at the balance sheet date but not impaired. These debtors are unsecured and the analysis of their aging at the balance sheet date is as follows:
2010 2009 2008$ $ $
Trade debtors past due:Less than 30 days 2,101,876 1,084,063 1,401,26430 to 60 days 514,080 383,585 1,226,31661 to 90 days 726,668 150,535 196,07791 to 120 days 87,527 83,537 207,124More than 120 days 406,109 197,187 298,276
3,836,260 1,898,907 3,329,057
A-45
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
10. Trade debtors (cont’d)
Debtors that are impaired
The Group’s trade debtors that are impaired as at 31 December 2010 amounted to $741,363 (2009: $1,039,402; 2008: $1,452,941). The movements in allowance for doubtful debts used to record the impairment during the financial year are as follows:
2010 2009 2008$ $ $
At beginning of year 1,039,402 1,452,941 1,814,914Allowance for the year 33,367 456,233 119,381Reclassification (previously classified as allowance against
amount due from an associated company (Note 12)) – – 196,000Written off against allowance (243,101) (691,457) (162,309)Written-back (66,996) (176,827) (505,015)Translation difference (21,309) (1,488) (10,030)
At end of year 741,363 1,039,402 1,452,941
Trade debtors that are individually determined to be impaired at the balance sheet date relate to debtors that are in significant financial difficulties and have defaulted on payments. These debts are not secured by any collateral or credit enhancements.
Allowance for doubtful debts amounting to $66,996 (2009: $176,827; 2008: $505,015) was written-back as these previously impaired amounts were recovered from trade debtors during the financial year.
Trade debtors denominated in foreign currencies as at 31 December are as follows:
2010 2009 2008$ $ $
United States Dollar 237,783 531,278 1,081,555Euro 15,346 16,150 –Ringgit Malaysia 45,068 103,505 172,312Renminbi 5,803 – 24,864Australian Dollar – 2,370 –
A-46
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
11. Other receivables
2010 2009 2008$ $ $
Sundry debtors 136,827 221,239 699,533Allowance for doubtful sundry debtors – (77,604) (295,987)
Other receivables, current 136,827 143,635 403,546Amount due from staff, representing other receivables, non-current 18,329 – –
155,156 143,635 403,546
Movements in allowance for doubtful sundry debtors during the year are as follows:
2010 2009 2008$ $ $
At beginning of year 77,604 295,987 108,152Allowance for the year – 80,474 222,928Written off against allowance (62,489) (71,802) (35,205)Written-back (8,914) (222,402) –Translation difference (6,201) (4,653) 112
At end of year – 77,604 295,987
Other debtors that are individually determined to be impaired at the balance sheet date relate to debtors that are in significant difficulties and have defaulted on payments. These debts are not secured by any collateral or credit enhancements.
Allowance for doubtful sundry debtors amounting to $8,914 (2009: $222,402; 2008: $Nil) was written back as these previously impaired accounts were recovered from sundry debtors during the financial year.
12. Amount due from/(to) holding/affiliated companies
These balances are unsecured, non-interest bearing and are expected to be repaid in cash within twelve months from the end of the financial year.
Movements in allowance for doubtful amount due from affiliated companies are as follows:
2010 2009 2008$ $ $
At beginning of year 136,711 180,639 –Allowance for the year – – 180,639Written-back (49,991) (43,928) –
At end of year 86,720 136,711 180,639
A-47
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
12. Amount due from/(to) holding/affiliated companies (cont’d)
The Group wrote back $49,991 (2009: $43,928; 2008: $Nil) of allowance for doubtful debt due from an affiliated company as these previously impaired amounts were recovered during the financial year.
As a result of the disposal of investment in an associated company during the financial year ended 31 December 2008, the related allowance amounting to $196,000 provided during the financial year ended 31 December 2007 had been reclassified to allowance for doubtful trade debts.
Included in the amount due from holding/affiliated companies are amounts denominated in the following currencies:
2010 2009 2008$ $ $
United States Dollar 18,925 – 112,606Renminbi – – 96,306
Included in the amount due to holding/affiliated companies are amounts denominated in the following currencies:
2010 2009 2008$ $ $
United States Dollar 255,143 69,319 234,433Ringgit Malaysia – 16,148 –
13. Trade payables
These amounts are non-interest bearing. Trade payables are normally settled on 30 to 90 days terms.
Trade payables denominated in foreign currencies as at 31 December are as follows:
2010 2009 2008$ $ $
United States Dollar 567,998 434,483 607,030Euro 284,632 103,221 292,816Ringgit Malaysia – – 33,938Renminbi 1,043 13,756 11,054Japanese Yen 70,421 263,012 383,896Singapore Dollar 22,754 2,464 1,369Great Britain Pound – – 10,587
A-48
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
14. Gross amount due to customers for contract work-in-progress
2010 2009 2008$ $ $
Aggregate amount of costs incurred and recognised profits to date 3,657,000 – –Less: Progress billings (4,250,000) – –
(593,000) – –
15. Trust receipts, bills payable and bank overdrafts (secured)
Trust receipts, bills payable and bank overdrafts are secured by way of legal mortgage on the Group’s freehold land and buildings, leasehold land and buildings and investment property with net book values amounting to $5,989,852, $226,649 and $Nil (2009: $6,000,338, $203,433 and $214,146; 2008: $6,080,804, $217,428 and $244,936) respectively, and joint and several guarantees by certain directors of the Group.
Trust receipts and bank overdrafts of certain subsidiary company are also secured by a debenture over the fixed and floating assets of certain subsidiary companies.
The trust receipts and bills payable bear interest ranging from 0.50% to 1.25% (2009: 0.25% to 0.5%; 2008: 0.5% to 1%) per annum above the bank’s prime rates and 2.0% to 3.0% (2009: Nil; 2008: Nil) per annum above the bank’s cost of funds. As at 31 December 2010, the effective interest rates range from 1.4% to 4.4% (2009: 2.5% to 5.0%; 2008: 3.5% to 5.25%) per annum.
The bank overdrafts bear interest ranging from 0.25% to 2.00% (2009: 0.25% to 1.75%; 2008: 0.25% to 1.75%) per annum above the banks’ prime rates. As at 31 December 2010, the effective interest rates range from 5.00% to 6.30% (2009: 5.00%; 2008: 5.25% to 5.375%) per annum.
Trust receipts denominated in foreign currencies as at 31 December are as follows:
2010 2009 2008$ $ $
United States Dollar 713,157 812,908 144,835Euro 1,899,907 232,445 –Japanese Yen – 107,920 53,108Singapore Dollar – – 60,000
A-49
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
16. Accruals and other liabilities
2010 2009 2008$ $ $
Accrued operating expenses 1,616,579 1,786,785 912,117Deposits received 132,849 142,817 297,221
1,749,428 1,929,602 1,209,338
17. Provision for warranty
A provision is recognised for expected warranty claims on certain products sold during the last year, based on past experience of the level of repairs and returns. It is expected that these costs will be incurred in the next financial year. Assumptions used to calculate the provision for warranties were based on current sales levels and current information available about returns based on a one-year warranty period for the relevant products sold.
During the financial year, based on the earlier mentioned statistics and warranty claims experience, management estimated the provision for warranty at approximately $50,000. Accordingly, provision for warranty of $50,000 (2009: $Nil; 2008: $Nil) was made during the financial year.
18. Loan from related party
Loan from related party amounting to $Nil (2009: $Nil; 2008: $150,000) bears interest at Nil (2009: Nil; 2008: 0.5%) per month, was unsecured and repayable on demand. The loan was fully repaid during the financial year ended 31 December 2009.
A-50
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
19. Finance lease obligations
Minimum lease
payments Interest
Present value of principal
$ $ $20101 year to 5 years 62,328 3,849 58,480Not later than 1 year 20,784 2,856 17,927
83,112 6,705 76,407
20091 year to 5 years – – –Not later than 1 year – – –
– – –
20081 year to 5 years 12,046 2,309 9,737Not later than 1 year 5,376 1,026 4,350
17,422 3,335 14,087
During the financial year ended 31 December 2009, the Group repaid all the finance lease obligations. In the financial years ended 31 December 2010 and 2008, the finance lease terms were 5 years and ranged from 1 to 5 years respectively with options to purchase at the end of the lease term. Finance lease terms do not contain restrictions concerning dividends, additional debt or further leasing. As at 31 December 2010, the effective interest rates was 4.19% (2009: Nil; 2008: 6.4%) per annum.
A-51
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
20. Term loans
2010 2009 2008$ $ $
Secured term loans
(a) Term loan bears interest at 4.5% per annum for the first year of the loan with effect from May 2005; bears interest at bank’s prime lending rate per annum for the second year and thereafter bears interest at 0.9% per annum above the bank’s prime lending rate. The term loan is repayable in 84 monthly instalments commencing December 2005. – 281,231 376,212
(b) Commercial property loan bears interest at 3.25% per annum for the first year of the loan with effect from 30 June 2003; bears interest at 3.5% per annum for the second year, bears interest at the bank’s prime lending rates for the third to fifth year, bears interest at 3.75% per annum for the sixth year, bears interest at 4.5% per annum for the seventh year, and thereafter bears interest at 0.75% per annum over the bank’s commercial financing rate. The term loan is repayable in 300 monthly instalments commencing 1 October 2003. 1,515,390 1,567,820 1,622,115
(c) Short term loan bears interest at 2.94% (2009: 3.4%; 2008: 4.13%) per annum with effect from 22 October 2010 (2009: 22 October 2009; 2008: 22 July 2008). The loan is repayable in lump sum together with interest on 24 January 2011. 100,571 100,662 101,833
(d) Term loan bears interest at 3.375% per annum for the first year of the loan with effect from March 2009; and thereafter at 1.5% per annum above the 12 months Singapore Interbank Offered Rate. The term loan is repayable in 60 monthly instalments commencing April 2009. 399,777 516,639 –
(e) Bridging loan bears interest fixed at 5% per annum with effect from May 2009. The loan is repayable in 36 monthly instalments commencing June 2009. 174,393 516,900 –
A-52
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
20. Term loans (cont’d)
2010 2009 2008$ $ $
Secured term loans (cont’d)
(f) Term loan bears interest at 2% per annum below Prime Rate with effect from 17 July 2008. The term loan is repayable in 120 monthly instalments commencing 17 August 2008. – 445,286 501,715
2,190,131 3,428,538 2,601,875
Repayable within 12 months 447,641 748,947 286,571Repayable after 12 months 1,742,490 2,679,591 2,315,304
2,190,131 3,428,538 2,601,875
(a) The term loan was secured by a first party legal charge for RM1,500,000 and second legal charge for RM3,000,000 over freehold land and leasehold land and building with total net book value of $Nil (2009: $1,418,828; 2008: $1,455,902) and joint and several guarantees by certain directors.
(b) The term loan is secured by legal mortgages over freehold land and buildings with a net book value of $4,429,172 (2009: $4,468,364; 2008: $4,507,554), and joint and several guarantees by certain directors.
(c) The term loan is secured by joint and several guarantees by certain directors.
(d) The term loan is secured by a first legal charge over leasehold land and building with a net book value of $117,072 (2009: $122,537; 2008: $Nil) and joint and several guarantees by certain directors.
(e) The bridging loan is secured by joint and several guarantees by certain directors.
(f) The term loan was secured by a legal mortgage over leasehold building and investment property with total net book value of $Nil (2009: $20,697; 2008: $46,503) and joint and several guarantees by certain directors and related parties.
As at 31 December 2010, the effective interest rates range from 2.35% to 5.25% (2009: 2.41% to 7.40%; 2008: 3.25% to 7.40%) per annum.
21. Loans from shareholders and directors
Loans from shareholders and directors are unsecured, bear interest at 0% (2009: 0% or 4.5%; 2008: 0%) per annum and are to be settled in cash. As at 31 December 2010, the Group expects to make repayment of $550,000 (2009: $390,000; 2008: $703,772) within the next financial year, based on agreed upon repayment terms with shareholders and directors.
A-53
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
22. Share capital
2010 2009 2008$ $ $
Issued and fully paid:At beginning and at end of year 8,134,740 8,134,740 8,134,740
Number of ordinary shares 80,888 80,888 80,888
The holders of the ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restriction. The ordinary shares have no par value.
23. Translation reserve
The translation reserve represents exchange differences arising from the translation of the financial statements of foreign operations whose functional currencies are different from the Group’s presentation currency.
24. Turnover
Turnover represents the invoiced value of goods sold net of returns and allowances, sales tax and goods and services tax. Significant intra-group transactions have been excluded from Group turnover.
2010 2009 2008$ $ $
Sale of goods 28,503,867 25,357,184 27,664,732Project sales and installation works 4,069,081 1,417,033 1,521,078Project maintenance service 43,190 31,195 5,580
32,616,138 26,805,412 29,191,390
A-54
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
25. Other operating income
2010 2009 2008$ $ $
Commission income 135,279 190,695 46,445Dividend income – 100,751 76,188Long outstanding unclaimed debt written off – – 185,567Rental income 184,079 195,610 273,844Negative goodwill written off – – 1,512Gain on disposal of investment in an associated company – – 1Gain on disposal of investment properties, net 1,062,245 – –Gain on disposal of fixed assets, net 7,881 53,747 4,474Grant income from jobs credit scheme 17,310 101,481 –Others 45,941 70,214 15,419
1,452,735 712,498 603,450
During the financial year ended 31 December 2009, the Singapore Finance Minister announced the introduction of a Jobs Credit Scheme (Scheme). Under this Scheme, the Group received a 12% cash grant on the first $2,500 of each month’s wages for each employee on their Central Provident Fund payroll. The Group received its grant income of $101,481 in four receipts in March, June, September and December 2009. The government extended the Jobs Credit scheme for half a year in 2010 and the Group received a cash grant of $17,310 at stepped-down rates of 6% and 3% in March and June 2010 respectively.
26. Other operating expenses
2010 2009 2008$ $ $
License fee paid to a supplier – 60,108 –Foreign exchange loss, net 203,960 110,780 153,019Loss on disposal of investment in a subsidiary company – 33,814 –Loss on disposal of an unquoted investment – 38 –Others 21,165 11,048 5,749
225,125 215,788 158,768
A-55
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
27. Profit from operations
Other than as disclosed in Notes 25 and 26, profit from operations is determined after charging/(crediting) the following:
2010 2009 2008$ $ $
Sundry debts written off 12,273 – 11,848Depreciation of fixed assets 432,741 416,336 412,725Depreciation of investment properties 24,999 12,008 12,897Directors’ fees- directors of the Company 121,500 99,000 88,500- directors of subsidiary companies 53,911 53,803 54,408Directors’ remuneration- directors of the Company 585,596 556,843 529,856- directors of subsidiary companies 348,400 339,043 309,945Allowance for doubtful trade debts written back (66,996) (176,827) (505,015)Allowance for doubtful trade debts 33,367 456,233 119,381Allowance for doubtful trade debts due from an affiliated
company – – 180,639Allowance for doubtful trade debts due from an affiliated
company written back (49,991) (43,928) –Allowance for doubtful sundry debts – 80,474 222,928Allowance for doubtful sundry debts written back (8,914) (222,402) –Warranty expenses 50,000 – –Inventories written down – 557,059 1,074,247Inventories written back (1,154,215) – –Fixed assets written off 342 – 50Net fair value loss on derivatives 203 – –Personnel expenses (Note 28) 3,951,323 3,565,246 3,171,316
28. Personnel expenses
2010 2009 2008$ $ $
Wages and salaries * 3,615,477 3,275,787 2,909,517Central Provident Fund contributions * 326,252 280,597 255,556Other social expenses, net 9,594 8,862 6,243
3,951,323 3,565,246 3,171,316
* Personnel expenses include amounts disclosed as directors’ remuneration in Note 27.
A-56
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
29. Financial expenses
2010 2009 2008$ $ $
Interest expense- finance lease obligations 3,587 2,519 1,427- bank overdrafts 8,838 45,216 96,193- term loans 127,808 146,782 138,393- related party – 5,500 9,000- trust receipts 160,963 275,489 368,923- director – 5,583 –- others 463 5,608 9,013
301,659 486,697 622,949
30. Tax expense
2010 2009 2008$ $ $
Current tax- current year 864,125 381,315 325,203- over provision in respect of prior years (2,984) (22,824) (34,605)Deferred tax- current year 17,755 (59,913) 18,710- under provision in respect of prior years 17,704 1,229 84,143Reduction in opening deferred taxes resulting from reduction in tax rate – (2,877) 424
896,600 296,930 393,875
As at 31 December 2010, the Group had unutilised tax losses of approximately $584,000 (2009: $264,000; 2008: $372,000) available for offset against future taxable profits, subject to agreement of the relevant income tax authorities and compliance with certain provisions of the tax legislation of the respective countries in which the subsidiary companies operate.
A-57
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
30. Tax expense (cont’d)
A reconciliation between the tax expense and the product of accounting profit multiplied by the applicable tax rate for the years ended 31 December was as follows:
2010 2009 2008$ $ $
Accounting profit 5,449,412 1,639,096 1,357,784
Tax at the applicable rate of 17% (2009: 17%; 2008: 18%) 926,400 278,646 244,401Tax effect of expenses not deductible in determining taxable
profit, net 118,984 19,220 48,433Tax effect arising from differences in tax rates (119,524) (13,044) 130,475(Over)/under provision in respect of prior years 14,720 (21,595) 49,538Deferred tax asset not recognised 54,545 83,674 21,781Tax exemption (49,081) (31,074) (40,651)Effect of utilisation of reinvestment allowance (7,115) (9,839) (38,938)Utilisation of deferred tax asset previously not recognised (57,066) (6,181) (21,588)Reduction in opening deferred taxes resulting from
reduction in tax rate – (2,877) 424Others 14,737 – –
Tax expense 896,600 296,930 393,875
The corporate income tax rate applicable to Singapore companies of the Group was reduced to 17% for the year of assessment 2010 onwards from 18% for the year of assessment 2009.
31. Earnings per share
Basic earnings per share is calculated by dividing profit for the year that is attributable to ordinary equity holders of the Company by the average number of ordinary shares outstanding during the year.
Diluted earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the diluted potential ordinary shares into ordinary shares. There were no potential dilutive ordinary shares existing during the respective financial years.
A-58
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
31. Earnings per share (cont’d)
The following table reflects the profit for the year and share data used in the computation of basic and diluted earnings per share for the financial years ended 31 December 2010, 2009 and 2008:
2010 2009 2008$ $ $
Profit for the year attributable to ordinary equity holders of the Company used in computation of basic and diluted earnings per share ($) 4,506,334 1,312,437 933,165
Average number of ordinary shares (1) 48,532,800 48,532,800 48,532,800
(1) For comparative purposes, earnings per share for the financial years reported on have been computed on the profit for the year attributable to ordinary equity holders divided by the number of ordinary shares adjusted for the sub-division for every one ordinary share into 600 ordinary shares (see Note 40 (d) (iii)).
32. Dividends
2010 2009 2008$ $ $
Declared during the financial year:Interim exempt (one-tier) dividend for 2010: $24.73
(2009: $Nil; 2008: $Nil) per share 2,000,000 – –
33. Cash and cash equivalents
2010 2009 2008$ $ $
Cash and bank balances 2,350,114 2,778,697 1,686,888Bank overdrafts (57,374) (30,981) (1,291,985)Fixed deposits 1,399,779 409,785 151,501
Cash and cash equivalents 3,692,519 3,157,501 546,404
As at 31 December 2010, fixed deposits earn interest at 0.15% to 2.75% per annum.
A-59
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
33. Cash and cash equivalents (cont’d)
Cash and cash equivalents denominated in foreign currencies as at 31 December are as follows:
2010 2009 2008$ $ $
United States Dollar 597,483 522,329 190,976Euro 64,933 100,672 229,846Japanese Yen 73,763 45,172 415Renminbi 3,132 – –Singapore Dollar 5 5 5
34. Related party information
In addition to the related party information disclosed elsewhere in the financial statements, significant transactions with related parties, on terms agreed between the parties, were as follows:
(a) Sales of goods and services
2010 2009 2008$ $ $
IncomeSale of goods to affiliated companies 233,760 27,797 49,009Commission income from affiliated companies 135,279 123,739 46,444
ExpensesPurchases from affiliated companies 792,804 897,530 860,557Rental paid to a related party 21,192 22,548 20,952Interest expense paid to a director – 5,583 –Interest expense paid to a related party – 5,500 9,000
(b) Compensation of key management personnel
2010 2009 2008$ $ $
Short-term employee benefits 889,921 859,038 796,479Central Provident Fund contributions 44,075 36,848 43,322
Total compensation paid to key management personnel 933,996 895,886 839,801
Total compensation paid to key management personnel relates to Directors’ remuneration in Note 27.
A-60
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
35. Contingent liabilities and commitments
(a) Contingent liabilities
The Company issued corporate guarantees to banks for securing banking facilities of subsidiary and affiliated companies.
(b) Lease commitments
As a lessee
As at 31 December 2010, the Group had aggregate lease commitments in respect of stores and offices of $1,389,000 (2009: $1,490,000; 2008: $1,397,000) payable as follows:
2010 2009 2008$ $ $
Not later than one year 208,000 217,000 103,000One year through five years 298,000 338,000 307,000After five years 883,000 935,000 987,000
1,389,000 1,490,000 1,397,000
Most leases contain renewable options. Lease terms do not contain restrictions on the Group’s activities concerning dividends, additional debt or further leasing.
Minimum lease payments recognised as an expense in profit or loss of the Group for the financial year ended 31 December 2010 amounted to $268,192 (2009: $179,571; 2008: $135,945).
As a lessor
The Group leases out freehold and leasehold buildings under operating lease arrangements, with leases negotiated up to a term of 2 years with options to renew upon expiry of lease periods. The terms of the lease generally also require the tenant to pay a security deposit.
As at 31 December 2010, the Group had aggregate future minimum lease receivables under non-cancellable operating leases as follows:
2010 2009 2008$ $ $
Not later than one year 51,000 101,000 152,000One year through five years – 39,000 48,000
51,000 140,000 200,000
A-61
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
35. Contingent liabilities and commitments (cont’d)
(c) Forward contracts commitments
The forward contracts commitments are secured by way of legal mortgage on the Group’s freehold and leasehold land and buildings with net book value amounting to $4,429,172 and $117,072 (2009: $4,468,364 and $122,537; 2008: $4,507,554 and $128,004) respectively and joint and several guarantees by certain directors of the Company.
The net fair value of these derivative contracts amounted to a liability of approximately $203 (2009: $Nil; 2008: $Nil).
The Group has outstanding forward contracts as at 31 December 2010 to purchase the following:
- EUR 200,521 (2009: $Nil; 2008: $Nil) for a consideration of $171,389 and HKD1,036,000 (2009: $Nil; 2008: $Nil);
- US$Nil (2009: US$15,572; 2008: US$206,954) for a consideration of $Nil (2009: $22,361; 2008: $310,257); and
- JPY 2,000,000 (2009: $Nil; 2008: $Nil) for a consideration of HKD 191,200 (2009: $Nil; 2008: $Nil).
within 5 months (2009: 2 months; 2008: 5 months) from the end of the financial year.
36. Financial risk management objectives and policies
The Group’s principal financial instruments, other than derivative financial instruments and available-for-sale financial assets, comprise bank loans, bank overdrafts, trust receipts, bills payable, finance leases, cash and fixed deposits. The main purpose of these financial instruments is to finance the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.
The Group also enters into derivative transactions, including principally foreign currency forward contracts. The purpose is to manage the foreign exchange currency risk arising from the Group’s operations. It is, and has been throughout the year under review, the Group’s policy that no trading in derivative financial instruments shall be undertaken.
The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign exchange risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.
There has been no change to the Group’s exposure to these financial risks or the manner in which it manages and measures the risks.
A-62
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
36. Financial risk management objectives and policies (cont’d)
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial instruments will fluctuate because of changes in market interest rates. The Group’s exposure to interest rate risk arises primarily from their loans and borrowings.
Information relating to the Group’s interest rate exposure is also disclosed in the notes on the Group’s borrowings.
Sensitivity analysis for interest rate risk
At the balance sheet date, if SGD interest rate had been 50 (2009: 50; 2008: 50) basis points lower/higher with all other variables held constant, the Group’s profit net of tax would have been $28,000 (2009: $38,000; 2008: $58,000) higher/lower, arising mainly as a result of lower/higher interest expense on floating rate loans and borrowings. The analysis is performed on the same basis for 2009 and 2008.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligations due to shortage of funds. The Group’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of stand-by credit.
In the management of liquidity risk, the Group monitors and maintains a level of cash and bank balances deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows.
Short-term funding is obtained from overdraft and revolving credit facilities.
A-63
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
36. Financial risk management objectives and policies (cont’d)
Liquidity risk (cont’d)
The table below summaries the maturity profile of the Group’s financial assets and liabilities at the balance sheet date based on contractual undiscounted repayment obligations:
Group1 yearor less
1 to 5years
Morethan
5 years Total$ $ $ $
2010
Financial assetsTrade debtors 6,864,190 – – 6,864,190Other receivables 136,827 18,329 – 155,156Cash and cash equivalents 3,749,893 – – 3,749,893
Total undiscounted financial assets 10,750,910 18,329 – 10,769,239
Financial liabilitiesTrade payables 1,750,187 – – 1,750,187Other payables and liabilities 4,263,985 – – 4,263,985Finance lease obligations 20,784 62,328 – 83,112Loan and borrowings 4,567,620 1,613,754 1,908,164 8,089,538Derivative financial instruments 203 – – 203
Total undiscounted financial liabilities 10,602,779 1,676,082 1,908,164 14,187,025
Total net undiscounted financial assets/(liabilities) 148,131 (1,657,753) (1,908,164) (3,417,786)
A-64
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
36. Financial risk management objectives and policies (cont’d)
Liquidity risk (cont’d)
Group1 yearor less
1 to 5years
Morethan
5 years Total$ $ $ $
2009
Financial assetsTrade debtors 4,299,536 – – 4,299,536Other receivables 174,445 – – 174,445Cash and cash equivalents 3,188,482 – – 3,188,482
Total undiscounted financial assets 7,662,463 – – 7,662,463
Financial liabilitiesTrade payables 1,452,660 – – 1,452,660Other payables and liabilities 2,296,779 – – 2,296,779Loan and borrowings 5,467,701 2,482,669 2,583,517 10,533,887
Total undiscounted financial liabilities 9,217,140 2,482,669 2,583,517 14,283,326
Total net undiscounted financial liabilities (1,554,677) (2,482,669) (2,583,517) (6,620,863)
2008
Financial assetsTrade debtors 6,440,730 – – 6,440,730Other receivables 825,733 – – 825,733Cash and cash equivalents 1,838,389 – – 1,838,389
Total undiscounted financial assets 9,104,852 – – 9,104,852
Financial liabilitiesTrade payables 2,208,922 – – 2,208,922Other payables and liabilities 1,852,770 – – 1,852,770Loan and borrowings 10,627,014 1,529,636 3,354,714 15,511,364
Total undiscounted financial liabilities 14,688,706 1,529,636 3,354,714 19,573,056
Total net undiscounted financial liabilities (5,583,854) (1,529,636) (3,354,714) (10,468,204)
A-65
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
36. Financial risk management objectives and policies (cont’d)
Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to United States dollar (USD), Euro, Chinese Renminbi (RMB), Ringgit Malaysia (RM) and Japanese Yen (JPY). Foreign exchange risk arises when future commercial transactions, recognised assets or liabilities, investments in foreign operations whose net assets are denominated in a currency other than the respective functional currencies of the Group entities, primarily Singapore dollar, Hong Kong dollar (HKD) and Ringgit Malaysia.
The Group uses foreign currency denominated assets as a natural hedge against its foreign currency denominated liabilities. The Group also enters into forward foreign exchange contracts to hedge its foreign currency risk. It is the Group’s policy not to trade in derivative contracts.
The Group is exposed to currency translation risk arising from its net investments in foreign operations, including Malaysia and Hong Kong. The Group net investments in foreign operations are not hedged as currency position in RM and HKD are considered to be long-term in nature.
Sensitivity analysis for foreign currency risk
The following table demonstrates the sensitivity of the Group’s profit net of tax to a reasonably possible change in the USD, EUR, RMB, RM and JPY exchange rates against SGD, with all other variables held constant.
Profit net of tax2010 2009 2008
$ $ $
USD/SGD -strengthened 5% (2009: 5%; 2008: 5%) +35,000 –27,000 +24,000-weakened 5% (2009: 5%; 2008: 5%) –35,000 +27,000 –24,000
EUR/SGD -strengthened 5% (2009: 5%; 2008: 5%) –87,000 –14,000 +7,000-weakened 5% (2009: 5%; 2008: 5%) +87,000 +14,000 –7,000
RMB/SGD -strengthened 5% (2009: 5%; 2008: 5%) – +5,000 +34,000-weakened 5% (2009: 5%; 2008: 5%) – –5,000 –34,000
RM/SGD -strengthened 5% (2009: 5%; 2008: 5%) +2,000 +4,000 +5,000-weakened 5% (2009: 5%; 2008: 5%) –2,000 –4,000 –5,000
JPY/SGD -strengthened 5% (2009: 5%; 2008: 5%) –2,000 –16,000 –22,000-weakened 5% (2009: 5%; 2008: 5%) +2,000 +16,000 +22,000
A-66
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
36. Financial risk management objectives and policies (cont’d)
Credit risk
Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group’s exposure to credit risk arises primarily from trade receivables. For other financial assets (including cash and cash equivalents and derivatives), the Group minimises credit risk by dealing with high credit rating counterparties.
The Group’s objective is to seek continual revenue growth while minimising losses incurred due to increased credit risk exposure.
The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result of minimising the Group’s exposure to bad debts.
With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents and other debtors (including related party balances), the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.
Since the Group trades only with recognised and creditworthy third parties, there is no requirement for collateral.
Credit risk concentration profile
The Group determines concentrations of credit risk by monitoring the country sector profile of its trade debtors on an ongoing basis. The credit risk concentration profile of the Group’s trade debtors at the balance sheet date is as follows:
2010 2009 2008
$% oftotal $
% oftotal $
% oftotal
Singapore 3,435,333 52% 1,866,681 44% 3,088,356 50%Malaysia 1,691,946 25% 1,065,563 25% 1,348,560 22%Indonesia 527,737 8% 614,530 15% 653,243 11%Hong Kong/Macau/ People’s
Republic of China 759,019 11% 317,744 7% 311,613 5%Indo-China* 25,239 0% 25,980 1% 23,804 0%Other countries 207,269 4% 322,591 8% 725,407 12%
6,646,543 100% 4,213,089 100% 6,150,983 100%
* Relates to Vietnam, Myanmar and Cambodia.
At the balance sheet date, approximately 54% (2009: 26%; 2008: 23%) of the Group’s trade debtors were due from 5 major customers.
A-67
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
36. Financial risk management objectives and policies (cont’d)
Credit risk (cont’d)
Financial assets that are neither past due nor impaired
Trade and other debtors that are neither past due nor impaired are creditworthy debtors with good payment record with the Group. Other receivables, deposit and prepayments, fixed deposit and cash and bank balances that are neither past due nor impaired are placed with or entered into with reputable financial institutions or companies with high credit ratings and no history of default.
Financial assets that are either past due or impaired
Information regarding financial assets that are either past due or impaired is disclosed in Note 10 (Trade debtors), Note 11 (Other receivables) and Note 12 (Amount due from/(to) holding/affiliated companies).
37. Fair value of financial instruments
Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm’s length transaction, other than in a forced or liquidation sale. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models as appropriate.
Carrying amount Fair value2010 2009 2008 2010 2009 2008
$ $ $ $ $ $Financial assets
Available for sale financial assetsUnquoted investments 88,968 91,183 102,424 * * *
Loans and receivablesTrade debtors 6,646,543 4,213,089 6,150,983 6,646,543 4,213,089 6,150,983Other receivables 155,156 143,635 403,546 155,156 143,635 403,546Deposits 101,384 98,420 65,037 101,384 98,420 65,037Due from holding
company – 21,978 120,814 – 21,978 120,814Due from affiliated
companies 217,647 95,279 591,120 217,647 95,279 591,120Fixed deposits 1,399,779 409,785 151,501 1,399,779 409,785 151,501Cash and bank balances 2,350,114 2,778,697 1,686,888 2,350,114 2,778,697 1,686,888
10,870,623 7,760,883 9,169,889 10,870,623 7,760,883 9,169,889
*Refer to Note 37(c).
A-68
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
37. Fair value of financial instruments (cont’d)
Carrying amount Fair value2010 2009 2008 2010 2009 2008
$ $ $ $ $ $
Financial liabilities
Financial liabilities carried at amortised cost
Trade payables 1,495,044 1,361,692 1,974,489 1,495,044 1,361,692 1,974,489Trust receipts and bills
payable 3,423,536 4,164,239 8,083,933 3,423,536 4,164,239 8,083,933Other creditors 767,512 268,734 538,472 767,512 268,734 538,472Accruals and other
liabilities 1,749,428 1,929,602 1,209,338 1,749,428 1,929,602 1,209,338Dividend payable 1,636,087 82,295 82,254 1,636,087 82,295 82,254Due to affiliated company 366,101 107,116 257,139 366,101 107,116 257,139Loan from related party – – 150,000 – – 150,000Finance lease obligations 76,407 – 14,087 76,407 – 14,087Term loans 2,190,131 3,428,538 2,601,875 2,190,131 3,428,538 2,601,875Bank overdrafts 57,374 30,981 1,291,985 57,374 30,981 1,291,985
11,761,620 11,373,197 16,203,572 11,761,620 11,373,197 16,203,572
Loans from shareholders and directors 1,582,397 2,015,897 2,542,545 * * *
13,344,017 13,389,094 18,746,117
*Refer to Note 37(c).
A-69
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
37. Fair value of financial instruments (cont’d)
The following methods and assumptions are used to estimate the fair value of each class of financial instrument:
(a) Fair value of financial instruments that are carried at fair value
The following table shows an analysis of financial instruments carried at fair value by level of fair value hierarchy:
Group2010
$Quoted
prices inactive
marketsfor identicalinstruments
Significantother
observableinputs
Significantun-
observableinputs
Total
(Level 1) (Level 2) (Level 3)
Financial liabilities:Derivatives (Note 35)- Forward currency contracts – (203) – (203)
No comparatives have been presented as there were no financial instruments carried at fair value as at 31 December 2009.
Fair value hierarchy
The Company classifies fair value measurement using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy have the following levels:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices), and
Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs)
There have been no transfers between Level 1 and Level 2 during the financial years ended 2010 and 2009.
Derivatives (Note 35): Forward currency contracts are valued by financial institutions using a valuation technique with market observable inputs.
A-70
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
37. Fair value of financial instruments (cont’d)
(b) Financial instruments whose carrying amount approximates fair value
Management has determined that the carrying amounts of cash and cash equivalents, trade debtors, other receivables, trade payables, trust receipts and bill payables, other creditors, amount due from/(to) affiliated and holding companies, loan from related parties and term loans, reasonably approximate their fair values because these are mostly short term in nature or are repriced frequently.
Obligations under finance leases
The carrying amount of obligations under finance leases approximates their fair values as the current lending rates for similar type of lending arrangement is not materially different from the rates obtained by the Group.
(c) Financial instruments carried at other than fair value
Loan from shareholders and directors
The loan from shareholders and directors have no fixed repayment terms. The loan from shareholders and directors are repayable only when the cash flows of the Group permits. Accordingly, the fair values of these balances are not determinable as the timing of the future cash flows arising from these balances cannot be estimated reliably.
Unquoted equity investments
In the directors’ opinion, it is not practicable to determine the fair value of the unquoted equity investments held as long-term investments and carried at cost less impairment losses. The expected cash flows from these investments are believed to be in excess of the carrying amount.
38. Capital management
The primary objective of the Group’s capital structure is to maintain an efficient mix of debt and equity in order to achieve a low cost of capital, while taking into account the desirability of retaining financial flexibility to pursue business opportunities and adequate access to liquidity to mitigate the effect of unforeseen events on cash flows.
The directors regularly review the Group’s capital structure and made adequate adjustments to reflect economic conditions, business strategies and future commitments. No changes were made to the objectives, policies or processes during the years ended 31 December 2008, 2009 and 2010.
A-71
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
38. Capital management (cont’d)
The Group is required to comply with certain financial covenants as imposed by certain financial institutions with respect to bank facilities that were granted. The most restrictive covenants require the Group to maintain a gearing ratio covering borrowings from financial institutions of not more than 3 times against the Group’s net worth and net worth of not less than $8.5 million at all times. The Group continuously monitors its compliance with these covenants. As at 31 December 2008, 2009 and 2010, the Group has complied with these covenants.
2010 2009 2008$ $ $
Trust receipts and bills payable (secured) 3,423,536 4,164,239 8,083,933Finance lease obligation 76,407 – 14,087Term loans 2,190,131 3,428,538 2,601,875Bank overdrafts (secured) 57,374 30,981 1,291,985
Net debt 5,747,448 7,623,758 11,991,880
Share capital and reserves 13,217,732 10,586,882 9,485,713
Total capital 13,217,732 10,586,882 9,485,713
Gearing ratio 0.43 0.72 1.26
39. Segment information
For management purposes, the Group is organised into business units based on products and services, and has three reportable operating segments as follows:
- Residential and commercial (air-conditioning) segment relates to sale and distribution of air-conditioning materials which mainly comprises of copper pipes, copper tubes, Class O and Class 1 closed cell insulation pipes and sheets, PVC trunkings, electrical wires and refrigerants.
- Commercial and light industrial (refrigeration) segment relates to sale of refrigeration component parts including compressors, condensers, condensing units, multiple compressor racks units, electronic controls, energy management solutions, service equipments and tools and the Group’s range of thermal heat exchangers comprising of evaporators, condensers and custom coils.
- Oil, marine and gas (refrigeration and air-conditioning) segment relates to sales and distribution of a range of air-condition and refrigeration systems suitable for the oil, marine and gas industry. These products include the Group’s brand of heat exchangers and packaged condensing units installed onboard ships, vessels and oil rigs, which are primarily used to preserve food, other perishables and also to provide air-condition for the living and working spaces of the vessel’s crew.
A-72
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
39. Segment information (cont’d)
Except as indicated above, no operating segment have been aggregated to form the above reportable operating segment.
Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on gross profit or loss.
Income and expenses (other than revenue and cost of sales) are managed on a group basis and are not allocated to operating segments.
Residential and commercial
(air-conditioning)
Commercial and light industrial
(refrigeration)
Oil, marine and gas
(refrigeration and air-
conditioning) Total$ $ $ $
2010Revenue 6,194,465 23,732,437 2,689,236 32,616,138Cost of sales (4,546,391) (15,742,026) (1,608,736) (21,897,153)
Gross profit 1,648,074 7,990,411 1,080,500 10,718,985
2009Revenue 4,704,147 19,661,618 2,439,647 26,805,412Cost of sales (3,775,597) (14,230,466) (1,611,553) (19,617,616)
Gross profit 928,550 5,431,152 828,094 7,187,796
2008Revenue 5,414,430 20,641,502 3,135,458 29,191,390Cost of sales (4,233,067) (15,765,412) (2,090,363) (22,088,842)
Gross profit 1,181,363 4,876,090 1,045,095 7,102,548
A-73
APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
39. Segment information (cont’d)
Geographical information
Revenue and non-current assets information based on the geographical location of customers and assets respectively are as follows:
2010 2009 2008$ $ $
RevenueSingapore 13,755,693 11,083,158 12,249,862Malaysia 8,872,299 7,572,458 7,808,003Indonesia 3,810,232 2,996,464 3,632,106Hong Kong/Macau/People’s Republic of China 3,382,777 2,127,215 1,642,935Indo-China* 922,370 809,507 1,644,897Others 1,872,767 2,216,610 2,213,587
32,616,138 26,805,412 29,191,390
* Relates to Vietnam, Myanmar and Cambodia.
2010 2009 2008$ $ $
Non-current assetsSingapore 5,166,439 5,053,977 5,094,285Malaysia 2,325,051 2,546,440 2,621,827Hong Kong 44,984 16,255 51,868
7,536,474 7,616,672 7,767,980
Non-current assets information presented above consist of fixed assets, investment properties and other receivables as presented in the consolidated balance sheet.
Information about a major customer
Revenue from one major customer amounted to $3,400,000 (2009: $Nil; 2008: $Nil), arising from project sales and installation works in the residential and commercial cooling segment.
40. Events occurring after the balance sheet date
(a) On 15 February 2011, the Company declared an interim exempt (one-tier) dividend of $24.73 per share, amounting to $2,000,000.
(b) On 17 March 2011, the Company issued 8,312 new ordinary shares for a cash consideration of $1,187,452.
(c) On 18 March 2011, the Company changed its name from Far East Refrigeration (Pte) Limited to Far East Group Pte. Ltd.
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APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
40. Events occurring after the balance sheet date (cont’d)
(d) At an extraordinary general meeting held on 22 July 2011, the shareholders approved, inter alia, the following:
(i) the conversion of the Company into a public limited company and the change of the name to “Far East Group Limited”;
(ii) the adoption of a new set of Articles of Association;
(iii) the sub-division of every one ordinary share into 600 ordinary shares (the “Sub-Division”);
(iv) the issue of 18,800,000 new ordinary shares pursuant to the placement, which when allotted or allocated, issued and fully-paid, will rank pari passu in all respects with the existing ordinary shares; and
(v) the authorisation of the Directors, pursuant to Section 161 of the Companies Act, to
allot and issue ordinary shares whether by way of rights, bonus or otherwise (including ordinary shares as may be issued pursuant to any Instrument (as defined below) made or granted by the Directors while this resolution is in force notwithstanding that the authority conferred by this resolution may have ceased to be in force at the time of issue of such ordinary shares), and/or
make or grant offers, agreements or options (collectively, “Instruments”) that might or would require ordinary shares to be issued, including but not limited to the creation and issue of warrants, debentures or other instruments convertible into ordinary shares,
at any time and upon such terms and conditions and for such purposes and to such persons as the Directors may in their absolute discretion deem fit, provided that the aggregate number of ordinary shares issued pursuant to such authority (including ordinary shares to be issued pursuant to any Instrument but excluding ordinary shares which may be issued pursuant to any adjustments (“Adjustments”) effected under any relevant Instrument, which Adjustment shall be made in compliance with the provisions of the Catalist Rules for the time being in force (unless such compliance has been waived by the SGX-ST) and the Articles of Association for the time being of the Company), shall not exceed 100% of the issued share capital of the Company (excluding treasury shares) immediately after the placement, and provided that the aggregate number of such ordinary shares to be issued other than on a pro rata basis in pursuance to such authority (including ordinary shares to be issued pursuant to any Instrument but excluding shares which may be issued pursuant to any Adjustment effected under any relevant Instrument) to the existing shareholders shall not exceed 50% of the issued share capital of the Company (excluding treasury shares) immediately after the placement, and, unless revoked or varied by the Company in general meeting, such authority shall continue in force until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier; and
(vi) the adoption of the Shareholders’ Mandate.
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APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
NOTES TO THE FINANCIAL STATEMENTS – 31 December 2008, 2009 and 2010 (cont’d)
41. Authorisation of financial statement
The financial statements for the years ended 31 December 2008, 2009 and 2010 were authorised for issue in accordance with a directors’ resolution dated on 25 July 2011.
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APPENDIX A – INDEPENDENT AUDITORS’ REPORT ON THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF FAR EAST GROUP LIMITED
AND SUBSIDIARY COMPANIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010
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The discussion below provides a summary of certain provisions of our Articles of Association and the laws of Singapore. This discussion is only a summary and is qualified by reference to Singapore law and our Memorandum and Articles of Association.
Registration number
We are registered in Singapore with the Accounting and Corporate Regulatory Authority (“ACRA”) under the company registration number 196400096C.
Summary of our Articles of Association
1. Directors
(a) Ability of interested directors to vote
A Director shall not vote in respect of any contract, proposed contract or arrangement in which he has any personal material interest, and he shall not be counted in the quorum present at the meeting.
(b) Remuneration
Fees payable to Non-executive Directors shall be a fixed sum (not being a commission on or a percentage of profits or turnover of our Company) as shall, from time to time, be determined by our Company in general meeting. Fees payable to Directors shall not be increased except at a general meeting convened by a notice specifying the intention to propose such increase.
Any Director who holds any executive office, or who serves on any committee of our Directors, or who performs services outside the ordinary duties of a Director, may be paid extra remuneration by way of salary, commission or otherwise, as the Directors may determine.
The remuneration of an Executive Chairman shall be fixed by our Directors and may be by way of salary or commission or participation in profits or by any or all of these modes but shall not be by a commission on or a percentage of turnover.
Our Directors shall have power to pay pensions or other retirement, superannuation, death or disability benefits to (or to any person in respect of) any Director for the time being holding any executive office and for the purpose of providing any such pensions or other benefits, to contribute to any scheme or fund or to pay premiums.
(c) Borrowing
Our Directors may exercise all the powers of our Company to raise or borrow money, to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures and other securities for any debt, liability or obligation of our Company.
(d) Retirement age limit
There is no retirement age limit for Directors under our Articles of Association. Section 153(1) of the Companies Act however, provides that no person of or over the age of 70 years shall be appointed a director of a public company, unless he is appointed or re-appointed as a director of the company or authorised to continue in office as a director of the company by way of an ordinary resolution passed at an annual general meeting of the company.
(e) Shareholding qualification
There is no shareholding qualification for Directors in the Articles of Association of our Company.
APPENDIX B – SUMMARY OF THE CONSTITUTION OF OUR COMPANY
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2. Share rights and restrictions
Our Company currently has one class of Shares, namely, ordinary shares. Only persons who are registered on our register of members and in cases in which the person so registered is CDP, the persons named as the depositors in the depository register maintained by CDP for the ordinary shares, are recognised as our Shareholders.
(a) Dividends and distribution
We may, by ordinary resolution of our Shareholders, declare dividends at a general meeting, but we may not pay dividends in excess of the amount recommended by our Board of Directors. We must pay all dividends out of our profits available for distribution. All dividends are paid pro-rata amongst our Shareholders in proportion to the amount paid up on each Shareholder’s ordinary shares, unless the rights attaching to an issue of any ordinary share provide otherwise. Unless otherwise directed, dividends are paid by cheque or warrant sent through the post to each Shareholder at his registered address. Notwithstanding the foregoing, the payment by us to CDP of any dividend payable to a Shareholder whose name is entered in the depository register shall, to the extent of payment made to CDP, discharge us from any liability to that Shareholder in respect of that payment.
The payment by our Directors of any unclaimed dividends or other moneys payable on or in respect of a Share into a separate account shall not constitute our Company a trustee in respect thereof. All dividends unclaimed after being declared may be invested or otherwise made use of by our Directors for the benefit of our Company. Any dividend unclaimed after a period of six (6) years after having been declared may be forfeited and shall revert to our Company but our Directors may thereafter at their discretion annul any such forfeiture and pay the dividend so forfeited to the person entitled thereto prior to the forfeiture.
Our Directors may retain any dividends or other moneys payable on or in respect of a Share on which our Company has a lien, and may apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists.
(b) Voting rights
A holder of our ordinary shares is entitled to attend, speak and vote at any general meeting, in person or by proxy. Proxies need not be a Shareholder. A person who holds ordinary shares through the SGX-ST book-entry settlement system will only be entitled to vote at a general meeting as a Shareholder if his name appears on the depository register maintained by CDP 48 hours before the general meeting. Except as otherwise provided in our Articles of Association, two or more Shareholders must be present in person or by proxy to constitute a quorum at any general meeting. Under our Articles of Association, on a show of hands, every Shareholder present in person and by proxy shall have one vote, and on a poll, every Shareholder present in person or by proxy shall have one vote for each ordinary share which he holds or represents. A poll may be demanded in certain circumstances, including by the Chairman of the meeting or by any shareholder present in person or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to attend and vote at the meeting or by any two Shareholders present in person or by proxy and entitled to vote. In the case of a tie vote, whether on a show of hands or a poll, the Chairman of the meeting shall be entitled to a casting vote.
3. Change in capital
Changes in the capital structure of our Company (for example, an increase, consolidation, cancellation, sub-division or conversion of our share capital) require Shareholders to pass an ordinary resolution. Ordinary resolutions generally require at least 14 days’ notice in writing. The notice must be given to each of our Shareholders who have supplied us or (as the case may be) the CDP with an address in Singapore for the giving of notices and must set forth the place, the day and the hour of the meeting. However, we are required to obtain our Shareholders’ approval by way of a special resolution for any reduction of our share capital, subject to the conditions prescribed by law.
APPENDIX B – SUMMARY OF THE CONSTITUTION OF OUR COMPANY
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4. Variation of rights of existing Shares or classes of Shares
Subject to the Companies Act, whenever the Share capital of our Company is divided into different classes of Shares, the special rights attached to any class may be varied or abrogated either with the consent in writing of the holders of three-quarters of the total voting rights of the issued Shares of the class or with the sanction of a special resolution passed at a separate general meeting of the holders of the Shares of the class. To every such separate general meeting the provisions of our Articles of Association relating to general meetings of our Company and to the proceedings thereat shall mutatis mutandis apply, except that the necessary quorum shall be two persons at least holding or representing by proxy at least one-third of the total voting rights of the issued Shares of the class, and that any holder of Shares of the class present in person or by proxy may demand a poll and that every such holder shall on a poll have one vote for every Share of the class held by him, provided always that where the necessary majority for such a special resolution is not obtained at such general meeting, consent in writing if obtained from the holders of three-quarters of the total voting rights of the issued Shares of the class concerned within two months of such general meeting shall be as valid and effectual as a special resolution carried at such general meeting. These provisions shall apply to the variation or abrogation of the special rights attached to some only of the Shares of any class as if each group of Shares of the class differently treated formed a separate class the special rights whereof are to be varied or abrogated.
The relevant Article does not impose more significant conditions than the Companies Act in this regard.
5. Limitations on foreign or non-resident shareholders
There are no limitations imposed by Singapore law or by our Articles of Association on the rights of our Shareholders who are regarded as non-residents of Singapore, to hold or vote their Shares.
APPENDIX B – SUMMARY OF THE CONSTITUTION OF OUR COMPANY
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The following statements are brief summaries of the rights and privileges of our Shareholders conferred by the laws of Singapore, the Catalist Rules and our Articles of Association (“Articles”). These statements summarise the material provisions of our Articles but are qualified in entirety by reference to our Articles, a copy of which is available for inspection at our registered office during normal business hours for a period of six months from the date of this Offer Document.
Our Shares
Our Articles of Association provide that we may issue Shares of different classes with such preferential, deferred, qualified or other special rights, privileges, conditions or restrictions as our Board of Directors may determine.
As at the Latest Practicable Date, the total issued and paid-up capital of our Company was S$9,322,192.32 comprising 89,200 Shares. Please refer to the section “General Information on our Group – Share Capital” of this Offer Document for further details on our share capital.
All of our Shares are in registered form. We may, subject to the provisions of the Companies Act and the rules of the SGX-ST, purchase our own Shares. However, we may not, except in circumstances permitted by the Companies Act, grant any financial assistance for the acquisition or proposed acquisition of our Shares.
New Shares
New Shares may only be issued with the prior approval of our Shareholders in a general meeting. The aggregate number of Shares to be issued pursuant to a share issue mandate may not exceed 50% (or 100% if the New Shares are to be issued by way of renounceable issue on a pro rata basis to our Shareholders, or such other limit as may be prescribed by the SGX-ST) of the issued share capital of our Company, of which the aggregate number of Shares to be issued other than on a pro rata basis to our Shareholders may not exceed 20% (or such other limit as may be prescribed by the SGX-ST) of the issued share capital of our Company (the percentage of issued share capital being based on our Company’s issued share capital at the time such authority is given after adjusting for new shares arising from the conversion of convertible securities or employee share options on issue at the time such authority is given and any subsequent consolidation or sub-division of Shares). The approval, if granted, will lapse at the conclusion of the annual general meeting following the date on which the approval was granted or the date by which the annual general meeting is required by law to be held, whichever is the earlier.
Subject to the foregoing, the provisions of the Companies Act and any special rights attached to any class of shares currently issued, our Board of Directors control the allotment and issue of all new Shares and may impose such rights and restrictions as it may think fit.
Shareholders
Only persons who are registered in our register of members and, in cases in which the person so registered is CDP, the persons named as the Depositors in the Depository Register maintained by CDP for the Shares, are recognised as our Shareholders. We will not, except as required by law, recognise any equitable, contingent, future or partial interest in any Share or other rights for any Share other than the absolute right thereto of the registered holder of that Share or of the person whose name is entered in the Depository Register for that Share. We may close our register of members for any time or times if we provide the SGX-ST with at least ten clear Market Days’ notice. However, the register of members may not be closed for more than 30 days in aggregate in any calendar year. We would typically close our register of members to determine Shareholders’ entitlement to receive dividends and other distributions.
Transfer of Shares
There is no restriction on the transfer of fully paid Shares except where required by law or the Catalist Rules or the rules or by-laws of any stock exchange on which our Company is listed. Our Shares may be transferred by a duly signed instrument of transfer in a form approved by the SGX-ST or any stock exchange on which our Company is listed. Our Board of Directors may decline to register any transfer of Shares which are not fully paid Shares or Shares on which we have a lien. Our Board of Directors may also decline to register any instrument of transfer unless, among other things, it has been duly stamped
APPENDIX C – DESCRIPTION OF OUR SHARES
C-2
and is presented for registration together with the share certificate and such other evidence of title as they may require. We will replace lost or destroyed Share certificates if it is properly notified and if the applicant pays a fee which will not exceed S$2.00 and furnishes any evidence and indemnity that our Board of Directors may require.
General meetings of Shareholders
Subject to the provisions of the Companies Act and except as otherwise provided in our Articles, we are required to hold an annual general meeting every year. Our Board of Directors may convene an extraordinary general meeting whenever it thinks fit and must do so if Shareholders representing not less than 10% of the total voting rights of all Shareholders request in writing that such a meeting be held. In addition, two or more Shareholders holding not less than 10% of our issued share capital may call a meeting. Unless otherwise required by law or by our Articles, voting at general meetings is by ordinary resolution, requiring an affirmative vote of a simple majority of the votes cast at the meeting. An ordinary resolution suffices, for example, for the appointment of directors. A special resolution, requiring the affirmative vote of at least 75% of the votes cast at the meeting, is necessary for certain matters under Singapore law, including voluntary winding up of our Company, amendments to our Memorandum and Articles of Association, a change of our corporate name and a reduction in our share capital.
We must give at least 21 days’ notice in writing for every general meeting convened for the purpose of passing a special resolution. Ordinary resolutions generally require at least 14 days’ notice in writing. The notice must be given to each of our Shareholders who have supplied us with an address in Singapore for the giving of notices and must set forth the place, the day and the hour of the meeting and, in the case of special business, the general nature of that business.
Voting rights
A holder of our Shares is entitled to attend, speak and vote at any general meeting, in person or by proxy. Proxies need not be Shareholders. A person who holds Shares through the SGX-ST book- entry settlement system will only be entitled to vote at a general meeting as a Shareholder if his name appears on the depository register maintained by CDP 48 hours before the general meeting. Except as otherwise provided in our Articles, two or more Shareholders must be present in person or by proxy to constitute a quorum at any general meeting. Under our Articles, on a show of hands, every Shareholder present in person and by proxy shall have one vote (provided that in the case of a Shareholder who is represented by two proxies, the chairman of the meeting shall be entitled to treat the first named proxy as the authorised representative to vote on a show of hands), and on a poll, every Shareholder present in person or by proxy shall have one vote for each Share which he holds or represents. A poll may be demanded in certain circumstances, including by the chairman of the meeting or by any Shareholder present in person or by proxy and representing not less than one-tenth of the total voting rights of all shareholders having the right to attend and vote at the meeting or by any two Shareholders present in person or by proxy and entitled to vote. In the case of an equality of votes, whether on a show of hands or a poll, the chairman of the meeting shall be entitled to a casting vote.
Dividends
We may, by ordinary resolution of our Shareholders, declare dividends at a general meeting, but we may not pay dividends in excess of the amount recommended by our Board of Directors. We must pay all dividends out of our profits available for distribution. All dividends are paid pro rata among our Shareholders in proportion to the amount paid up on each Shareholder’s Shares, unless the rights attaching to an issue of any Share provides otherwise. Unless otherwise directed, dividends are paid by cheque or warrant sent through the post to each Shareholder at his registered address. Notwithstanding the foregoing, the payment by us to CDP of any dividend payable to a Shareholder whose name is entered in the Depository Register shall, to the extent of payment made to CDP, discharge us from any liability to that Shareholder in respect of that payment.
Bonus and rights issue
Our Board of Directors may, with approval of our shareholders at a general meeting, capitalise any reserves or profits (including profits or moneys carried and standing to any reserve) and distribute the same as bonus Shares credited as paid-up to our Shareholders in proportion to their shareholdings. Our
APPENDIX C – DESCRIPTION OF OUR SHARES
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Board of Directors may also issue rights to take up additional Shares to Shareholders in proportion to their shareholdings. Such rights are subject to any conditions attached to such issue and the regulations of any stock exchange on which we are listed.
Takeovers
Under the Singapore Code on Take-overs and Mergers (“Singapore Take-over Code”), issued by the Authority pursuant to section 321 of the Securities and Futures Act, any person acquiring an interest, either on his own or together with parties acting in concert with him, in 30% or more of the voting Shares must extend a takeover offer for the remaining voting Shares in accordance with the provisions of the Singapore Take-over Code. In addition, a mandatory takeover offer is also required to be made if a person holding, either on his own or together with parties acting in concert with him, between 30% and 50% of the voting shares acquires additional voting shares representing more than 1% of the voting shares in any six month period.
Under the Singapore Take-over Code, “parties acting in concert” comprise individuals or companies, who pursuant to an arrangement or understanding (whether formal or informal), co-operate, through the acquisition by any of them of shares in a company, to obtain or consolidate effective control of that company. Certain persons are presumed (unless the presumption is rebutted) to be acting in concert with each other, and they are as follows:-
(a) the following companies:-
(i) a company
(ii) the parent company of (i);
(iii) the subsidiaries of (i);
(iv) the fellow subsidiaries of (i);
(v) the associated companies of (i), (ii), (iii) or (iv); and
(vi) companies whose associated companies include any of (i), (ii), (iii), (iv) or (v);
(b) a company with any of its directors (together with their close relatives, related trusts as well as companies controlled by any of the directors, their close relatives and related trusts);
(c) a company with any of its pension funds and employee share schemes;
(d) a person with any investment company, unit trust or other fund whose investment such person manages on a discretionary basis, but only in respect of the investment account which such person manages;
(e) a financial or other professional adviser, including a stockbroker, with its customer in respect of the shareholdings of:-
(i) the adviser and persons controlling, controlled by or under the same control as the adviser; and
(ii) all the funds which the adviser manages on a discretionary basis, where the shareholdings of the adviser and any of those funds in the customer total 10% or more of the customer’s equity share capital;
(f) directors of a company (together with their close relatives, related trusts and companies controlled by any of such directors, their close relatives and related trusts) which is subject to an offer or where the directors have reason to believe a bona fide offer for their company may be imminent;
(g) partners; and
APPENDIX C – DESCRIPTION OF OUR SHARES
C-4
(h) the following persons and entities:-
(i) an individual;
(ii) the close relatives of (i);
(iii) the related trusts of (i);
(iv) any person who is accustomed to act in accordance with the instructions of (i); and
(v) companies controlled by any of (i), (ii), (iii) or (iv).
Under the Singapore Take-over Code, a mandatory offer made with consideration other than cash must be accompanied by a cash alternative at not less than the highest price paid by the offeror or any person acting in concert within the six months preceding the acquisition of shares which triggered the mandatory offer obligation.
Liquidation or other return of capital
If our Company liquidates or in the event of any other return of capital, holders of our Shares will be entitled to participate in any surplus assets in proportion to their shareholdings, subject to any special rights attaching to any other class of shares.
Indemnity
As permitted by Singapore law, our Articles provide that, subject to the Companies Act, our Board of Directors and officers shall be entitled to be indemnified by us against any liability incurred in defending any proceedings, whether civil or criminal, which relate to anything done or omitted to have been done as an officer, director or employee and in which judgement is given in their favour or in which they are acquitted or in connection with any application under any statute for relief from liability in respect thereof in which relief is granted by the court. We may not indemnify our Directors and officers against any liability which by law would otherwise attach to them in respect of any negligence, default, breach of duty or breach of trust of which they may be guilty in relation to us.
Limitations on rights to hold or vote Shares
Except as described in “Voting Rights” and “Takeovers” above, there are no limitations imposed by Singapore law or by our Articles on the rights of non-resident shareholders to hold or vote in respect of our Shares.
Minority rights
The rights of minority shareholders of Singapore-incorporated companies are protected under Section 216 of the Companies Act, which gives the Singapore courts a general power to make any order, upon application by any of our shareholders, as they think fit to remedy any of the following situations where:-
(a) our affairs are being conducted or the powers of our Board of Directors are being exercised in a manner oppressive to, or in disregard of the interests of, one or more of our shareholders; or
(b) we take an action, or threaten to take an action, or our shareholders pass a resolution, or propose to pass a resolution, which unfairly discriminates against, or is otherwise prejudicial to, one or more of our shareholders, including the applicant.
Singapore courts have a wide discretion as to the relief they may grant and that relief is in no way limited to those listed in the Companies Act. Without prejudice to the foregoing, the Singapore courts may:-
(a) direct or prohibit any act or cancel or vary any transaction or resolution;
(b) regulate the conduct of our affairs in the future;
APPENDIX C – DESCRIPTION OF OUR SHARES
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(c) authorise civil proceedings to be brought in our name of, or on behalf of, by a person or persons and on such terms as the court may direct;
(d) provide for the purchase of a minority Shareholder’s Shares by our other Shareholders or by us and, in the case of a purchase of Shares by us, a corresponding reduction of our share capital; or
(e) provide that our Company be wound up.
APPENDIX C – DESCRIPTION OF OUR SHARES
D-1
The following is a discussion of certain tax matters relating to Singapore income tax, capital gains tax, stamp duty, estate duty and GST consequences in relation to the purchase, ownership and disposal of our Shares. The discussion is limited to a general description of certain tax consequences in Singapore with respect to the ownership of shares and is based on laws, regulations and interpretations now in effect and available as at the date of this Offer Document. The laws, regulations and interpretations, however, may change at any time, and any change could be retroactive to the date of issuance of our Shares. These laws and regulations are also subject to various interpretations and the relevant tax authorities or the courts of Singapore could later disagree with the explanations or conclusions set out below.
Prospective purchasers of our Shares should consult their tax advisers concerning the tax consequences of owning and disposing of our Shares. Neither our Company, our Directors nor any other persons involved in the Placement accepts responsibility for any tax effects or liabilities resulting from the subscription, purchase, holding or disposal of our Shares.
Individual income tax
Individual taxpayers who are Singapore tax residents are subject to Singapore income tax on income accrued in or derived from Singapore. All foreign-sourced income (except for income received through a partnership in Singapore) received on or after 1 January 2004 in Singapore by tax resident individuals will be exempt from tax. Certain Singapore-sourced investment income (such as interest from debt securities) derived by tax resident individuals on or after 1 January 2004 from certain financial instruments (other than income derived through a partnership in Singapore or from the carrying on of a trade, business or profession) will be exempt from tax.
For a Singapore tax resident individual, the tax rate will vary according to the individual’s circumstances but is subject to a maximum rate of 20.0%.
Non-resident individuals, subject to certain exceptions, are generally subject to income tax on income accrued in or derived from Singapore at the prevailing rate of 20.0%.
An individual will be regarded as being resident in Singapore in a year of assessment if, in the preceding year, he was physically present in Singapore or exercised employment in Singapore (other than as a director of a company) for 183 days or more, or if he resides in Singapore.
Corporate income tax
Corporate taxpayers who are Singapore tax residents are subject to Singapore income tax on income accrued in or derived from Singapore and subject to certain exceptions, on foreign-sourced income received or deemed to be received in Singapore from outside Singapore. Foreign-sourced income in the form of dividends, branch profits and services income received or deemed to be received in Singapore by resident corporate taxpayers on or after 1 June 2003 will be exempt from Singapore income tax if certain prescribed conditions are met.
Non-resident corporate taxpayers are subject to Singapore income tax on income accrued in or derived from Singapore and subject to certain exceptions, on foreign income received or deemed to be received in Singapore from outside Singapore.
A corporate taxpayer is regarded as resident for Singapore tax purposes if its business is controlled and managed in Singapore.
The prevailing corporate tax rate in Singapore is 17.0%. Further, corporate tax exemption will apply to the first S$300,000 of a company’s chargeable income as follows:-
(i) 75.0% of up to the first S$10,000 of a company’s chargeable income (excluding Singapore dividends); and
(ii) 50.0% of up to the next S$290,000 of a company’s chargeable income (excluding Singapore dividends).
The remaining chargeable income will be fully taxable at the corporate tax rate of 17.0%.
APPENDIX D – TAXATION
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Cash dividend distributions
Dividends paid by a Singapore tax resident company would be considered as sourced from Singapore. Dividends received in respect of the shares of a Singapore tax resident company by either Singapore tax resident or non-Singapore tax resident shareholders are not subject to Singapore withholding tax.
Under the one-tier corporate tax system in Singapore, the tax paid by a Singapore tax resident company is a final tax and the after-tax profits of the company can be distributed to its shareholders as one-tier tax exempt dividends.
Where our Company is tax resident in Singapore, our Company may distribute one-tier tax exempt dividends to our Shareholders. The dividends will be exempt from Singapore income tax in the hands of our Shareholders.
Bonus issues and scrip dividends
Under current Singapore tax law and practice, a capitalisation of profits followed by the issue of new shares, credited as fully paid, pro-rata to shareholders (“bonus issue”) does not represent a distribution of dividends by a company to its shareholders. Therefore, a Singapore resident shareholder receiving shares by way of a bonus issue should not have a liability to Singapore income tax.
When a dividend is to be satisfied wholly or in part in the form of an allotment of ordinary shares credited as fully paid, the dividend declared will be treated as income to its shareholders. However, under the one-tier corporate tax system and where our Company is tax resident in Singapore, such a dividend will be exempt from Singapore income tax. Similarly, when our Shareholders are given the right to elect to receive an allotment of ordinary Shares credited as fully paid in lieu of cash, the dividend declared will be treated as one-tier tax exempt dividend income and will not be subject to Singapore income tax.
Gains on disposal of ordinary Shares
Singapore does not impose tax on capital gains. Gains may be construed to be of an income nature and subject to Singapore income tax if they arise from or are otherwise connected with the activities of a trade or business carried on in Singapore. The gains may also be liable to tax in the hands of the shareholders if the shares were acquired with the intention or purpose of making a profit by sale and not with the intention to be held for long-term investment purposes.
Any gains from the disposal of the Shares are not taxable in Singapore unless the seller is regarded as having derived gains of an income nature in Singapore, in which case, the gains would be subject to tax at the prevailing corporate tax rate. Because the precise tax status will vary from shareholder to shareholder, Shareholders should consult their own professional adviser on the Singapore tax consequences that may apply to their individual circumstances.
Stamp duty
There is no stamp duty payable on the subscription, allotment or holding of the Shares.
Stamp duty is payable on the instrument of transfer of the Shares at the rate of S$0.20 for every S$100 or any part thereof, computed on the amount or value of consideration. The amount or value of consideration is the actual consideration or market value of the Shares, whichever is higher.
The purchaser is liable for stamp duty, unless there is an agreement to the contrary. No stamp duty is payable if no instrument of transfer is executed or the instrument of transfer is executed outside Singapore. However, stamp duty would be payable if the instrument of transfer which is executed outside Singapore is received in Singapore.
Stamp duty is, however, not applicable in respect of electronic transfers of the Shares through the CDP.
Estate duty
The Singapore estate duty was abolished with effect from 15 February 2008.
APPENDIX D – TAXATION
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Goods and Services Tax (“GST”)
The sale of our Shares by an investor belonging in Singapore through a SGX-ST member or to another person belonging in Singapore is an exempt supply not subject to GST. Any GST (e.g. GST on brokerage) incurred by the investor in connection with the making of this exempt supply will generally become an additional cost to the investor unless the investor satisfies certain conditions prescribed under the GST legislation or by the Comptroller of GST.
Where the Shares are sold by a GST registered investor to a person belonging outside Singapore (and who is outside Singapore at the time of the supply), the sale is a taxable supply subject to GST at zero-rate. Consequently, any GST incurred by him in the making of this zero-rated supply for the purpose of his business will, subject to the provisions of the GST legislation, be recoverable as an input tax credit in his GST returns.
Investors should seek their own tax advice on the recoverability of GST incurred on expenses in connection with the sale of shares.
Services such as brokerage, handling and clearing services rendered by a GST registered person to an investor belonging in Singapore in connection with the investor’s purchase, sale or holding of the Shares will be subject to GST at the prevailing rate, that is, 7.0%. Similar services rendered contractually to an investor belonging outside Singapore are subject to GST at zero-rate, provided that the investor is not physically present in Singapore at the time the services are performed and the services provided do not directly benefit a person who belongs in Singapore.
APPENDIX D – TAXATION
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You are invited to subscribe for the New Shares at the Placement Price, subject to the following terms and conditions:-
1. YOUR APPLICATION MUST BE MADE IN LOTS OF 1,000 NEW SHARES OR INTEGRAL MULTIPLES THEREOF. YOUR APPLICATION FOR ANY OTHER NUMBER OF NEW SHARES WILL BE REJECTED.
2. Your application for the New Shares may only be made by way of printed Placement Shares Application Form.
YOU MAY NOT USE CPF FUNDS TO APPLY FOR THE NEW SHARES.
3. You are allowed to submit only one application in your own name for the New Shares.
If you, not being an approved nominee company, have submitted an application for the New Shares in your own name, you should not submit any other application for the New Shares for any other person. Such separate applications shall be deemed to be multiple applications and will be liable to be rejected at the discretion of our Company, the Sponsor or the Placement Agent.
Joint applications shall be rejected. Multiple applications for New Shares shall be liable to be rejected at the discretion of our Company. If you submit or procure submissions of multiple share applications, you may be deemed to have committed an offence under the Penal Code, Chapter 224 of Singapore and the SFA, and your applications may be referred to the relevant authorities for investigation. Multiple applications or those appearing to be or suspected of being multiple applications will be liable to be rejected at the discretion of our Company, the Sponsor or the Placement Agent.
4. We will not accept applications from any person under the age of 21 years, undischarged bankrupts, sole proprietorships, partnerships or non-corporate bodies, joint Securities Account holders of CDP and from applicants whose addresses (as furnished in their Application Forms) bear post office box numbers. No person acting or purporting to act on behalf of a deceased person is allowed to apply under the Securities Account maintained with CDP in the name of the deceased at the time of application.
5. We will not recognise the existence of a trust. Any application by a trustee or trustees must be made in his/her/their own name(s) and without qualification or, where the application is made by way of an Application Form by a nominee, in the name(s) of an approved nominee company or approved nominee companies after complying with paragraph 6 below.
6. WE WILL ONLY ACCEPT APPLICATIONS FROM APPROVED NOMINEE COMPANIES. Approved nominee companies are defined as banks, merchant banks, finance companies, insurance companies, licensed securities dealers in Singapore and nominee companies controlled by them. Applications made by persons acting as nominees other than approved nominee companies shall be rejected.
7. IF YOU ARE NOT AN APPROVED NOMINEE COMPANY, YOU MUST MAINTAIN A SECURITIES ACCOUNT WITH CDP IN YOUR OWN NAME AT THE TIME OF YOUR APPLICATION. If you do not have an existing Securities Account with CDP in your own name at the time of your application, your application will be rejected. If you have an existing Securities Account with CDP but fail to provide your Securities Account number or provide an incorrect Securities Account number in Section B of the Application Form, your application is liable to be rejected. Subject to paragraph 8 below, your application shall be rejected if your particulars such as name, NRIC/passport number, nationality, permanent residence status and CDP Securities Account number provided in your Application Form differ from those particulars in your Securities Account as maintained with CDP. If you have more than one individual direct Securities Account with CDP, your application shall be rejected.
APPENDIX E – TERMS, CONDITIONS AND PROCEDURES FOR APPLICATION
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8. If your address as stated in the Application Form is different from the address registered with CDP, you must inform CDP of your updated address promptly, failing which the notification letter on successful allotment and other correspondences from CDP will be sent to your address last registered with CDP.
9. Our Company reserves the right to reject any application which does not conform strictly to the instructions set out in the Application Form and in this Offer Document or with the terms and conditions of this Offer Document or, in the case of an application by way of an Application Form, which is illegible, incomplete, incorrectly completed or which is accompanied by an improperly drawn up or improper form of remittance. Our Company further reserves the right to treat as valid any applications not completed or submitted or effected in all respects in accordance with the instructions set out in the Application Form or the terms and conditions of this Offer Document, and also to present for payment or other processes all remittances at any time after receipt and to have full access to all information relating to, or deriving from, such remittances or the processing thereof.
10. Our Company reserves the right to reject or accept, in whole or in part, or to scale down or to ballot any application, without assigning any reason therefor, and no enquiry and/or correspondence on the decision of our Company will be entertained. In deciding the basis of allotment which shall be at our discretion, due consideration will be given to the desirability of allotting the New Shares to a reasonable number of applicants with a view to establishing an adequate market for our Shares.
11. Share certificates will be registered in the name of CDP or its nominee and will be forwarded only to CDP. It is expected that CDP will send to you, at your own risk, within 15 Market Days after the close of the Application List, a statement of account stating that your Securities Account has been credited with the number of New Shares allotted to you. This will be the only acknowledgement of application monies received and is not an acknowledgement by our Company. You irrevocably authorise CDP to complete and sign on your behalf as transferee or renouncee any instrument of transfer and/or other documents required for the issue or transfer of the New Shares allotted to you.
12. You irrevocably authorise CDP to disclose the outcome of your application, including the number of New Shares allotted to you pursuant to your application, to us, the Sponsor and the Placement Agent and any other parties so authorised by the foregoing persons.
13. Any reference to “you” or the “applicant” in this section shall include an individual, a corporation, an approved nominee company and trustee applying for the New Shares by way of a Placement Shares Application Form.
14. By completing and delivering an Application Form in accordance with the provisions of this Offer Document, you:-
(a) irrevocably offer, agree and undertake to subscribe for the number of New Shares specified in your application (or such smaller number for which the application is accepted) at the Placement Price for each New Share and agree that you will accept such New Shares as may be allotted to you, in each case on the terms of, and subject to the conditions set out in this Offer Document and the Memorandum and Articles of Association of our Company;
(b) warrant the truth and accuracy of the information contained, and representations and declarations made, in your application, and acknowledge and agree that such information, representations and declarations will be relied on by our Company in determining whether to accept your application and/or whether to allot any New Shares to you;
(c) agree that the aggregate Placement Price for the New Shares applied for is due and payable to our Company upon application; and
APPENDIX E – TERMS, CONDITIONS AND PROCEDURES FOR APPLICATION
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(d) agree and warrant that, if the laws of any jurisdictions outside Singapore are applicable to your application, you have complied with all such laws and none of our Company, the Sponsor and/or the Placement Agent will infringe any such laws as a result of the acceptance of your application.
15. Our acceptance of applications will be conditional upon, inter alia, our Company being satisfied that:-
(a) permission has been granted by the SGX-ST to deal in and for quotation of all our existing Shares and the New Shares on Catalist;
(b) the Management Agreement and the Placement Agreement referred to in the “Management and Placement Arrangements” section of this Offer Document have become unconditional and have not been terminated or cancelled prior to such date as we may determine; and
(c) no stop order has been issued under the SFA which directs that no further shares to which this Offer Document relates be allotted and/or allocated.
16. We will not hold any application in reserve.
17. We will not allot shares on the basis of this Offer Document later than six months after the date of Registration.
18. Additional terms and conditions for application by way of an Application Form are set out below.
ADDITIONAL TERMS AND CONDITIONS FOR APPLICATION USING AN APPLICATION FORM
You shall make an application by way of an Application Form on and subject to the terms and conditions of this Offer Document including but not limited to the terms and conditions appearing below as well as those set out in Appendix E – “Terms, Conditions and Procedures for Application” of this Offer Document as well as the Memorandum and Articles of Association of our Company.
1. Your application for the New Shares must be made using the WHITE Application Forms for Placement Shares accompanying and forming part of this Offer Document. ONLY ONE APPLICATION shall be enclosed in each envelope.
We draw your attention to the detailed instructions contained in the Application Form and this Offer Document for the completion of the Application Form which must be carefully followed. Our Company reserves the right to reject applications which do not conform strictly to the instructions set out in the Application Form and this Offer Document or to the terms and conditions of this Offer Document or which are illegible, incomplete, incorrectly completed or which are accompanied by improperly drawn remittances or improper form of remittances or which are not honoured upon their first presentation.
2. Your Application Form must be completed in English. Please type or write clearly in ink using BLOCK LETTERS.
3. All spaces in the Application Form, except those under the heading “FOR OFFICIAL USE ONLY”, must be completed and the words “NOT APPLICABLE” or “N.A.” should be written in any space that is not applicable.
4. Individuals, corporations, approved nominee companies and trustees must give their names in full. You must make your application, in the case of individuals, in your full names as they appear in your identity card (if applicants have such identification documents) or in your passport and, in the case of corporations, in your full names as registered with a competent authority. If you are not an individual, you must complete the Application Form under the hand of an official who must state the name and capacity in which he signs the Application Form. If you are a corporation completing the Application Form, you are required to affix your Common Seal (if any) in accordance with your Memorandum and Articles of Association or equivalent constitutive documents. If you are a
APPENDIX E – TERMS, CONDITIONS AND PROCEDURES FOR APPLICATION
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corporate applicant and your application is successful, a copy of your Memorandum and Articles of Association or equivalent constitutive documents must be lodged with our Company’s Share Registrar and Share Transfer Office. Our Company reserves the right to require you to produce documentary proof of identification for verification purposes.
5. (a) You must complete Sections A and B and sign on page 1 of the Application Form.
(b) You are required to delete either paragraph 7(a) or 7(b) on page 1 of the Application Form. Where paragraph 7(a) is deleted, you must also complete Section C of the Application Form with particulars of the beneficial owner(s).
(c) If you fail to make the required declaration in paragraph 7(a) or 7(b), as the case may be, on page 1 of the Application Form, your application is liable to be rejected.
6. You, whether an individual or corporate applicant, whether incorporated or unincorporated and wherever incorporated or constituted, will be required to declare whether you are a citizen or permanent resident of Singapore or a corporation in which citizens or permanent residents of Singapore or any body corporate constituted under any statute of Singapore have an interest in the aggregate of more than 50 per cent. of the issued share capital of or interests in such corporations. If you are an approved nominee company, you are required to declare whether the beneficial owner of the New Shares is a citizen or permanent resident of Singapore or a corporation, whether incorporated or unincorporated and wherever incorporated or constituted, in which citizens or permanent residents of Singapore or any body corporate whether incorporated or unincorporated and wherever incorporated or constituted under any statute of Singapore have an interest in the aggregate of more than 50 per cent. of the issued share capital of or interests in such corporation.
7. Your application must be accompanied by a remittance in Singapore currency for the full amount payable, in respect of the number of New Shares applied for, in the form of a BANKER’S DRAFT or CASHIER’S ORDER drawn on a bank in Singapore, made out in favour of “FAR EAST GROUP SHARE ISSUE ACCOUNT” crossed “A/C PAYEE ONLY”, with your name and address of the applicant written clearly on the reverse side. We will not accept applications not accompanied by any payment or accompanied by any other form of payment. We will reject remittances bearing “NOT TRANSFERABLE” or “NON TRANSFERABLE” crossings. The completed and signed WHITE Placement Shares Application Form, and your remittance in full in respect of the number of New Shares applied for in accordance with the terms and conditions of this Offer Document, with your name and address written clearly on the reverse side, must be enclosed and sealed in an envelope to be provided by you. The sealed envelope must be DESPATCHED BY ORDINARY POST OR DELIVERED BY HAND, at your own risk, to Boardroom Corporate & Advisory Services Pte Ltd, 50 Raffles Place, #32-01, Singapore Land Tower, Singapore 048623, to arrive by 12.00 noon on 4 August 2011 or such other time as our Company may, in consultation with the Sponsor, decide. Local Urgent Mail or Registered Post must NOT be used. No acknowledgement of receipt will be issued by our Company, the Sponsor or the Placement Agent for applications and application monies received.
8. Monies paid in respect of unsuccessful applications are expected to be returned (without interest or any share of revenue or other benefit arising therefrom) to you by ordinary post within 24 hours of balloting of applications at your own risk. Where your application is rejected or accepted in part only, the full amount or the balance of the application monies, as the case may be, will be refunded (without interest or any share of revenue or other benefit arising therefrom) to you by ordinary post at your own risk within 14 Market Days after the close of the Application List, provided that the remittance accompanying such application which has been presented for payment or other processes has been honoured and the application monies have been received in the designated share issue account. In the event that the Placement is cancelled by us following the termination of the Placement Agreement, the application monies received will be refunded (without interest or any share of revenue or any other benefit arising therefrom) to you by ordinary post or telegraphic transfer at your own risk within 5 Market Days of the termination of the Placement. In the event that the Placement is cancelled by us following the issuance of a stop order by the SGX-ST, acting
APPENDIX E – TERMS, CONDITIONS AND PROCEDURES FOR APPLICATION
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as an agent on behalf of the Authority, the application monies received will be refunded (without interest or any share of revenue or other benefit arising therefrom) to you by ordinary post at your own risk within 14 Market Days from the date of the stop order.
9. Capitalised terms used in the Application Form and defined in this Offer Document shall bear the meanings assigned to them in this Offer Document.
10. By completing and delivering the Application Form, you agree that:-
(a) in consideration of our Company having distributed the Application Form to you and agreeing to close the Application List at 12.00 noon on 4 August 2011 or such other time or date as our Directors may, in consultation with the Sponsor, decide:-
(i) your application is irrevocable; and
(ii) your remittance will be honoured on first presentation and that any application monies returnable may be held pending clearance of your payment without interest or any share of revenue or other benefit arising therefrom;
(b) all applications, acceptances and contracts resulting therefrom under the Placement shall be governed by and construed in accordance with the laws of Singapore and that you irrevocably submit to the non-exclusive jurisdiction of the Singapore courts;
(c) in respect of the New Shares for which your application has been received and not rejected, acceptance of your application shall be constituted by written notification and not otherwise, notwithstanding any remittance being presented for payment by or on behalf of our Company;
(d) you will not be entitled to exercise any remedy of rescission for misrepresentation at any time after acceptance of your application;
(e) in making your application, reliance is placed solely on the information contained in this Offer Document and none of our Company, the Sponsor and the Placement Agent nor any other person involved in the Placement shall have any liability for any information not so contained;
(f) you consent to the disclosure of your name, NRIC/passport number, address, nationality, permanent residence status, CDP Securities Account number, CPF Investment Account number (if applicable) and share application amount to our Share Registrar and Share Transfer Office, CDP, SCCS, SGX-ST, our Company, the Sponsor and the Placement Agent or other authorised operators; and
(g) you irrevocably agree and undertake to subscribe for the number of New Shares applied for as stated in the Application Form or any smaller number of such New Shares that may be allotted to you in respect of your application. In the event that our Company decides to allot any smaller number of New Shares or not to allot any New Shares to you, you agree to accept such decision as final.
APPENDIX E – TERMS, CONDITIONS AND PROCEDURES FOR APPLICATION
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25 July 2011
The Audit Committee of Far East Group Limited
Mr Hew Koon ChanMr Andrew MakMr Tan Hwee Kiong
Dear Sirs
(A) PROPOSED SHAREHOLDERS’ MANDATE FOR INTERESTED PERSON TRANSACTIONS
(B) LICENSE OF TRADEMARKS AND PATENTS BY THE COMPANY TO SHANGHAI EDEN REFRIGERATION CO., LTD., SHANGHAI EDEN REFRIGERATION MANUFACTURING CO., LTD. AND EDEN REFRIGERATION MANUFACTURING (JIANGSU) CO., LTD. AS AN INTERESTED PERSON TRANSACTION
Unless otherwise defined herein, all terms in the Offer Document shall have the same meanings in this letter.
1. INTRODUCTION
This letter has been prepared in relation to the proposed initial public offering (the “IPO”) and the listing of and quotation for the ordinary shares (the “Shares”) of Far East Group Limited (“Far East Group” or the “Company”) on the Singapore Exchange Securities Trading Limited (“SGX-ST”).
The Company anticipates that the Company and its subsidiaries (the “Group”) would, in the ordinary course of business, enter into certain transactions with persons which are considered “interested persons” as defined in Chapter 9 of the SGX-ST Listing Manual Section B: Rules of Catalist (the “Catalist Rules”). It is likely that such transactions will occur with some degree of frequency and could arise at any time and from time to time.
Under Chapter 9 of the Catalist Rules, a listed company may seek a shareholders’ mandate for recurrent transactions of a revenue or trading nature or those necessary for its day-to-day operations, which may be carried out with the listed company’s interested persons, but not for the purchase or sale of assets, undertakings or businesses.
Pursuant to Rule 920(2) of the Catalist Rules, the Company may treat a general mandate as having been obtained from its shareholders for it to enter into interested person transactions if the information required under Rule 920(1)(b) of the Catalist Rules is included in the offer document issued in connection with the IPO. Accordingly, on 22 July 2011, the shareholders of the Company approved a mandate (the “Shareholders’ Mandate”) for the Group to enter into certain categories of interested person transactions with Shanghai Eden Refrigeration Co., Ltd. (“SER”), Shanghai Eden Refrigeration Manufacturing Co., Ltd. (“SERM”) and Eden Refrigeration Manufacturing (Jiangsu) Co., Ltd. (“ERM”) (the “Regional Affiliates”). Pursuant thereto, new Shareholders who subscribe for the New Shares in the Invitation are deemed to have approved the Shareholders’ Mandate.
In addition, pursuant to an intellectual properties licence agreement (the “IP Licence Agreement”) entered into between the Company and the Regional Affiliates on 27 June 2011, the Company has granted the Regional Affiliates the right to use the list of trademarks and patents set out in the section entitled “Business – Intellectual Property” in the Offer Document in consideration of receiving licensing fees computed based on 2% of the revenue derived from the sale of “Eden” brand of heat exchangers and condensing units by the Regional Affiliates in the PRC (the “Licencing Fee”). As set out above, entering into the IP Licence Agreement with the Regional Affiliates would constitute an interested person transaction pursuant to Chapter 9 of the Catalist Rules. New Shareholders who subscribe for the New Shares in connection with the placement are deemed to have also approved the IP Licence Agreement.
APPENDIX F – LETTER FROM SAC CAPITAL PRIVATE LIMITED TO THE AUDIT COMMITTEE
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Pursuant to Rule 920(1)(b)(v) of the Catalist Rules, the Company has appointed SAC Capital Private Limited (“SAC Capital”) as the independent financial adviser in respect of the Shareholders’ Mandate and the IP Licence Agreement.
This letter has been prepared for the use of the audit committee of the Company (the “Audit Committee”) in connection with their consideration of the IP Licence Agreement and the proposed adoption of the Shareholders’ Mandate to be incorporated into the offer document to the shareholders of the Company (the “Shareholders”) dated 25 July 2011 (the “Offer Document”) to be lodged with the SGX-ST, acting as agent on behalf of the Monetary Authority of Singapore, in connection with the proposed listing of the Company on Catalist, the sponsor supervised listing platform of the SGX-ST.
2. TERMS OF REFERENCE
We have been appointed as the independent financial adviser to the Audit Committee to express an opinion, for the purposes of Chapter 9 of the Catalist Rules, on whether (i) the method and review procedures for determining the transaction prices of the interested person transactions under the Shareholders’ Mandate, if applied strictly, are sufficient to ensure that these interested person transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its minority Shareholders, and (ii) the IP Licence Agreement was entered into on normal commercial terms and will not be prejudicial to the interests of the Company and its minority Shareholders.
We were not privy to the negotiations entered into by the Company in relation to the interested person transactions contemplated under the Shareholders’ Mandate or the IP Licence Agreement nor were we involved in the deliberations leading up to the decision of the Directors to undertake the Shareholders’ Mandate and the IP Licence Agreement. We do not, by this letter, warrant the merits of the Shareholders’ Mandate and the IP Licence Agreement. We have also not conducted a comprehensive independent review of the business, operations or financial condition of the Company and/or its subsidiaries (the “Group”) or any of the Regional Affiliates.
For the purposes of arriving at our opinion in respect of the Shareholders’ Mandate and the IP Licence Agreement, we have taken into account the review procedures set up by the Company for determining the transaction prices of the interested person transactions under the Shareholders’ Mandate and the financial terms of the IP Licence Agreement but have not evaluated, and have not been requested to comment on, the strategic or commercial merits or risks of the Shareholders’ Mandate and the IP Licence Agreement or the prospects or earnings potential of the Company or the Group. Such evaluation shall remain the sole responsibility of the Directors.
In the course of our evaluation and for the purposes of our opinion herein, we have held discussions with the management of the Company (the “Management”). We have relied on the information and representations, whether written or verbal, provided to us by the Directors and the Management, including information contained in the Offer Document. We have not independently verified such information or representations and accordingly cannot and do not warrant, and do not accept any responsibility for, the accuracy, completeness or adequacy of these information or representations. We have, however, made such enquiry and exercised such judgement (as we deemed necessary) in assessing the information and representations provided to us, and have found no reason to doubt the reliability of such information or representations.
The Directors (including those who may have delegated detailed supervision of the Offer Document) have confirmed to us that, having made all reasonable enquiries and to the best of their knowledge and belief, (a) all material information available to them in connection with the Shareholders’ Mandate and the IP Licence Agreement has been disclosed in the Offer Document; (b) such information is true and accurate in all material respects; and (c) there is no other material information or fact, the omission of which would cause any information disclosed to us or the facts stated in the Offer Document to be inaccurate, incomplete or misleading in any material
APPENDIX F – LETTER FROM SAC CAPITAL PRIVATE LIMITED TO THE AUDIT COMMITTEE
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respect. Accordingly, no representation or warranty, expressed or implied, is made by us and no responsibility is accepted by us concerning the accuracy, completeness or adequacy of such information or facts.
Our opinion, as set out in this letter, is based on the market, economic, industry and other applicable conditions prevailing on, and the information made available to us, as of the date of this letter. Such conditions may change significantly over a relatively short period of time and we assume no responsibility to update, revise or reaffirm our opinion in the light of any subsequent development after the date of this letter that may affect our opinion contained herein.
Our opinion in relation to the Shareholders’ Mandate and the IP Licence Agreement should be considered in the context of the entirety of this letter and the Offer Document.
The Company has been separately advised by its own advisers in the preparation of the Offer Document (other than this letter). We have had no role or involvement and have not provided any advice, financial or otherwise, in the preparation, review and verification of the Offer Document (other than this letter). Accordingly we accept no responsibility for and express no views, expressed or implied, on the contents of the Offer Document (other than this letter).
3. PRINCIPAL ACTIVITIES OF THE GROUP
The Group is a comprehensive provider of refrigeration and air-conditioning systems and products in the heating, ventilation, air-conditioning and refrigeration (“HVAC&R”) industry, principally engaged in the sourcing and distribution of a wide range of agency products as well as the manufacturing and distribution of heat exchangers and condensing units under its own brand “Eden”.
For the agency products, some of the international brands that the Group distributes are Bitzer, Copeland, Embraco, Danfoss, Emerson Flows, Eliwell, Honeywell, Saginomiya, Castel, ebm-papst, Ziehl-Abegg, HARP and Aeroflex.
The Group also possesses a comprehensive range of innovative in-house manufactured heat exchangers, under its own brand “Eden”, which use high energy-efficient coil technologies. The “Eden” brand of heat exchangers are used for refrigeration and cooling by prominent end-users in various industries, such as retail (Carrefour, Metro, Tesco, Giant, Cold Storage and NTUC FairPrice), food and beverage (Resorts World Sentosa and Marina Bay Sands), pharmaceutical (HSA (Singapore Blood Bank)), hospitality (The St. Regis Singapore, Shangri-La Hotel Singapore and Capella Singapore), logistics (CIAS Flight Kitchen), food processing (Chun Cheng Fishery and Angliss Singapore) and shipping (Jurong Shipyard Pte Ltd, Keppel Shipyard Limited and Sembawang Shipyard Pte Ltd). The Group’s “Eden” brand of heat exchangers and condensing units are manufactured at the Group’s manufacturing facility located at Lot 1998/D Jalan Perusahaan 3, Taman Industri Selesa Jaya, 43300 Balakong, Seri Kembangan, Selangor Darul Ehsan, Malaysia (the “Maju Facility”), as well as procured from the interested person, SER.
As part of the Group’s value-added services to its customers, it also provides design and consultancy services in relation to refrigeration and air-conditioning systems, as well as relevant product trainings and after-sales support.
For more information on the business of the Group, please refer to the section entitled “Business” in the Offer Document.
4. SHAREHOLDERS’ MANDATE
4.1 Background
The Group purchases the “Eden” brand of heat exchangers and condensing units from SER, which are manufactured by SERM. The Group also sells refrigeration and air-conditioning parts for the assembly of condensing units to SER, and fan motors to SERM on an ad-hoc basis to be used in the production of its heat exchangers. The Group also anticipates entering into transactions with ERM for similar products in the future.
APPENDIX F – LETTER FROM SAC CAPITAL PRIVATE LIMITED TO THE AUDIT COMMITTEE
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The aggregate amounts for such transactions with SER and SERM in FY2008, FY2009 and FY2010 and from 1 January 2011 to the Latest Practicable Date were as follows:
(S$’000) FY2008 FY2009 FY2010
From1 January 2011
to the Latest Practicable Date
Transactions with SER
Purchases from SER(1) 861 898 793 366
Sales to SER(2) 23 1 35 28
Transactions with SERM
Sales to SERM(3) 26 27 199 14
Notes:
(1) These relate mainly to the “Eden” brand of heat exchangers and condensing units.
(2) These relate to refrigeration and air-conditioning parts for the assembly of condensing units.
(3) These mainly relate to fan motors for SERM’s urgent requirements to be assembled onto the heat exchangers.
Please see below for details of SER, SERM and ERM:
SER
SER is a company established in the PRC on 28 November 2002 and is primarily engaged in the marketing and distribution of “Eden” brand of heat exchangers and condensing units, as well as “Eliwell” brand of temperature controllers in the PRC. SER also exports the “Eden” brand of heat exchangers and condensing units exclusively to Far East Group. SER is wholly-owned by Universal Pte. Ltd. (“UPL”), a controlling shareholder of the Company, which is in turn owned by Loh Ee Ming (Non-executive Chairman of the Company), Steven Loh (CEO and Executive Director of the Company), Karen Loh (Non-executive Director of the Company), Lum Soo Mooi (spouse of Loh Ee Ming) and Sharon Loh (daughter of Loh Ee Ming and Lum Soo Mooi, and sibling of Steven Loh and Karen Loh) with shareholding interests of 40.68%, 27.42%, 10.68%, 10.33% and 10.89% respectively. The directors of SER are Loh Ee Ming, Steven Loh and Wong Thiam Hock (an unrelated third party). The legal representative of SER is Steven Loh.
SERM
SERM is a company established in the PRC on 4 April 2007 and is primarily engaged in the manufacturing of “Eden” brand of heat exchangers and condensing units. The shareholders of SERM are SER, Sam Cheung (a Pre-IPO investors of the Company and spouse of Karen Loh) and Fuco Rudyanto Chandra (an unrelated third party), with shareholding interests of 80.0%, 5.0% and 15.0% respectively. The directors of SERM are Steven Loh, Karen Loh and Fuco Rudyanto Chandra. The legal representative of SERM is Steven Loh.
ERM
ERM is a company established in the PRC on 1 June 2010 and is primarily engaged in the manufacturing of “Eden” brand of heat exchangers and condensing units. The shareholders of ERM are UPL, Sam Cheung and Fuco Rudyanto Chandra, with shareholding interests of 80.0%, 5.0% and 15.0% respectively. The directors of ERM are Steven Loh, Karen Loh and Fuco Rudyanto Chandra. The legal representative of ERM is Steven Loh.
As UPL, the controlling shareholder of SER, SERM (through its direct interest in SER) and ERM, is also a controlling shareholder of the Company, UPL and its associates are “interested persons” of the Company and the transactions between the Group and SER, SERM and ERM and their associates would constitute interested person transactions under Chapter 9 of the Catalist Rules.
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The Group anticipates that they would, in the ordinary course of business, enter into transactions with SER, SERM and ERM and it is likely that such transactions will occur with some degree of frequency and could arise at any time and from time to time.
4.2 Requirements under Chapter 9
Under Chapter 9 of the Catalist Rules, a listed company may seek a shareholders’ mandate for recurrent transactions of a revenue or trading nature or those necessary for its day-to-day operations, which may be carried out with the listed company’s interested persons, but not for the purchase or sale of assets, undertakings or businesses.
Due to the time-sensitive nature of commercial transactions, such a mandate will enable the Group, in the normal course of business, to enter into categories of interested person transactions with certain categories of interested persons, provided such interested person transactions are made on an arm’s length basis and on normal commercial terms and are not prejudicial to the interests of the Company and its minority Shareholders.
Pursuant to Rule 920(2) of the Catalist Rules, the Company may treat a general mandate as having been obtained from its Shareholders for them to enter into interested person transactions with its interested persons, if the information required under Rule 920(1)(b) of the Catalist Rules is included in the Offer Document.
On 22 July 2011, the shareholders of the Company approved the Shareholders’ Mandate for the Group to enter into the categories of interested person transactions as set out in the section entitled “Interested Person Transactions - Shareholders’ Mandate: Categories of Interested Person Transactions” with SER, SERM and ERM. Accordingly, new Shareholders who subscribe for the New Shares in the Invitation are deemed to have approved the Shareholders’ Mandate. This would enable the Group, in its normal course of business, to enter into the interested person transactions with the Regional Affiliates, provided such interested person transactions are made on an arm’s length basis and on normal commercial terms.
4.3 Interested Person Transactions
Salient information on the interested person transactions under the Shareholders’ Mandate including:
(a) Categories of Interested Persons;
(b) Categories of interested person transactions;
(c) Rationale for and benefits of the Shareholders’ Mandate; and
(d) Guidelines and review procedures under the Shareholders’ Mandate;
is set out in the section entitled “Interested Person Transactions - Shareholders’ Mandate” of the Offer Document.
4.4 Validity Period of the Shareholders’ Mandate
The Shareholders’ Mandate will be effective from the admission of the Company to Catalist and will be effective until the earlier of the following:
(a) the first annual general meeting following its admission to Catalist; or
(b) the first anniversary of the date of admission to Catalist.
Thereafter, approval from Shareholders for the renewal of the Shareholders’ Mandate will be sought at each subsequent annual general meeting.
APPENDIX F – LETTER FROM SAC CAPITAL PRIVATE LIMITED TO THE AUDIT COMMITTEE
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UPL, Steven Loh and Sam Cheung will abstain, and have undertaken that their Associates will abstain, from voting on the resolutions for the renewal of the Shareholders’ Mandate in respect of any Shares respectively held by them and their Associates.
Loh Ee Ming, Steven Loh, Karen Loh and Sam Cheung will also decline to accept nomination as proxy or otherwise from any Shareholder to vote on the resolutions for the renewal of the Shareholders’ Mandate, unless given specific instructions by the Shareholder in the relevant proxy form as to how his votes are to be cast.
4.5 Disclosure
In accordance with the requirements of Chapter 9 of the Catalist Rules, disclosure will be made in the Company’s annual report of the aggregate value of interested person transactions conducted pursuant to the Shareholders’ Mandate during the financial year, and in the annual reports for subsequent financial years that the Shareholders’ Mandate continues in force. The Company will also announce the aggregate value of transactions conducted pursuant to the Shareholders’ Mandate during the relevant financial period within the required time frame stipulated in the Catalist Rules.
4.6 Evaluation of the Shareholders’ Mandate
In our evaluation of the Shareholders’ Mandate, we have considered, inter alia, the following:
(a) the rationale for and benefits of the Shareholders’ Mandate as set out in the section entitled “Interested Person Transactions – Shareholders’ Mandate: Rationale for and benefits of the Shareholders’ Mandate” of the Offer Document; and
(b) the guidelines and review procedures under the Shareholders’ Mandate and, in particular, the role of the Audit Committee in enforcing the Shareholders’ Mandate, as set out in the section entitled “Interested Person Transactions – Shareholders’ Mandate: Guidelines and review procedures under Shareholders’ Mandate” of the Offer Document.
5. INTELLECTUAL PROPERTIES LICENCE AGREEMENT
5.1 Background
On 27 June 2011, the Regional Affiliates entered into the IP Licence Agreement with the Company. SER has acknowledged in the IP Licence Agreement that SER has been holding all of its trade marks and patents as set out in the section entitled “Business – Intellectual Property” in the Offer Document (the “Intellectual Properties”) on behalf of the Company. Such Intellectual Properties are in the process of being transferred to the Company for an aggregate consideration of US$400, being the administrative costs of the transfer process. For further details on the Intellectual Properties, please refer to the section entitled “Business – Intellectual Property” of the Offer Document.
As at the Latest Practicable Date, the applications of the transfer of the trade marks and patents from SER to the Company are subject to approvals from the Trademark Office of the SAIC and the SIPO respectively. The legal adviser to the Company on PRC law does not foresee any difficulty in obtaining the approvals for the transfer of the trade marks and patents from SER to the Company within six months from the date of submission of applications to the authorities.
Upon the transfer of these Intellectual Properties, SER and SERM will no longer be able to use these Intellectual Properties. As each of SER and SERM is currently distributing and manufacturing products under the Intellectual Properties, the Company and the Regional Affiliates have entered into the IP Licence Agreement pursuant to which the Company has granted the Regional Affiliates the right to use and incorporate these Intellectual Properties in their products.
APPENDIX F – LETTER FROM SAC CAPITAL PRIVATE LIMITED TO THE AUDIT COMMITTEE
F-7
5.2 Terms of the IP Licence Agreement
Pursuant to the IP Licence Agreement, the Regional Affiliates shall be entitled to use the Intellectual Properties for their manufacture, distribution, promotion and sale of “Eden” brand of heat exchangers and condensing units in the PRC and sale of “Eden” brand of heat exchangers and condensing units to the Group. The Licencing Fee shall be computed based on 2.0% of the revenue which the Regional Affiliates derive from their sale of “Eden” brand of heat exchangers and condensing units in the PRC. The Licencing Fee shall be payable to the Company on a quarterly basis, with a credit term of 60 days. The tenure of the IP Licence Agreement is for a perpetual period commencing from 1 January 2011.
The Regional Affiliates have undertaken to make available supporting documents to the Company, including their quarterly management accounts, annual audited accounts and sales invoices for purposes of facilitating the computation of the Licencing Fee payable by the Regional Affiliates.
The other salient terms and conditions of the IP Licence Agreement are, inter alia, as follows:
(a) the Regional Affiliates shall protect and enhance the value of the goodwill of the Intellectual Properties, failing which, the Regional Affiliates shall be liable for and will indemnify the Company against any and all liability, loss, costs and other expenses of similar nature suffered, directly or indirectly, by the Company over any misappropriation of the intellectual property rights licensed to the Regional Affiliates; and
(b) the Regional Affiliates are not allowed to grant or sub-licence to any other party the use of the Intellectual Properties, unless prior written consent of the Company has been obtained.
Please refer to the section entitled “Interested Person Transactions – Present and On-going Interested Person Transactions: Transactions with Regional Affiliates – Intellectual Properties Licence Agreement” of the Offer Document for further details on the IP Licence Agreement.
5.3 Interested Person Transaction
As set out in paragraph 4.1 of this letter, SER, SERM and ERM are interested persons of the Company and entering into the IP Licence Agreement with SER, SERM and ERM will constitute an interested person transaction.
Although it is not possible to ascertain at this juncture whether the Licencing Fee will cross the applicable threshold under Chapter 9 of the Catalist Rules so as to require Shareholders’ approval, the Directors have decided to seek Shareholders’ approval for entering into the IP Licence Agreement.
The IP Licence Agreement shall be deemed to have been specifically approved by Shareholders upon their subscription of the New Shares in connection with the Placement and will thereafter not be subject to Rules 905 and 906 of the Catalist Rules to the extent that there is no variation or amendment to the terms of the IP Licence Agreement (including the fees charged) which is adverse to the Group. Any future variation or amendment or renewal of the terms of the IP Licence Agreement, including any changes to the Licencing Fee, shall be subject to the approval of the Audit Committee.
5.4 Royalty Benchmarking Analysis
Prior to signing the IP Licence Agreement, the Company commissioned an independent accounting firm to undertake a benchmarking analysis on the royalty rates to be charged by the Group to the Regional Affiliates in relation to the Intellectual Properties, in connection with a study on the transfer pricing procedures of the Group. The Group has taken into consideration the results of the royalty benchmarking analysis in determining the Licencing Fee.
APPENDIX F – LETTER FROM SAC CAPITAL PRIVATE LIMITED TO THE AUDIT COMMITTEE
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5.5 Evaluation of the IP Licence Agreement
In our evaluation of the financial terms of the IP Licence Agreement, we have taken into account the following relevant factors which have a significant bearing on our assessment:
(a) the background of the IP Licence Agreement;
(b) an assessment of the key terms of the IP Licence Agreement; and
(c) other relevant considerations.
5.5.1 Background of the IP Licence Agreement
As set out in the IP Licence Agreement, SER has been holding all of the Intellectual Properties on behalf of the Company and they are now in the process of being transferred to the Company.
The Group procures its “Eden” brand of heat exchangers from the Maju Facilities and the Regional Affiliates, while its “Eden” brand of condensing units are procured only from the Regional Affiliates. Following the transfer of these Intellectual Properties, the Group will continue to purchase the “Eden” brand of heat exchangers and condensing units from SER, which are manufactured by SERM. These purchase transactions will be covered by the Shareholders’ Mandate under the categories of interested person transactions. The IP Licence Agreement will ensure that the Regional Affiliates can continue to use the Intellectual Properties in the distribution and manufacturing of these products for sale to the Group based on the Group’s requirements, including quality assurance, technical specifications and delivery schedules.
In addition, the IP Licence Agreement will also enable the Regional Affiliates to continue to use the Intellectual Properties for their distribution and manufacturing of these products for sale to their customers subject to, the Company being granted the first right and priority to purchase the products.
5.5.2 Assessment of the Key Terms of the IP Licence Agreement
We understand that in determining, inter alia, a royalty rate to be charged to the Regional Affiliates pursuant to the licensing of the Intellectual Properties, the Company has commissioned an independent accounting firm to undertake a benchmarking analysis on the royalty rates that should be charged by the Group to the Regional Affiliates.
In the benchmark analysis, the analysis was conducted based on the comparable uncontrolled price method. The comparable uncontrolled price method involves identifying comparable third party agreements and in which royalty rates from these agreements are obtained and a range of royalty rates is determined to either substantiate or established a royalty rate that would be consistent with the arm’s length principle. A search was conducted through a database1 using the following North American Industry Classification System (“NAICS”) codes:
NAICS Code Description
3334 Ventilation, Heating, Air-Conditioning, and Commercial Refrigeration Equipment Manufacturing
3332 Industrial Machinery Manufacturing
1 As noted from the benchmark analysis report, the said database contains 11,073 agreements and is based on agreements obtained primarily from the US Securities and Exchange filings of companies that are listed on the US stock exchange. The agreements are available through the public filings at the Securities and Exchange Royalty for various industries and classified under different agreement types (license agreements, technology license agreements, trademark license agreements, franchise agreements, cost sharing agreements and R&D agreements). The database allows searching for agreements by the SIC codes, keywords, agreement types, royalty rates, exclusivity, agreement number and contract party criteria.
The database is updated regularly but not systematically and it does not represent an exhaustive search of the SEC filings. The last update of the database was made in March 2010 when the SEC filing were reviewed.
APPENDIX F – LETTER FROM SAC CAPITAL PRIVATE LIMITED TO THE AUDIT COMMITTEE
F-9
We have reviewed the key terms of the IP Licence Agreement and compared it against comparable licensing agreements (the “Comparable Licensing Agreements”) on trademark and patents for products similar to the Group which had been identified in the benchmarking analysis provided to us. A summary of the terms of these Comparable Licensing Agreements are set out in the table below.
In making the comparison with the Comparable Licensing Agreements, we wish to highlight that the Comparable Licensing Agreements are not directly comparable to the IP Licence Agreement in terms of, inter alia, the trademarks and patents involved in the Comparable Licensing Agreements, the geographical market, composition of business activities, business models and other relevant criteria and that such licensing arrangements may have fundamentally different objectives and any comparison made with the Comparable Licensing Agreements merely serve as an illustrative guide for the perceived commercial fairness of the IP Licence Agreement.
Licensor Licensee Description of Intellectual
Properties Licence Fee Tenure Exclusivity
McQuay International
O.Y.L Manufacturing Company Sdn Bhd
Trademarks relating to heating, ventilating and air
conditioning products
2% of the net sales of licensed products
5 years (auto renewed unless
terminated by written notice)
No
McQuay International
Shenzhen O.Y.L Electrical Co. Ltd.
Trademarks relating to heating, ventilating and air
conditioning products
2% to 5% of the net sales of licensed
products
5 years (auto renewed unless
terminated by written notice)
No
McQuay International
P.T. O.Y.L Sentra Manufacturing
Trademarks relating to heating, ventilating and air
conditioning products
2% of the net sales of licensed products
5 years (auto renewed unless
terminated by written notice)
No
Enersyst Development Center, Inc.
Ross Industries, Inc.
Patents, proprietary information and know-how relating to coolers, chillers and freezers technologies
5% of charged sale price of
licensed products; a minimum annual
payment of US$100,000
Perpetual unless
terminated by mutual
agreement. Licensee
has the right to terminate unilaterally
after 2.5 years.
Yes(1)
Sir Worldwide, LLC
Channel Freeze Technologies, Inc.
Patent and trademarks relating to Ice Technology
Units (automated machinery for freezing ice, food,
food by-products, non-foods, freeze-thawed
residual products, thermal energy storage, making recreational snow, and
other applications)(2)
5% of net sales of licensed products
and related materials(2)
Perpetual Yes
Company Regional Affiliates
Trademarks and patents relating to refrigeration
and air-conditioning products
2% of net sales of licensed products
Perpetual No
APPENDIX F – LETTER FROM SAC CAPITAL PRIVATE LIMITED TO THE AUDIT COMMITTEE
F-10
Notes:
(1) Save for licensed devices made, used and sold in Japan.
(2) It was agreed, inter alia, that Sir Worldwide, LLC (“Sir Worldwide”) shall grant Channel Freeze Technologies, Inc. (“Channel Freeze”) the exclusive right to manufacture and sell the “Channel Ice Technology Units” throughout the world for (i) U.S. Patent No. 5029453 and (ii) all trade secrets, patents, patent applications, “know-how” and technology used by Sir Worldwide in connection with its “CIT Units”. Sir Worldwide shall also, inter alia, assign and transfer to Channel Freeze the trademark “CIT Units” or “Channel Ice Technology Units”, all intellectual property relating to the business and assets of Sir Worldwide. In consideration, Channel Freeze shall compensate Sir Worldwide as follows:
(i) Fee Payment: 10% of net gross invoice price on Channel Ice Technology Units sold to distributors, or 13% of net gross invoice price on Channel Ice Technology Units sold at base price (having the meaning of price listed for end user or retail sales); and
(i) Royalty Payment: 5% of net sales of the Channel Ice Technology Units and related materials.
In our analysis, we have only taken into consideration the royalty payment in respect of this agreement.
(a) Licencing Fee
Based on the above, we note that the licensing fees of the above Comparable Licensing Agreements range between 2% and 5% of the net sales of licensed products, save for one transaction in which a minimum royalty fee of US$100,000 is chargeable. On the above basis, it would appear that the licensing fee of 2% on the sales of products under the “Eden” brand charged by the Company on the Regional Affiliates is within the range of licensing fees charged in the Comparable Licensing Agreements, albeit at the low end of the range of licensing rates charged.
We also note that the licence rights granted under 3 of the above Comparable Licensing Agreements are not exclusive to the licensee and 2 are exclusive to the licensee. We observe that where the licence rights granted are exclusive to the licensee, the licensing fees are generally higher than those where the licence rights are non-exclusive to the licensee.
Under the IP Licence Agreement, the licence rights granted are not exclusive to the Regional Affiliates. In this regard, the Licensing Fee of 2% on the sales of heat exchangers and condensing units under the “Eden” brand charged by the Company on the Regional Affiliates is within the range of licensing fees charged in the comparable licensing agreements with non-exclusivity clauses. 2 of these comparable licensing agreements with non-exclusivity clauses charged licensing fees at 2% of the net sales of licensed products, while the remaining licensing agreement charged a licensing fee of 2% to 5% of the net sales of licensed products.
(b) Tenure
The tenure of the IP Licence Agreement is for a perpetual period commencing from 1 January 2011 unless terminated by either parties. We note that this is within the range of tenures of the Comparable Licensing Agreements where the tenure ranged from a term of 5 years (auto renewed unless terminated by written notice) or with a perpetual term.
5.5.3 Other Relevant Considerations
We have also considered the following:
(a) Non-exclusive basis of licence rights
We note that the licence under the IP Licence Agreement is granted on a non-exclusive basis. This gives the Company the flexibility to grant the licensing of the Intellectual Properties to other licensees should the need arises. This may be to the benefit of the Group especially if the country size is large, as is the case for the PRC.
APPENDIX F – LETTER FROM SAC CAPITAL PRIVATE LIMITED TO THE AUDIT COMMITTEE
F-11
(b) Additional source of income
The Licencing Fee represents an additional source of income for the Company. Solely for illustration purposes, assuming that the IP Licence Agreement had been effective from 1 January 2010, based on the consolidated revenue of SER, SERM and ERM in FY2010 and the Licencing Fee, the amount of licensing fees receivable in FY2010 will amount to approximately RMB563,000.
(c) Indemnity to the Group
We note that to safeguard the interest of the Company, the IP Licence Agreement has provided that the Regional Affiliates shall protect and enhance the value of the goodwill of the Intellectual Properties, failing which, the Regional Affiliates shall be liable for and will indemnify the Company against any and all liability, loss, costs and other expenses of similar nature suffered, directly or indirectly, by the Company over any misappropriation of the intellectual property rights licensed to the Regional Affiliates.
In addition to the indemnity from the Regional Affiliates as set out in paragraph 5.2 of this letter, to further safeguard the interests of the Group, Loh Ee Ming and Steven Loh, who are also shareholders in UPL and directors of the Regional Affiliates (where applicable), have jointly and severally undertaken to indemnify the Group against any misappropriation of the intellectual property rights by any of the Regional Affiliates pursuant to the IP Licence Agreement (the “Indemnity Undertaking”).
The Indemnity Undertaking shall subsist and be effective without limit in point of time, but shall terminate in any of the following events, whichever is the earliest:
UPL (and its Associates) ceases to be the Controlling Shareholder;
the Company exercises all the Acquisition Options;
the Company ceases to be listed on the SGX-ST (whether on the Main Board or Catalist); or
the termination of the IP Licence Agreement.
6. OTHER REVIEW PROCEDURES
The Audit Committee will also review all other interested person transactions (other than the interested person transactions pursuant to the Shareholders’ Mandate) to ensure that the prevailing rules and regulations of the SGX-ST (in particular, Chapter 9 of the Catalist Rules) are complied with.
Salient information on other review procedures to ensure that interested person transactions not covered by the Shareholders’ Mandate are undertaken on an arm’s length basis, on normal commercial terms and will not be prejudicial to the Company and its minority Shareholders, are set out in the section entitled “Interested Persons Transactions – Guidelines and Review Procedures for Future Interested Person Transactions other than those covered in the Shareholders’ Mandate” of the Offer Document.
APPENDIX F – LETTER FROM SAC CAPITAL PRIVATE LIMITED TO THE AUDIT COMMITTEE
F-12
7. OUR OPINION
Having regard to our evaluation of the Shareholders’ Mandate and the IP Licence Agreement, the details of which are set out in paragraphs 4.6 and 5.5 of this letter, and subject to the qualifications and assumptions set out in this letter, we are of the opinion that:
(a) the guidelines and review procedures of the Company as set out in the section entitled “Interested Person Transactions – Shareholders’ Mandate: Guidelines and Review Procedures under Shareholders’ Mandate” of the Offer Document for determining the transaction prices of the interested person transactions under the Shareholders’ Mandate, if applied strictly, are sufficient to ensure that such transactions will be conducted on normal commercial terms and will not be prejudicial to the interests of the Company and its minority Shareholders;
(b) the IP Licence Agreement was entered into on normal commercial terms and is not prejudicial to the interests of the Company and its minority Shareholders having considered, inter alia, the following:
(i) the background in which the IP Licence Agreement was entered into;
(ii) an assessment of the reasonableness of the Licencing Fee and the tenure of the IP Licence Agreement as a comparison to the Comparable Licensing Agreements in the royalty benchmarking analysis; and
(iii) other relevant considerations as set out in paragraph 5.5.3 of this letter.
Our opinion is addressed to the Audit Committee in connection with and for the purpose of their consideration of the Shareholders’ Mandate and the IP Licence Agreement and for inclusion in the Offer Document. Whilst a copy of this letter may be reproduced in the Offer Document, neither the Company nor the Directors may reproduce, disseminate or quote this letter (or any part thereof) for any other purpose at any time and in any manner without the prior written consent of SAC Capital.
Our opinion is governed by, and construed in accordance with, the laws of Singapore, and is strictly limited to the matters stated herein and does not apply by implication to any other matter.
Yours faithfullyFor and on behalf ofSAC CAPITAL PRIVATE LIMITED
Ong Hwee LiCEO
Bernard LimPartner
APPENDIX F – LETTER FROM SAC CAPITAL PRIVATE LIMITED TO THE AUDIT COMMITTEE
ABOUT USFounded in 1953 as one of the pioneers in the refrigeration and air-conditioning bus iness in S ingapore, Far East Group Limited (formerly known as Far East Refrigeration (Pte.) Limited) is a comprehensive provider of refrigeration and air-conditioning systems and products in the heating, ventilation, air-conditioning andrefrigeration (“HVAC&R”) industry. Our Directors believe that we are one of the leading regional distributors of commercial and light industrial refrigeration systems and products in the South-east Asia region.
Our Group has a broad customer base of more than 1,000 active customers, including distributors, dealers as well as refrigeration and air-conditioning contractors who use our products and services to provide comprehensive refrigeration and air-conditioning systems to end-users, such as supermarkets, cold store distribution centres, food processing and catering facilities, hotels, hospitals, food and beverage establishments, convenient stores, petrol stations, marine vessels, oil rigs and barges.
Besides sourcing and distributing agency products, our Group also manufactures our in-house “Eden” brand of heat exchangers and condensing units. In particular, our products are widely recognised and used by well-known international and regional retail chains such as Carrefour, Metro, Tesco, Giant, Cold Storage and NTUC FairPrice as well as Resorts World Sentosa and Marina Bay Sands.
Headquartered in Singapore, our Group has subsidiaries in Singapore, Malaysia and Hong Kong as well as representative offi ces in Vietnam and Indonesia. We also have approximately 20 distributors and dealers in countries including Malaysia, Thailand, the Philippines, Myanmar, Mauritius, Vietnam, Sri Lanka and Indonesia.
In line with our growth, our Group’s revenue rose from approximately S$29.2 million in FY2008 to approximately S$32.6 million in FY2010, while net profit rose from approximately S$1.0 million in FY2008 to approximately S$4.6 million in FY2010.
COMPETITIVE STRENGTHSOne-stop refrigeration systems provider
Established reputation and track record
Strong business relationships with business partners
Wide distribution network
Strong research and development capabilities
Provide quality products and services at competitive prices
Experienced management team
BUSINESS MODELOur Group’s business activities can be broadly segmented as follows:-• Commercial and light industrial (refrigeration)• Residential and commercial (air-conditioning)• Oil, marine and gas (refrigeration and air-conditioning)
PROSPECTSThe global demand for HVAC&R products is expected to increase in tandem with the economic recovery in the next few years, and barring unforeseen circumstances, the factors that will drive our Group’s growth include:-
Continual growth of the global and regional economies, in particular, that of the Asia Pacifi c region
Growth in the frozen food market
Increased demand for HVAC products due to climate change
Increased awareness of global warming
users, such as supermarkets, cold store distribution centres, food processing and catering facilities, hotels, hospitals, food and beverage establishments, convenient stores, petrol stations, marine vessels, oil rigs and barges.
BUSINESS MODELOur Group’s business activities can be broadly segmented as follows:-• Commercial and light industrial (refrigeration)• Residential and commercial (air-conditioning)• Oil, marine and gas (refrigeration and air-conditioning)
BUSINESS STRATEGIES AND FUTURE PLANSExpansion of sales and distribution network
Expansion and upgrade of existing manufacturing facilities
Research and development of new products
Expansion of business through acquisitions, joint ventures or strategic alliances
ABOUT USFounded in 1953 as one of the pioneers in the refrigeration and air-conditioning bus iness in S ingapore, Far East Group Limited (formerly known as Far East Refrigeration (Pte.) Limited) is a comprehensive provider of refrigeration and air-conditioning systems and products in the heating, ventilation, air-conditioning andrefrigeration (“HVAC&R”) industry. Our Directors believe that we are one of the leading regional distributors of commercial and light industrial refrigeration systems and products in the South-east Asia region.
Our Group has a broad customer base of more than 1,000 active customers, including distributors, dealers as well as refrigeration and air-conditioning contractors who use our products and services to provide comprehensive refrigeration and air-conditioning systems to end-users, such as supermarkets, cold store distribution centres, food processing and catering facilities, hotels, hospitals, food and beverage establishments, convenient stores, petrol stations, marine vessels, oil rigs and barges.
Besides sourcing and distributing agency products, our Group also manufactures our in-house “Eden” brand of heat exchangers and condensing units. In particular, our products are widely recognised and used by well-known international and regional retail chains such as Carrefour, Metro, Tesco, Giant, Cold Storage and NTUC FairPrice as well as Resorts World Sentosa and Marina Bay Sands.
Headquartered in Singapore, our Group has subsidiaries in Singapore, Malaysia and Hong Kong as well as representative offi ces in Vietnam and Indonesia. We also have approximately 20 distributors and dealers in countries including Malaysia, Thailand, the Philippines, Myanmar, Mauritius, Vietnam, Sri Lanka and Indonesia.
In line with our growth, our Group’s revenue rose from approximately S$29.2 million in FY2008 to approximately S$32.6 million in FY2010, while net profit rose from approximately S$1.0 million in FY2008 to approximately S$4.6 million in FY2010.
COMPETITIVE STRENGTHSOne-stop refrigeration systems provider
Established reputation and track record
Strong business relationships with business partners
Wide distribution network
Strong research and development capabilities
Provide quality products and services at competitive prices
Experienced management team
BUSINESS MODELOur Group’s business activities can be broadly segmented as follows:-• Commercial and light industrial (refrigeration)• Residential and commercial (air-conditioning)• Oil, marine and gas (refrigeration and air-conditioning)
PROSPECTSThe global demand for HVAC&R products is expected to increase in tandem with the economic recovery in the next few years, and barring unforeseen circumstances, the factors that will drive our Group’s growth include:-
Continual growth of the global and regional economies, in particular, that of the Asia Pacifi c region
Growth in the frozen food market
Increased demand for HVAC products due to climate change
Increased awareness of global warming
users, such as supermarkets, cold store distribution centres, food processing and catering facilities, hotels, hospitals, food and beverage establishments, convenient stores, petrol stations, marine vessels, oil rigs and barges.
BUSINESS MODELOur Group’s business activities can be broadly segmented as follows:-• Commercial and light industrial (refrigeration)• Residential and commercial (air-conditioning)• Oil, marine and gas (refrigeration and air-conditioning)
BUSINESS STRATEGIES AND FUTURE PLANSExpansion of sales and distribution network
Expansion and upgrade of existing manufacturing facilities
Research and development of new products
Expansion of business through acquisitions, joint ventures or strategic alliances
This document is important. If you are in any doubt as to the action you should take, you should consult your legal, fi nancial, tax or other professional adviser(s).
Collins Stewart Pte. Limited (the “Sponsor”) has made an application to the Singapore Exchange Securities Trading Limited (the “SGX-ST”) for permission to deal in, and for quotation of, all the ordinary shares (the “Shares”) in the capital of Far East Group Limited (the “Company”) already issued and the new Shares which are the subject of the Placement (the “New Shares”) on Catalist (as defi ned herein). The dealing in and quotation of the Shares will be in Singapore dollars.
Companies listed on Catalist may carry higher investment risk when compared with larger or more established companies listed on the Main Board of the SGX-ST. In particular, companies may list on Catalist without a track record of profi tability and there is no assurance that there will be a liquid market in the shares or units of shares traded on Catalist. You should be aware of the risks of investing in such companies and should make the decision to invest only after careful consideration and, if appropriate, consultation with your professional adviser(s).
The Placement is made in or accompanied by this Offer Document that has been registered by the SGX-ST acting as an agent on behalf of the Monetary Authority of Singapore (the “Authority”). We have not lodged or registered this Offer Document in any other jurisdiction.
Neither the Authority nor the SGX-ST has examined or approved the contents of this Offer Document. Neither the Authority nor the SGX-ST assumes any responsibility for the contents of this Offer Document, including the correctness of any of the statements or opinions made or reports contained in this Offer Document. The SGX-ST does not normally review the application for admission but relies on the Sponsor confi rming that our Company is suitable to be listed and complies with the Catalist Rules. Neither the Authority nor the SGX-ST has in any way considered the merits of the Shares being offered for investment.
The registration of this Offer Document by the SGX-ST does not imply that the Securities and Futures Act (Chapter 289) of Singapore, or any other legal or regulatory requirements, or requirements under the SGX-ST’s listing rules, have been complied with.
Acceptance of applications will be conditional upon the issue of the New Shares and permission being granted by the SGX-ST for the listing and quotation of all our existing issued Shares and the New Shares on Catalist. Monies paid in respect of any application accepted will be returned to you at your own risk, without interest or any share of revenue or benefi t arising therefrom, if the admission and listing do not proceed, and you will not have any claims against us, the Sponsor or the Placement Agent (as defi ned herein).
After the expiration of six months from the date of registration of this Offer Document, no person shall make an offer of securities, or allot, issue or sell any of our Shares, on the basis of this Offer Document, and no offi cer or equivalent person or promoter of our Company will authorise or permit the offer of any of our Shares or the allotment, issue or sale of any of our Shares, on the basis of this Offer Document.
Investing in our Shares involves risks which are described in the “RISK FACTORS” section of this Offer Document.
Our Company is not part of, nor related in any way, to Far East Organization, its subsidiaries or associated companies (the “Far East Organization Group of Companies”). Our Directors and Controlling Shareholder (as defi ned herein) have no direct or indirect relationships with the Far East Organization Group of Companies. Our Group (as defi ned herein) is also not engaged in the same line of business as that of the Far East Organization Group of Companies.
Far East Group Limited(Incorporated in the Republic of Singapore
on 18 March 1964)(Company Registration No.:196400096C)
Placement of 18,800,000
New Shares by way of
placement, at S$0.27 per
Share, payable in full on
application.
COLLINS STEWART PTE. LIMITED(Incorporated in the Republic of Singapore)
(Company Registration Number: 200713620D)
Sponsor and Placement Agent
OFFER DOCUMENT DATED 25 JULY 2011 (Registered by the Singapore Exchange Securities Trading Limited acting as an agent on behalf of the Monetary Authority of Singapore on 25 July 2011) (Registered by the Singapore Exchange Securities Trading Limited acting as an agent on behalf of the Monetary Authority of Singapore on 25 July 2011) (Registered by the Singapore Exchange Securities Trading Limited acting as an agent on behalf of the Monetary Authority of Singapore on 25 July 2011)
Far East Group Limited112 Lavender Street, #04-00Far East Refrigeration BuildingSingapore 338728Tel: (65) 6293 9733 Fax: (65) 6296 5326www.fareastref.com.sg
FAR EAST GROUP LIMITED
A One-StopRefrigeration Systems
Provider