qianhu ar pg8-29qianhu.listedcompany.com/misc/ar2002.pdf · kenny yap kim lee alvin yap ......

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FinancialStatements

44. Director’s Report54. Statement by Directors55. Auditor’s Report to the Members56. Balance Sheets58. Profit and Loss Accounts59. Statement of Changes in Equity60. Consolidated Statement of Cash Flows62. Notes to the Fianancial Statements

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Directors’ Reportfor the year ended 31 December 2002

The directors are pleased to present their report to the members together with the audited financial statements of theCompany and the consolidated financial statements of the Company and its subsidiaries (the Group) for the financial yearended 31 December 2002.

Directors

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

Kenny Yap Kim LeeAlvin Yap Ah SengAndy Yap Ah SiongRobson Lee Teck LengChang Weng LeongTan Tow Ee (appointed on 1 May 2002)

Principal activities

The principal activities of the Company are those of import, export, farming, breeding and distribution of ornamental fishesand aquarium and pet accessories. The principal activities of the subsidiaries are as set out in Note 5 to the accompanyingfinancial statements.

There have been no significant changes in the nature of these activities during the financial year.

On 11 November 2002, the Company transferred its listing from the Singapore Exchange Securities Trading Limited Dealingand Automated Quotation System (SGX-SESDAQ) to the Main Board of Singapore Exchange Securities Trading Limited.

Results for the financial year

Group Company$ $

Profit after taxation 6,534,878 4,805,577Minority interest 12,481 -

Net profit attributable to Members of the Company 6,547,359 4,805,577Unappropriated profit brought forward 6,607,103 5,381,485Final dividend paid in respect of the previous financial year

of 0.6 cents per share less tax at 24.5% (374,912) (374,912)Additional final dividend paid in respect of the previous financial year

arising from the issue of shares under the Qian Hu Pre-IPOEmployees’ Share Option Scheme before book closure date (1,948) (1,948)

Unappropriated profit carried forward 12,777,602 9,810,202

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Material movements in reserves or provisions

Except as shown in the financial statements, there were no material transfers to or from reserves or provisions during thefinancial year.

Acquisition and disposal of subsidiary companies

During the financial year, the Company

(a) incorporated a wholly owned subsidiary, Jiang Nan Holdings Pte. Ltd., with a paid-up capital of $2.

(b) acquired an additional 10% equity interest in Guangzhou Wan Jiang Technology Co., Ltd (previously an associatedcompany) for a cash consideration of $42,894, making it a 60% owned subsidiary. The share of net tangible assetsat the date of acquisition is $72,347.

(c) disposed of 10% equity interest in a subsidiary, Thai Qian Hu Company Limited, pursuant to a Memorandum ofUnderstanding entered into between the Company and certain shareholders of Thai Qian Hu Company Limited. After thisdivestment, the Company’s equity interest in the subsidiary is 60%. The Group recorded a gain on divestment amountingto $9,725. Pursuant to the Memorandum of Understanding, a Thailand shareholder is entitled to buy another 10% equityinterest in Thai Qian Hu Company Limited within the next 18 years from another shareholder. Accordingly, the Companyis not committed to sell off any further equity interest in Thai Qian Hu Company Limited.

Except as disclosed above, there were no other acquisition or disposal of subsidiaries during the financial year.

Issue of shares or debentures

The Company

During the financial year, the Company:

(a) issued 1,896,000 ordinary shares for cash at a premium of $0.14 per share upon the exercise of share options previouslygranted;

(b) capitalised $831,270 from share premium account by way of bonus issue of 8,312,700 ordinary shares of $0.10 eachcredited as fully paid on the basis of one bonus share for every ten existing ordinary shares held by the shareholders ofthe Company; and

(c) issued 10,000,000 ordinary shares for cash at a premium of $0.35 per share via private placement of 10,000,000 ordinaryshares of $0.10 each to Qian Hu Holdings Pte Ltd.

The subsidiary

During the financial year, Jiang Nan Holdings Pte. Ltd. was incorporated with an authorised share capital of $1,000,000consisting of 1,000,000 ordinary shares of $1 each. Its paid-up share capital is $2 consisting of 2 ordinary shares of $1 each.

All newly issued and paid-up shares rank pari passu in all respects with the existing ordinary shares of the respectivecompanies.

Except as disclosed above, no other shares or debentures of the Company or its subsidiaries were issued during thefinancial year.

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Arrangements to enable directors to acquire shares or debentures

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

Directors’ interests in shares or debentures

According to the register kept by the Company for the purposes of Section 164 of the Companies Act, particulars of interest ofthe directors who held office at the end of the financial year in the shares or debentures in the Company and relatedcorporations were as follows:

Other shareholdings in which theHeld by director director is deemed to have an interest

01.01.2002 31.12.2002 17.01.2003 01.01.2002 31.12.2002 17.01.2003/date of appointment /date of appointment

The CompanyOrdinary shares of$0.10 each fully paid

Kenny Yap Kim Lee 4,270,550 4,697,605 4,697,605 - - -Alvin Yap Ah Seng 4,719,600 5,191,560 5,191,560 30,000 33,000 33,000Andy Yap Ah Siong 4,719,600 5,191,560 5,191,560 113,000 148,500 148,500Robson Lee Teck Leng 30,000 33,000 33,000 - - -Chang Weng Leong 30,000 33,000 33,000 - - -Tan Tow Ee 100,000 100,000 100,000 100,000 100,000 100,000

The Singapore Exchange Listing Manual requires a company to provide a statement as at the 21st day after the end of thefinancial year, showing the direct and deemed interests of each director of the company in the share capital of the Company.As the Directors’ Report of the Company is dated 20 January 2003, the Company is unable to comply with the 21 days’requirement. However, for the purpose of best practice, the Company has disclosed the direct and deemed interests of eachdirector of the Company at the last business trading day before the date of the Directors’ Report.

Directors’ contractual benefits

Except as disclosed in the financial statements, since the end of the previous financial year, no director of the Company hasreceived or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation withthe director, or with a firm of which the director is a member, or with a company in which the director has a substantial financialinterest except for the related party transactions as disclosed in Note 28 to the financial statements.

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Dividends

Dividends paid or proposed since the end of the previous financial year were as follows:$

A final dividend of 0.6 cents per share, less tax at 24.5%, paid in respect of theprevious financial year and included in the Directors’ Report of that financial year 374,912

Additional final dividend paid in respect of the previous financial year due to the issueof shares under the Qian Hu Pre-IPO Employees’ Share Option Scheme before book closure date 1,948

A final dividend of 0.6 cents per share, less tax at 22%, in respect of the year ended31 December 2002 proposed by the directors and subject to approval at theforthcoming Annual General Meeting of the Company 481,903

A special dividend of 0.6 cents per share, less tax at 22%, in respect of the year ended31 December 2002 proposed by the directors and subject to approval at theforthcoming Annual General Meeting of the Company 481,903

963,806

No other dividends have been paid or proposed since the end of the previous financial year.

Bad and doubtful debts

Before the financial statements of the Company were prepared, the directors took reasonable steps to ascertain that properaction had been taken in relation to writing off bad debts and providing for doubtful debts of the Company and satisfiedthemselves that all known bad debts had been written off and that adequate provision had been made for doubtful debts.

At the date of this report, the directors are not aware of any circumstances which would render the amount of bad debts writtenoff or the amount provided for doubtful debts in the consolidated financial statements inadequate to any substantial extent.

Current assets

Before the financial statements of the Company were prepared, the directors took reasonable steps to ascertain that any currentassets of the Company which were unlikely to realise their book values in the ordinary course of business had been writtendown to their estimated realisable values or that adequate provision had been made for the diminution in the value of suchcurrent assets.

At the date of this report, the directors are not aware of any circumstances which would render the values attributed to currentassets in the consolidated financial statements misleading.

Charges on assets and contingent liabilities

Since the end of the financial year, and up to the date of this report, no charge on the assets of the Company or any corporationin the Group has arisen which secures the liabilities of any other person and no contingent liability of the Company or anycorporation in the Group has arisen.

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Ability to meet obligations

No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve monthsafter the end of the financial year which, in the opinion of the directors, will or may substantially affect the ability of theCompany and of the Group to meet their obligations as and when they fall due.

Other circumstances affecting the financial statements

At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or in theconsolidated financial statements which would render any amount stated in the financial statements of the Company and theconsolidated financial statements misleading.

Unusual items

In the opinion of the directors, the results of the operations of the Company and of the Group during the financial year have notbeen substantially affected by any item, transaction or event of a material and unusual nature.

Unusual items after the financial year

In the opinion of the directors, no item, transaction or event of a material and unusual nature has arisen in the interval betweenthe end of the financial year and the date of this report which would affect substantially the results of the operations of theCompany and of the Group for the financial year in which this report is made.

Share options

(a) Qian Hu Pre-IPO Employees’ Share Option Scheme (the “Pre-IPO Scheme”)

The Pre-IPO Scheme was approved and adopted at the Company’s Extraordinary General Meeting held on9 October 2000 to enable eligible employees of the Group, other than directors and controlling shareholders of theCompany, to participate in the equity of the Company.

The Pre-IPO Scheme is administered by the Pre-IPO Option Committee, consisting of an executive director and non-executive directors of the Company as follows:

(i) Kenny Yap Kim Lee(ii) Chang Weng Leong(iii) Robson Lee Teck Leng

On 25 October 2000, the following 3,332,000 options were granted to 93 employees of the Group to subscribe for ordinaryshares of the Company of $0.10 each at an exercise price of $0.24 per share (“Pre-IPO options“). Of this amount, 506,000shares were granted to 10 employees of the Group who are immediate family members of certain directors of the Company.

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Share options (cont’d)

Option category No. of holders Exercise period Exercise price No. of(per share) shares under

option

Grade C (Entry and mid-level) 41 08.11.2000 - 24.10.2010 24 cents 506,000

Grade B (Manager) 34 08.11.2001 - 24.10.2010 24 cents 1,482,000

Grade A (Senior Manager) 18 08.11.2001 - 24.10.2010 24 cents 1,344,000

93 3,332,000

The options granted to associates of the Company’s controlling shareholders under the Pre-IPO Scheme are as follows:

Aggregate Aggregate options options exercised/ Aggregate

granted since cancelled since optionsOptions granted commencement commencement of outstanding as

during the financial of scheme to end scheme to end of at end ofName of participant year under review of financial year financial year financial year

Yeo Bee Choo - 76,000 (76,000) -Liu Gim Hong - 76,000 (76,000) -Tan Ah Moi - 46,000 (46,000) -Ng Ah Pun - 14,000 (14,000) -Yap Hey Cha - 12,000 (12,000) -Lim Lee Seng - 12,000 (12,000) -Yap Ah Hoi - 42,000 (42,000) -Yap Ai Choo - 76,000 (45,000) 31,000Yap Ai Tin - 76,000 (45,000) 31,000Yap Saw Chin - 76,000 (22,000) 54,000

- 506,000 (390,000) 116,000

In respect of options granted to employees of related corporations, no options were granted during the financial year and atotal of 865,000 options were granted from the commencement of the Pre-IPO Scheme to the end of the financial year, of which110,000 options were cancelled due to resignation of employees.

Options Granted

No participant has received 5% or more of the total number of options available under the Pre-IPO Scheme. There were nooptions granted under the Pre-IPO Scheme during the financial year.

The options granted by the Company do not entitle the holders of the options, by virtue of such holdings, to any right toparticipate in any share issue of any other company.

Issue of Shares Under Options

During the financial year, there were 1,896,000 ordinary shares issued pursuant to the exercise of the Pre-IPO options.

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Unissued Shares Under Options

At the end of the financial year, there were 602,000 unissued ordinary shares of the Company under options granted,exercisable at $0.24 per share on or before 24 October 2010 unless any of such option is cancelled or has lapsed. Themovements of share options outstanding are disclosed in Note 29 to the financial statements.

(b) Qian Hu Post-IPO Employees’ Share Option Scheme (the “Post-IPO Scheme”)

The Post-IPO Scheme was approved and adopted at the Company’s Extraordinary General Meeting held on 9 October2000 to enable eligible employees of the Group, other than directors and controlling shareholders of the Companyincluding their associates, to participate in the equity of the Company.

The Post-IPO Scheme is administered by the Post-IPO Option Committee, consisting of non-executive directors of theCompany as follows:

(i) Chang Weng Leong(ii) Robson Lee Teck Leng(iii) Tan Tow Ee

At an Extraordinary General Meeting held on 19 February 2002, the following modifications to the Post-IPO Scheme wereapproved by the shareholders of the Company:

(a) The Post-IPO Scheme will be extended to include the participation of associates of controlling shareholders. Suchassociates must be confirmed full-time employees.

(b) The exercise price of the Post-IPO options will be set at a discount of 20% to the prevailing market price of the shares.The associates of controlling shareholders will be entitled to the same rate of discount to the market price of the shares asother employees who are selected by the Committee to receive discounted options.

Size of Plan

The total number of new shares over which options may be granted pursuant to the Post-IPO Scheme shall not exceed 10% ofthe issued share capital of the Company on the day immediately preceding the offer date of the options (“Offer Date“).

Grant of Option

Options may be granted from time to time during the period when the Post-IPO Scheme is in force, except that option shallonly be granted on or after third market day on which an announcement on any matter involving unpublishing price sensitiveinformation is released.

Acceptance of Option

The grant of an option shall be accepted within 30 days from the Offer Date and accompanied by payment to the Company of anominal consideration of $1.

Exercise period

The exercise period of an option granted at a discount of 20% to the prevailing market price of the shares commences aftertwo years from the Offer Date.

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The options granted to associates of the Company’s controlling shareholders under the Post-IPO Scheme are as follows:

Aggregate Aggregate options options exercised/ Aggregate

granted since cancelled since optionsOptions granted commencement commencement of outstanding as

during the financial of scheme to end scheme to end of at end ofName of participant year under review of financial year financial year financial year

Yap Ai Tin 40,000 40,000 - 40,000Yap Saw Chin 40,000 40,000 - 40,000Yap Ai Choo 40,000 40,000 - 40,000Tan Ah Moi 20,000 20,000 - 20,000Ng Ah Pun 10,000 10,000 - 10,000Lim Lee Seng 10,000 10,000 - 10,000

160,000 160,000 - 160,000

In respect of options granted to employees of related corporations, 425,000 options were granted during the financial year anda total of 425,000 options were granted from the commencement of the Post-IPO Scheme to the end of the financial year.

Options Granted

No participant has received 5% or more of the total number of options available under the Post-IPO Scheme. During thefinancial year, 1,620,000 options were granted under the Post-IPO Scheme.

The options granted by the Company do not entitle the holders of the options, by virtue of such holdings, to any right toparticipate in any share issue of any other company.

Issue of Shares Under Options

During the financial year, no shares were issued pursuant to the exercise of the Post-IPO options.

Unissued Shares Under Options

At the end of the financial year, there were 1,594,000 unissued ordinary shares of the Company under options granted,exercisable at $0.59 per share from 1 August 2004 to 31 July 2012, unless any of such option is cancelled or has lapsed. Themovements of share options outstanding are disclosed in Note 29 to the financial statements.

Except for the above, no other options to take up unissued shares of the Company or its subsidiaries were granted and noshares were issued by virtue of the exercise of options to take up unissued shares of the Company or its subsidiaries. No otheroptions to take up unissued shares in the Company or its subsidiaries were outstanding as at the end of the financial year.

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Audit committee

The Audit Committee comprises three independent non-executive directors. The members of the Committee as at the date ofthis report are as follows:

Robson Lee Teck Leng (Chairman)Chang Weng LeongTan Tow Ee (appointed on 1 May 2002)

The Audit Committee held four meetings during the financial year ended 31 December 2002.

The principal responsibility of the audit committee is to assist the Board of Directors in the identification and monitoring ofareas of significant business risks and includes the following:-

• the effectiveness of the management of financial and business risks and the reliability of management reporting;• compliance with the laws and regulations, particularly those of the Companies Act and the Singapore Exchange

Listing Manual;• the appropriateness of quarterly, half-year and full-year announcements and reports;• the effectiveness and efficiency of external audits; and• related party transactions

Specific functions of the audit committee include reviewing the scope of work of the external auditors and assistance given bythe Company’s officers to the auditors, and receiving and considering the reports of the external auditors, including theirevaluation of the system of internal controls. The consolidated financial statements of the Group and the financial statements ofthe Company are reviewed by the Audit Committee prior to the submission to the Board of Directors for adoption. The AuditCommittee also recommends the appointment of the external auditors and reviews the level of the audit fees.

In addition, the Audit Committee has reviewed the requirements for approval and disclosure of interested person transactions,reviewed the internal procedures set up by the Company to identify and report, and where necessary, seek approval forinterested person transactions, and with the assistance of the management, reviewed interested person transactions. The AuditCommittee is of the opinion that the internal procedures have been complied with.

The Committee has recommended to the Board of Directors that the auditors, Ernst & Young, be nominated for re-appointmentas auditors at the forthcoming Annual General Meeting of the Company.

Other information required by the Singapore Exchange Securities Trading Limited

No material contracts to which the Company or any subsidiary, is a party and which involve directors’ interests subsisted at theend of the financial year or have been entered into since the end of the financial year.

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Auditors

Ernst & Young have expressed their willingness to accept re-appointment as auditors of the Company.

On behalf of the Board of Directors

Kenny Yap Kim Lee Alvin Yap Ah SengDirector Director

Singapore20 January 2003

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Statement by DirectorsPursuant to Section 201(15)

We, Kenny Yap Kim Lee and Alvin Yap Ah Seng, being two of the directors of Qian Hu Corporation Limited, do hereby state that,in the opinion of the directors,

(i) the accompanying balance sheets, profit and loss accounts, statements of changes in equity and consolidated statementof cash flows together with notes thereto, set out on pages 56 to 101 are drawn up so as to give a true and fair view of thestate of affairs of the Company and of the Group as at 31 December 2002 and of the results and changes in equity of theCompany and of the Group and cash flows of the Group for the year then ended, and

(ii) at the date of this statement there are reasonable grounds to believe that the Company will be able to pay its debts as andwhen they fall due.

The Board of Directors authorised these financial statements for issue on 20 January 2003.

On behalf of the Board of Directors

Kenny Yap Kim Lee Alvin Yap Ah SengDirector Director


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Auditors’ Report to the Membersof Qian Hu Corporation Limited

We have audited the financial statements of Qian Hu Corporation Limited set out on pages 56 to 101. The financial statementscomprise the balance sheets of the Company and of the Group as at 31 December 2002, the profit and loss accounts and thestatements of changes in equity of the Company and of the Group and statement of cash flows of the Group for the year ended31 December 2002, and notes thereto. These financial statements are the responsibility of the Company’s directors. Ourresponsibility is to express an opinion on these financial statements based on our audit. The financial statements for the yearended 31 December 2001 were audited by other auditors, whose report dated 18 March 2002 expressed an unqualifiedopinion.

We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significant estimates made by the directors, as well asevaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion,

(a) the financial statements are properly drawn up in accordance with the provisions of the Singapore Companies Act (Act)and Singapore Statements of Accounting Standard and so as to give a true and fair view of:-

(i) the state of affairs of the Company and of the Group as at 31 December 2002 and of the results and changes in equityof the Company and of the Group and cash flows of the Group for the year then ended; and

(ii) the other matters required by section 201 of the Act to be dealt with in the financial statements;

(b) the accounting and other records, and the registers required by the Act to be kept by the Company and by thosesubsidiary companies incorporated in Singapore have been properly kept in accordance with the provisions of the Act.

We have considered the financial statements of the subsidiary companies of which we have not acted as auditors, beingfinancial statements included in the consolidated financial statements. The name of these subsidiaries are stated in Note 5 tothe financial statements.

We are satisfied that the financial statements of the subsidiary companies that have been consolidated with the financialstatements of the Company are in form and content appropriate and proper for the purposes of the preparation of theconsolidated financial statements and we have received satisfactory information and explanations as required by us for thosepurposes.

The auditors’ reports on the financial statements of the subsidiary companies were not subject to any qualification and inrespect of subsidiary companies incorporated in Singapore, did not include any comment made under section 207(3) ofthe Act.

ERNST & YOUNGCertified Public Accountants


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Balance Sheetsas at 31 December 2002(Amounts in Singapore dollars)

Note Group Company2002 2001 2002 2001

$ $ $ $

ASSETS LESS LIABILITIES

Non-current assetsFixed assets 3 7,818,045 6,334,095 4,468,406 3,864,814Biological assets 4 1,371,930 1,401,120 1,371,930 1,401,120Subsidiaries 5 - - 2,679,640 2,450,844Associates 6 - 314,949 28,722 327,931Quoted equity investment,

at cost (market value: $6,505, 2001:$7,987) 3,820 4,018 - -Trademarks/customer acquisition costs,

product listing fees 7 87,913 97,672 74,193 91,233Land use rights 8 212,653 227,308 - -Advance for investment - 28,722 - 28,722

Current assetsStocks 9 12,876,214 6,645,089 4,438,586 3,931,623Trade debtors 10 12,351,805 8,805,512 7,087,826 6,116,038Other debtors, deposits and prepayments 11 786,805 837,348 201,108 174,261Due from

- subsidiaries (trade) - - 7,181,985 2,491,724- subsidiaries (non-trade) 12 - - 1,927,720 850,108- associates (trade) 406,452 415,919 406,452 415,919- associates (non-trade) 12 - 557,137 - 557,137

Fixed deposits 13 101,116 97,839 22,568 21,393Cash and bank balances 7,719,571 1,812,892 6,251,412 1,000,028

34,241,963 19,171,736 27,517,657 15,558,231

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$ $ $ $

Current liabilitiesTrade creditors 5,809,629 3,552,549 3,328,248 2,513,111Bills payable to bank 14 3,204,880 1,152,999 3,204,880 1,152,999Other creditors and accruals 15 3,218,628 2,491,715 2,435,455 1,723,514Due to - subsidiaries (trade) - - 84,104 14,622 - directors (non-trade) 12 - 2,309 - -Hire purchase creditors (current portion) 16 357,549 224,576 163,635 84,799Term loan (current portion) 17 - 200,000 - 200,000Provision for taxation 1,854,013 989,258 1,330,990 762,233Bank overdrafts, secured - 575,605 - 575,605

14,444,699 9,189,011 10,547,312 7,026,883

Net current assets 19,797,264 9,982,725 16,970,345 8,531,348

Non-current liabilitiesHire purchase creditors (non-current portion) 16 (709,180) (478,134) (512,980 ) (327,147)Term loan (non-current portion) 17 - (403,613) - (403,613)Deferred taxation 25 (356,467) (276,045) (258,000) (224,000)

28,225,978 17,232,817 24,822,256 15,741,252

EQUITYShare capital 18 10,297,070 8,276,200 10,297,070 8,276,200Reserves 19 17,580,344 8,895,840 14,525,186 7,465,052

27,877,414 17,172,040 24,822,256 15,741,252Minority interests 348,564 60,777 - -

28,225,978 17,232,817 24,822,256 15,741,252

The accounting policies and explanatory notes on pages 62 through 101 form an integral part of the financial statements.

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Profit and Loss Accountsfor the year ended 31 December 2002(Amounts in Singapore dollars)


$ $ $ $

Turnover 20 62,693,126 41,248,562 51,865,151 33,164,694

Cost of sales (40,514,649) (26,465,598) (36,682,757) (22,011,534)

Gross profit 22,178,477 14,782,964 15,182,394 11,153,160

Other operating income 652,748 638,702 532,615 636,367

Selling and distribution expenses (2,243,269) (1,621,289) (1,501,769) (1,345,462)

General and administrative expenses (11,964,893) (9,290,864) (7,909,422) (6,525,099)

Profit from operations 21 8,623,063 4,509,513 6,303,818 3,918,966Financial expenses 24 (180,088) (139,016) (152,401) (122,203)Financial income 24 6,549 9,491 4,160 3,559

8,449,524 4,379,988 6,155,577 3,800,322Share of profit (loss) of associates 138,620 (7,175) - -

Profit before taxation 8,588,144 4,372,813 6,155,577 3,800,322Taxation 25 (2,053,266) (862,578) (1,350,000) (650,000)

6,534,878 3,510,235 4,805,577 3,150,322Minority interest 12,481 48,134 - -

Net profit attributable toMembers of the Company 6,547,359 3,558,369 4,805,577 3,150,322

Earnings per share (cents) 27Basic 6.64 3.91Diluted 6.58 3.88


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Statements of Changes in Equityfor the year ended 31 December 2002(Amounts in Singapore dollars)

GroupShare Share Unappropriated Translation

capital premium profit reserve Total$ $ $ $ $

Balance at 1 January 2001 8,275,000 2,081,887 3,361,160 25,546 13,743,593Currency translation differences - - - 179,624 179,624Net profit for the year - - 3,558,369 - 3,558,369Dividends (Note 26) - - (312,426) - (312,426)Issue of new shares 1,200 1,680 - - 2,880

Balance at 31 December 2001 8,276,200 2,083,567 6,607,103 205,170 17,172,040Currency translation differences - - - (117,412) (117,412)Net profit for the year - - 6,547,359 - 6,547,359Dividends (Note 26) - - (376,860) - (376,860)Bonus issue of shares via capitalisation of share premium account 831,270 (831,270) - - -Issue of new shares 1,189,600 3,765,440 - - 4,955,040Share issue expenses - (302,753) - - (302,753)

Balance at 31 December 2002 10,297,070 4,714,984 12,777,602 87,758 27,877,414

CompanyShare Share Unappropriated

capital premium profit Total$ $ $ $

Balance at 1 January 2001 8,275,000 2,081,887 2,543,589 12,900,476Net profit for the year - - 3,150,322 3,150,322Dividends (Note 26) - - (312,426) (312,426)Issue of new shares 1,200 1,680 - 2,880

Balance at 31 December 2001 8,276,200 2,083,567 5,381,485 15,741,252Net profit for the year - - 4,805,577 4,805,577Dividends (Note 26) - - (376,860) (376,860)Bonus issue of shares via capitalisation of share premium account 831,270 (831,270) - -Issue of new shares 1,189,600 3,765,440 - 4,955,040Share issue expenses - (302,753) - (302,753)

Balance at 31 December 2002 10,297,070 4,714,984 9,810,202 24,822,256


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Consolidated Statement of Cash Flowsfor the year ended 31 December 2002(Amounts in Singapore dollars)

2002 2001$ $

Cash flows from operating activitiesProfit before taxation and minority interest 8,588,144 4,372,813Adjustments:

Bad trade debts written off 29,589 11,077Depreciation of fixed assets 1,273,927 960,256Depreciation of biological assets 29,190 29,190Fixed assets written off - 4,712(Gain) loss on disposal of- fixed assets (83,416) (30,975)- land use rights - (48,703)- an associated company 8,813 -Gain on divestment in a subsidiary (9,725) -Amortisation of- land use rights 4,461 8,994- trademarks/customer acquisition costs, product listing fees 103,811 177,323Provision for- doubtful trade debts 217,196 69,000- stock obsolescence written back - (450,000)Share of (profit) loss of associates (138,620) 7,175Interest expense 180,088 139,016Interest income (6,549) (9,491)Negative goodwill on consolidation (29,453) -Net effect of exchange differences (42,493) 57,958

Operating profit before working capital changes 10,124,963 5,298,345(Increase) decrease in:

Stocks (4,103,645) (1,393,832)Trade debtors (3,561,435) (2,673,928)Other debtors, deposits and prepayments 735,362 45,858Due from- associates (trade) 9,467 (415,919)- associates (non-trade) 557,137 (557,137)

Increase (decrease) in:Trade creditors (334,628) 248,443Bills payable to bank 2,051,881 249,312Other creditors and accruals 489,769 558,606Due to directors (non-trade) (2,309) (490,285)

Cash generated from operations 5,966,562 869,463Income tax paid (1,108,089) (708,788)Interest paid (180,088) (139,016)

Net cash generated from operating activities 4,678,385 21,659

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2002 2001$ $

Cash flows from investing activitiesPurchase of- fixed assets (Note 3) (1,933,353) (1,344,129)- land use rights - (31,937)- quoted equity investment - (4,018)Proceeds from disposal of- fixed assets 131,680 160,614- land use rights - 130,733- associated company 121,771 -Proceeds from divestment in a subsidiary 20,260 -Advance for investment - (28,722)Payment for trademarks/customer acquisition cost, product listing fees (93,761) (23,079)Acquisition of a subsidiary, net of cash and cash equivalents (Note 5) 85,309 -

Net cash used in investing activities (1,668,094) (1,140,538)

Cash flows from financing activitiesProceeds from- issue of shares to minority shareholders of a subsidiary - 60,777- issue of new shares (net) 4,652,287 2,880Repayment of- hire purchase creditors (203,093) (346,285)- term loan (603,613) (191,404)Payment of dividends to shareholders (376,860) (312,426)Interest received 6,549 9,491

Net cash generated from (used in) financing activities 3,475,270 (776,967)

Net increase (decrease) in cash and cash equivalents 6,485,561 (1,895,846)Cash and cash equivalents at beginning of year (Note A) 1,335,126 3,230,972

Cash and cash equivalents at end of year (Note A) 7,820,687 1,335,126

Note A: Cash and cash equivalents

Cash and cash equivalents included in the consolidated statement of cash flows comprise the following balance sheet amounts:

2002 2001$ $

Cash and bank balances 7,719,571 1,812,892Fixed deposits 101,116 97,839Bank overdrafts, secured - (575,605)

Cash and cash equivalents 7,820,687 1,335,126


62

Notes to the Financial Statementsfor the year ended 31 December 2002(Amounts in Singapore dollars)

1. Corporate information

The financial statements of Qian Hu Corporation Limited for the year ended 31 December 2002 were authorised for issuein accordance with a directors’ resolution dated 20 January 2003.

Qian Hu Corporation Limited is a limited company domiciled and incorporated in Singapore with registered office atNo. 71 Jalan Lekar, Singapore 698950.

The principal activities of the Company are those of import, export, farming, breeding and distribution of ornamental fishesand aquarium and pet accessories. The principal activities of the subsidiaries are as set out in Note 5 to the financialstatements.

There have been no significant changes in the nature of these activities during the financial year.

The total number of employees in the Company and the Group at the end of the financial year was 120 and 579 (2001: 92and 218) respectively.

2. Significant accounting policies

(a) Basis of preparation

The financial statements of the Company and of the Group which are expressed in Singapore dollars, have beenprepared under the historical cost convention in accordance with Singapore Statements of Accounting Standard(SAS) and applicable requirements of Singapore Law.

(b) Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiarycompanies made up to the end of the financial year. The results of subsidiaries acquired or disposed of during theyear are included in or excluded from the consolidated financial statements with effect from the respective dates ofacquisition or disposal, as applicable. Significant intercompany balances, transactions and unrealised profit or losson intercompany transactions have been eliminated on consolidation.

When a subsidiary or an associated company is acquired, any excess or deficiency of the purchase considerationover the fair values, assigned by the directors, of the underlying net assets at the date of acquisition representsgoodwill or negative goodwill. Goodwill is amortised on a straight line basis to the consolidated profit and lossaccount over a period up to a maximum of 20 years. Negative goodwill in excess of fair values of non-monetaryassets acquired is recognised immediately in the profit and loss account.

Investment in associated companies is accounted for in the consolidated financial statements using the equitymethod. The Group’s share of the post-acquisition results of associated companies is included in the consolidatedprofit and loss account. The Group’s share of the post-acquisition accumulated profits and reserves of associatedcompanies is included in the carrying value of the investment in the consolidated balance sheet. Unrealised gainsarising from transactions with associated companies are eliminated to the extent of the Group’s interest in theassociated companies, against the investment in associated companies.

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In the preparation of the consolidated financial statements, the financial statements of foreign subsidiaries andassociated companies are translated at the rates of exchange ruling at the balance sheet date except for sharecapital and reserves which are translated at historical rates of exchange and profit and loss items are translated atthe average exchange rates for the year. Foreign currency translation differences are taken directly to translationreserve. On disposal of a foreign entity, accumulated exchange differences are recognised in the profit and lossaccount as a component of the gain or loss on disposal.

(c) Subsidiaries and associates

(i) Subsidiaries

A subsidiary is a company in which the Group, directly or indirectly, holds more than half of the issued share capital,or controls more than half of the voting power, or controls the composition of the board of directors.

Investments in subsidiaries are stated in the Company’s balance sheet at cost. Provision is made when, in theopinion of the directors, there has been an impairment in the value of the investment that is other than temporary.

(ii) Associates

An associated company is a company, not being a subsidiary, in which the Group or the Company has a long-terminterest of between 20% and 50% of the equity and in whose financial and operating decisions the Group or theCompany exercises significant influence.

Investments in associates are stated in the Company’s balance sheet at cost. Provision is made when, in the opinionof the directors, there has been an impairment in the value of the investment that is other than temporary.

(iii) Other investments

Advance for investment, which is intended to be held on a long term basis, are stated at cost. Provision is madewhen, in the opinion of the directors, there has been an impairment in the value of the investment that is other thantemporary.

Investment in quoted shares is stated at the lower of cost and market value determined on an individual investmentbasis.

(d) Fixed assets

Fixed assets are stated at cost less accumulated depreciation and any impairment loss. The cost of an assetcomprises its purchase price and any directly attributable costs of bringing the asset to working condition for itsintended use. Expenditure for additions, improvements and renewals are capitalised and expenditure formaintenance and repairs are charged to the profit and loss account. When assets are sold or retired, their cost andaccumulated depreciation are removed from the financial statements and any gain or loss resulting from theirdisposal is included in the profit and loss accounts.

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(e) Biological assets

The Group has two types of biological assets, ornamental fishes and brooder stocks.

(i) Ornamental fish

Biological assets are to be measured on initial recognition and at each balance sheet date, at their fair value lessestimated point-of-sale costs, in accordance with SAS 39, Agriculture. The Group holds ornamental fish for tradingpurposes. The holding period of ornamental fish held for growing is generally short, ranging from 2 to 4 weeks. Inthe opinion of the directors, the increment in fair value of the ornamental fish during the holding period is nominal,and as such, the cost of ornamental fish that undergo biological transformation approximates fair value.Accordingly, ornamental fish held for trading have been stated at cost.

(ii) Brooder stocks

The brooder stocks are parent stocks of Dragon Fish, held for use in the breeding of Dragon Fish. As the fair valueof brooder stocks cannot be measured reliably, the brooder stocks have been stated at cost less accumulateddepreciation and any impairment loss. The brooder stocks have been depreciated on a straight-line basis overtheir estimated useful lives of 50 years.

(f) Depreciation

Depreciation is calculated on a straight-line basis so as to write-off the cost of the fixed assets over their estimateduseful lives (except for fixed assets of certain subsidiaries which take into account an estimate residual value of10% of cost). The estimated useful lives of fixed assets are as follows:

Leasehold land over the remaining lease termsLeasehold buildings over the remaining lease termsLeasehold improvements 5 yearsMotor vehicles 5 - 10 yearsComputers 3 yearsFurniture, fittings and office equipment 5 - 10 yearsEquipment and tools 8 yearsForklift 5 yearsMoulds 5 yearsMachinery 5 - 8 yearsAir conditioner 5 yearsPonds and concrete tanks 3 - 10 yearsElectrical and installation 10 years

Construction-in-progress is not depreciated until such time as the relevant assets are completed and put intooperational use.

Fully depreciated assets are retained in the financial statements until they are no longer in use and no furthercharge in depreciation is made in respect of these assets.

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(g) Leases

Where assets are financed by hire purchase agreements that give rights approximating to ownership, the assets arecapitalised as if they had been purchased outright at the values equivalent to the present value of the total rentalpayable during the years of the hire purchase and the corresponding hire purchase commitments are includedunder liabilities. The excess of the hire purchase payments over the recorded hire purchase obligations is treatedas finance charges, which are allocated over each hire purchase term to give a constant rate of interest on theoutstanding balance at the end of each year.

Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased assetsare classified as operating leases. Operating lease payments are recognised as an expense in the profit and lossaccount on a straight line basis over the lease term.

(h) Trademarks/customer acquisition costs, product listing fees

Trademarks/customer acquisition costs and product listing fees are stated at cost less amounts amortised. Thesecosts are amortised on a straight-line basis through the profit and loss account over 3 years.

(i) Land use rights

This refers to the rights to use the acquired land and are stated at cost less accumulated amortisation. Land userights are amortised over the years in which the right to use the land is granted.

(j) Impairment of assets

Fixed assets, intangible assets and long-term investments are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of the asset may not be recoverable. Whenever thecarrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in profit and lossaccount for items of fixed assets, intangible assets and long-term investments carried at cost. The recoverableamount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainablefrom the sale of an asset in an arm’s length transaction. Value in use is the present value of estimated future cashflows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life.Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit.

Reversal of an impairment loss recognised in prior years is recorded when there is an indication that theimpairment loss recognised for an asset no longer exists or has decreased. The reversal is recorded in profit andloss account or as a revaluation increase.

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(k) Stocks

Stocks are stated at the lower of cost (determined on a weighted average basis) and net realisable value. Costincludes materials, all direct expenditure and an attributable portion of overheads.

Net realisable value is the estimated normal selling price, less estimated costs necessary to make the sale.

Provision is made for deteriorated, damaged, obsolete and slow-moving stocks.

(l) Trade and other receivables

Trade and other receivables, including intercompany receivables are recognised and carried at original invoicedamount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection ofthe full amount is no longer probable. Bad debts are written off as incurred.

(m) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, bank deposits and highly liquid investments which are readilyconvertible to cash and which are subject to insignificant risk of changes in value, net of bank overdrafts which arerepayable on demand and which form an integral part of the Group’s cash management.

Cash on hand and in banks are carried at cost.

(n) Trade and other payables

Trade and other payables, including intercompany payables, are carried at cost which is the fair value of theconsideration to be paid in the future for goods and services received.

(o) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a pastevent, it is probable that an outflow of resources embodying economic benefits will be required to settle theobligation and a reliable estimate can be made of the amount of the obligation.

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(p) Revenue recognition

(i) Sale of goods

Sales are recognised net of goods and services tax and discounts when delivery has taken place and transfer ofrisks and rewards has been completed.

(ii) Interest income

Interest income is recognised on the accrual basis.

(q) Employee benefits

(i) Equity compensation benefit

The Company has two employees’ share option schemes whereby employees (including associates of theCompany’s controlling shareholders) are granted non-transferable options to purchase the Company’s shares.No compensation costs is recognised upon granting or the exercise of the options. When the options are exercised,the proceeds received net of transaction costs are credited to share capital and share premium accordingly.

(ii) Defined contribution plans

As required by law, the Group makes contribution to the state pension scheme, the Central Provident Fund (CPF)for Singapore companies and the Employees Provident Fund (EPF) for Malaysia company. CPF and EPFcontributions are recognised as compensation expense in the same period as the employment that gives rise to thecontributions.

(iii) Pension scheme

The subsidiary companies in the People’s Republic of China operate defined contribution pension schemes.Contributions are charged to the profit and loss account as they became payable in accordance with the rules ofthe scheme.

(iv) Employee leave entitlement

Employee entitlements to annual leave are recognised when they accrue to employees. An accrual is made forestimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

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(r) Borrowings

Borrowings are carried at cost net of transaction costs.

(s) Taxation

Deferred income tax is provided using the liability method, on all temporary differences at the balance sheet datebetween the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, unless the deferred tax liability arisesfrom goodwill for which amortisation is not deductible for tax purposes.

Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assetsand unused tax losses, to the extent that it is probable that taxable profit will be available against which thedeductible temporary differences, carry-forward of unused tax assets and unused tax losses can be utilised. Fordeductible temporary differences associated with investments in subsidiaries and associates, deferred tax assetsare only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeablefuture and taxable profit will be available against which the temporary difference can be utilised.

Deferred tax liabilities are not provided on undistributed earnings of foreign subsidiaries to the extent the earningsare intended to remain indefinitely invested in those entities.

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and reduced to the extent thatis no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of the deferredtax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when theasset is realised or the liability is settled based on tax rates (and tax laws) that have been enacted or substantivelyenacted at the balance sheet date.

(t) Foreign currencies translation

The accounting records of the companies in the Group are maintained in their respective measurement currencies.

Transactions in foreign currencies are recorded in the respective companies’ measurement currencies usingexchange rates approximating those ruling at the transaction dates. Foreign currency monetary assets andliabilities at the balance sheet date are translated into the respective measurement currencies at exchange ratesapproximating those ruling at that date. All resulting exchange differences are included in the profit and lossaccount.

(u) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services(business segment), or in providing products or services within a particular economic environment (geographicalsegment), which is subject to risks and rewards that are different from those of other segments.

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Segment information is presented in respect of the Group’s business and geographical segments. The primaryformat, business segments, is based on the Group’s management and internal reporting structure.

For management purposes, the Group is organised on a world-wide basis into three major operating businesses.

Inter-segment pricing is determined on an arm’s length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can beallocated on a reasonable basis. Unallocated items mainly comprise income earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses.

Segment capital expenditure is the total costs incurred during the year to acquire segment assets that are expectedto be used for more than one year.

(v) Changes in accounting policies

During the year ended 31 December 2002, the Group and the Company changed its accounting policies as follows:

(i) SAS 12, Income Taxes, was issued in March 2001 and is effective for financial years beginning on or after1 April 2001.

SAS 12 requires deferred tax to be calculated using the balance sheet liability method, for all temporarydifferences at the balance sheet date between the carrying amounts of assets and liabilities and the amountsused for income tax purposes. Deferred tax assets should be recognised when it is probable that sufficienttaxable profit will be available against which the deferred tax assets can be utilised.

The adoption of SAS 12 has no significant impact on the deferred tax of the Group and of the Company forthe year ended 31 December 2002.

(ii) SAS 39, Agriculture, was issued in August 2001 and is effective for financial years beginning on or after1 October 2001.

SAS 39 establishes accounting and reporting standards for recognising, measuring and disclosinginformation about certain items relating to agricultural activity, including biological assets. It requiresbiological assets which meets recognition criteria to be measured on initial recognition and at each balancesheet date at its fair value less estimated point-of-sale costs. Gains or loss arising from these measurementsshould be included in net profit or loss for the period in which it arises. Where fair value of biological assetcannot be measured reliably, the biological asset should be measured at its cost less any accumulateddepreciation and any accumulated impairment losses.

The adoption of SAS 39 has no significant impact on the profit and loss account of the Group and of theCompany for the year ended 31 December 2002. The Group’s and the Company’s accounting treatment onbiological assets are disclosed in Note 2(e) to the financial statements.

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3. Fixed assets

GroupFurniture,

fittingsLeasehold Leasehold Leasehold Motor and office

land buildings improvements vehicles Computers equipment$ $ $ $ $ $

Cost

As at 1.1.2002 - 4,077,152 14,013 1,444,519 388,240 573,426Beginning balance attributable to a subsidiary acquired during the year - - - - 50,194 102,787Additions 73,951 439,082 64,879 901,377 87,166 384,549Disposals/written off - - - (258,095) - (6,879)Transfer to moulds - - - - - -Translation differences - (29,390) (529) (15,077) (2,425) (17,878)

As at 31.12.2002 73,951 4,486,844 78,363 2,072,724 523,175 1,036,005

Accumulated depreciation

As at 1.1.2002 - 650,227 5,295 706,012 219,276 133,171Beginning balance attributable to a subsidiary acquired during the year - - - - 8,955 13,542Charge for the year 28,759 265,231 14,788 310,652 103,980 113,957Disposals/written off - - - (211,610) - (5,100)Translation differences - (1,106) (201) (5,982) (872) (2,879)As at 31.12.2002 28,759 914,352 19,882 799,072 331,339 252,691

Depreciation charge for 2001 - 236,822 2,803 228,400 103,096 54,439

Net book value

As at 31.12.2002 45,192 3,572,492 58,481 1,273,652 191,836 783,314

As at 31.12.2001 - 3,426,925 8,718 738,507 168,964 440,255

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Ponds and ElectricalEquipment Air concrete and Construction-

and tools Forklift Moulds Machinery conditioner tanks installation in-progress Total$ $ $ $ $ $ $ $ $

96,251 39,124 - 2,230,116 44,969 195,837 442,175 - 9,545,822

- - 291,778 - - - - 8,902 453,661106,015 - 85,749 212,013 41,168 - 104,516 - 2,500,465

- - - (90,000) - - - - (354,974)- - 8,902 - - - - (8,902) -

(473) (15) - (21,052) (174) (8,781) - - (95,794)

201,793 39,109 386,429 2,331,077 85,963 187,056 546,691 - 12,049,180

24,709 33,508 - 1,129,375 28,087 156,670 125,397 - 3,211,727

- - 50,986 - - - - - 73,48327,274 1,306 5,495 283,696 9,215 37,411 72,163 - 1,273,927

- - - (90,000) - - - - (306,710)(290) (2) - (2,914) (21) (7,025) - - (21,292)

51,693 34,812 56,481 1,320,157 37,281 187,056 197,560 - 4,231,135

8,135 994 - 224,324 6,467 39,167 55,609 - 960,256

150,100 4,297 329,948 1,010,920 48,682 - 349,131 - 7,818,045

71.542 5,616 - 1,100,741 16,882 39,167 316,778 - 6,334,095

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3. Fixed assets (cont’d)

Company

Furniture,fittings Electrical

Leasehold Motor and office Air andbuildings vehicles Computers equipment Machinery conditioner installation Total

$ $ $ $ $ $ $ $

CostAs at 1.1.2002 3,421,762 874,644 305,270 171,444 359,615 41,014 194,522 5,368,271Additions 439,082 465,429 47,615 116,902 103,956 32,212 96,181 1,301,377Disposals - (133,548) - - - - - (133,548)

As at 31.12.2002 3,860,844 1,206,525 352,885 288,346 463,571 73,226 290,703 6,536,100

Accumulated depreciationAs at 1.1.2002 625,569 357,506 183,452 62,997 137,743 27,612 108,578 1,503,457Charge for the year 247,364 219,569 81,920 31,757 65,352 7,083 44,740 697,785Disposals - (133,548) - - - - - (133,548)

As at 31.12.2002 872,933 443,527 265,372 94,754 203,095 34,695 153,318 2,067,694

Depreciation charge for 2001 216,432 173,913 87,320 26,315 56,050 6,111 38,614 604,755

Net book valueAs at 31.12.2002 2,987,911 762,998 87,513 193,592 260,476 38,531 137,385 4,468,406

As at 31.12.2001 2,796,193 517,138 121,818 108,447 221,872 13,402 85,944 3,864,814

(i) As at 31 December 2002, the Group and the Company had fixed assets acquired under hire purchase with net bookvalue as follows:

Group Company2002 2001 2002 2001

$’000 $’000 $’000 $’000

Net book valueMotor vehicles 1,109 590 732 467Machinery 250 243 - -

1,359 833 732 467

During the financial year, the Group acquired fixed assets with an aggregate cost of $2,500,465 (2001: $1,961,802) ofwhich $567,112 (2001: $617,673) was acquired by means of hire purchase agreements. Cash payments of $1,933,353(2001: $1,344,129) were made to purchase fixed assets.

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(ii) Details of leasehold properties held by the Group are as follows:

Description Tenure/and unexpired Land area

Location existing use term (sqm) Net book value2002 2001

$ $

Held by the Company- Leasehold land and buildings

Nos. 69 & 71 Jalan Lekar, Fish farming 20 years from 41,776 2,987,911 2,796,193Singapore purposes 11.11.1993

Held by subsidiary companies- Leasehold land and factory buildings

Meifa Industrial Zone, Anxi County, Industrial use 20 years from 18,187 584,581 630,732Fujian Province, PRC 18.08.1996

- Leasehold landNos. 30/25 Moo 8 Tumbol Klong Nung,Amphur Klong Laung Pathun Thani Fish farming 3 years from 1,600 45,192 -Province 12120, Thailand purposes 15.08.2001

3,617,684 3,426,925

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4. Biological assets

Group and Company2002 2001

$ $

Brooder stocksCostBalance at 1 January and 31 December 1,459,500 1,459,500

Accumulated depreciationBalance at 1 January 58,380 29,190Depreciation charge for the year 29,190 29,190

Balance at 31 December 87,570 58,380

Net book valueAs at 31 December 1,371,930 1,401,120

The brooder stocks are parent stocks of Dragon Fish, held by the Group and the Company for the use in the breeding ofDragon Fish. Due to the uniqueness of each Dragon Fish and as an active market does not exist for the brooder stocks,the brooder stocks have been stated at cost less accumulated depreciation and any impairment loss.

5. Subsidiaries

(a) These comprise:

Company2002 2001

$ $

Unquoted equity investments

Cost at 1 January 2,450,844 2,297,752Additional investments during the year 249,056 172,813Transfer of interest in a subsidiary to another subsidiary pursuant to a group restructuring - (19,713)Disposal of interest in a subsidiary pursuant to the Memorandum of Understanding (20,260) (8)

Cost at 31 December 2,679,640 2,450,844

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5. Subsidiaries (cont’d)

(b) Details of the subsidiaries as at 31 December 2002 are as follows:

Country ofincorporation Effective equity

and place of interest held Cost of investmentName Principal activities business by the Group by the Company

2002 2001 2002 2001

% % $ $

Tat Leng Plastic Pte Ltd Manufacture of Singapore 100 100 57,050 57,050plastic bags

Jiang Nan Holdings Investment holding Singapore 100 - 2 -Pte. Ltd.

Guan Guan Aquarium Trading in aquatic Malaysia 100 100 150,451 150,451Sdn Bhd # equipment and pet

accessories andimport and

distribution ofornamental fishes

Fujian Anxi Qianlong Manufacture of People’s Republic 100 100 1,750,444 1,750,444Plastics Private Co., Ltd * plastic bags of China

Beijing Qianyang Import and export of People’s Republic 100 100 171,824 171,824Aquarium Co., Ltd * cold-water ornamental of China

fish and aquariumaccessories

Guangzhou Wan Jiang Manufacture of pet and People’s Republic 60 - 249,054 -Technology Co., Ltd * aquarium accessories of China

Qian Hu Marketing Import, export and Thailand 74◆ 74◆ 148,262 148,262Co Ltd * distribution of aquarium

and pet accessories

Thai Qian Hu Import and export of Thailand 60 70 121,554 141,814Company Limited * ornamental fish

NNTL (Thailand) Limited * Investment holding Thailand 49▼ 49▼ 30,999 30,999

2,679,640 2,450,844

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* Audited by other certified public accountants. These subsidiaries are not significant as defined under Listing Rule717 of the Singapore Exchange Listing Manual.

◆ This represents the Group’s effective interest in Qian Hu Marketing Co Ltd. The Company holds a 49% direct interestin Qian Hu Marketing Co Ltd and the remaining 25% is held through a subsidiary, NNTL (Thailand) Limited.

▼ NNTL (Thailand) Limited is a subsidiary of the Company as the Company has voting control at general meetings andBoard meetings of NNTL (Thailand) Limited.

# Audited by Raja Salleh, Lim & Co.

On 30 November 2002, the Company acquired an additional 10% equity interest in Guangzhou Wan Jiang TechnologyCo., Ltd (previously an associated company), making it a 60% owned subsidiary, for a cash consideration of $42,894. Theacquisition was accounted for using the purchase method of accounting.

The attributable net assets of the subsidiary acquired as at 30 November 2002 and the cash flow effect of the acquisitionare as follows:

$

Fixed assets 380,178Stocks 2,127,480Trade debtors 231,643Other debtors, deposits and prepayments 684,819Cash and bank balances 128,203Trade creditors (2,591,708)Other creditors and accruals (237,144)

Net assets acquired 723,471Less:

Minority interests (283,256)Equity-accounted cost of investment before acquisition of the additional equity interest (184,365)Share of profit of associated company (167,342)Negative goodwill on consolidation (29,453)Translation differences (16,161)

Total purchase consideration 42,894Less: Cash and bank balances acquired (128,203)

Net cash flow from acquisition of subsidiary (85,309)

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The effect of the acquisition of Guangzhou Wan Jiang Technology Co., Ltd on the financial position of the Group at31 December 2002 and its results for the year is shown below:

$

Total assets at 31 December 2002 3,552,323

Total liabilities at 31 December 2002 2,828,852

For the period from 1 December to 31 December 2002:- turnover 420,428- profit before and after taxation 28,670

Guangzhou Wan Jiang Technology Co., Ltd’s profit after taxation for the period from 1 December to 31 December 2002 of$28,670 has been included in the results of the Group for the year ended 31 December 2002.

6. Associates

(a) These comprise:


Unquoted equity investmentCost at 1 January 314,949 121,771 327,931 121,771Additional investment during the year 28,722 206,160 28,722 206,160Disposal during the year (i) (130,584) - (121,771) -Transfer to investment in a subsidiary (184,365) - (206,160) -Share of post-acquisition loss (28,722) (12,982) - -

Cost at 31 December - 314,949 28,722 327,931

(i) During the financial year, the Group disposed of its 25% equity interest in an associated company, Fujian Anxi JiyingHandicraft Article Co., Ltd, at cost and recorded a loss on disposal of $8,813.

(b) Details of the associate as at 31 December 2002 are as follows:

Name of associated company : Jin Jien Hsing Enterprise Co., LtdPrincipal activities : Distribution of pet food and accessoriesCountry of incorporation and place of business : Republic of ChinaPercentage of interest held : 50% (2001: Nil)

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7. Trademarks/customer acquisition costs, product listing fees

Group Company2002 2001 2002 2001

$ $ $ $

At cost - trademarks/customer acquisition costs 592,620 508,279 573,926 500,000 - product listing fees 37,710 28,090 37,710 28,090

630,330 536,369 611,636 528,090Less accumulated amortisation (542,417) (438,697) (537,443) (436,857)

87,913 97,672 74,193 91,233

Movements in accumulated amortisation during the year are as follows:

Balance at 1 January 438,697 261,374 436,857 261,374Amortisation for the year 103,811 177,323 100,586 175,483Translation difference (91) - - -

Balance at 31 December 542,417 438,697 537,443 436,857

Trademarks/customer acquisition costs relate to costs paid to third parties in relation to the acquisition of trademarksrights and existing customer base of two brands of pet food, namely “ARISTO-CATS YI HU” and “Nature’s Gift”.

Product listing fees relate to cost paid to third parties in relation to the entitlements to list and sell the Company’s productsin certain supermarkets.

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8. Land use rights

This relates to land use rights acquired by one of the subsidiaries, Fujian Anxi Qianlong Plastics Private Co., Ltd, in thePeople’s Republic of China.

Group2002 2001

$ $

At costBalance at 1 January 241,186 273,312Addition during the year - 31,937Disposal during the year - (82,030)Translation differences (10,817) 17,967

230,369 241,186Less accumulated amortisation (17,716) (13,878)


Movements in accumulated amortisation during the year are as follows:

Balance at 1 January 13,878 4,555Amortisation for the year, net 4,461 8,994Translation differences (623) 329


80


9. Stocks

Group Company2002 2001 2002 2001

$ $ $ $

Fish, at cost 834,859 1,056,489 724,291 1,048,460Fish, at net realisable value - - - -Accessories and gift items, at cost 11,098,136 4,998,530 3,714,295 2,883,163Accessories and gift items, at net realisable value - - - -Finished goods - plastic products, at cost 588,578 406,791 - -Finished goods - plastic products, at net realisable value 71,830 - - -Raw materials - plastic products, at cost 282,811 183,279 - -

Total stocks at lower of cost and net realisable value 12,876,214 6,645,089 4,438,586 3,931,623

Stocks are stated after deducting forprovision for stock obsolescence of 450,577 464,133 356,787 370,343

Movements in provision for stock obsolescence during the year are as follows:

Balance at 1 January 464,133 914,133 370,343 820,343Provision written back during the year - (450,000) - (450,000)Amount written off against provision (13,556) - (13,556) -


10. Trade debtors

Group Company2002 2001 2002 2001

$ $ $ $

Trade debtors 13,166,441 9,720,568 7,770,567 6,939,397Less provision for doubtful trade debts (814,636) (915,056) (682,741) (823,359)

12,351,805 8,805,512 7,087,826 6,116,038

Movements in provision for doubtful trade debts during the year are as follows:

Balance at 1 January 915,056 846,056 823,359 754,359Provision made during the year 217,196 69,000 170,000 69,000Amount written off against provision (317,616) - (310,618) -


81

11. Other debtors, deposits and prepayments

Group Company2002 2001 2002 2001

$ $ $ $

Deposits 170,375 156,928 13,954 -Prepayments 103,045 55,320 67,789 35,535Advances to employees 2,152 24,630 - -Advances to suppliers 274,109 - - -

549,681 236,878 81,743 35,535

Other debtors 243,303 617,424 125,544 155,680Less provision for doubtful non-trade debts (6,179) (16,954) (6,179) (16,954)

237,124 600,470 119,365 138,726

Total 786,805 837,348 201,108 174,261

Movement in provision for doubtful non-trade debts during the year is as follows:

Group Company2002 2001 2002 2001

$ $ $ $

Balance at 1 January 16,954 16,954 16,954 16,954Amount written off against provision (10,775) - (10,775) -


12. Due from/(to) subsidiaries/associates/directors (non-trade)

These amounts are unsecured, interest-free and repayable on demand.

13. Fixed deposits

A subsidiary’s fixed deposits amounting to approximately $78,000 (2001: $76,000) have been pledged with a bank tosecure a performance guarantee granted by that bank.

The fixed deposits bear average effective interest rate of 1.5% per annum with maturity of one year from the year end.

82


14. Bills payable to bank

As at 31 December 2002, the average effective interest rate of bills payable of the Company and of the Group is 5.75%per annum. These bills mature within 1 to 5 months from the year end.

15. Other creditors and accruals

Group Company2002 2001 2002 2001

$ $ $ $

Accrued operating expenses 1,762,792 1,143,196 1,364,322 878,874Other creditors 1,455,836 1,348,519 1,071,133 844,640

3,218,628 2,491,715 2,435,455 1,723,514

16. Hire purchase creditors

Group

2002 Payments Interest Principal

$ $ $

Payable:1 year to 5 years 808,506 112,119 696,387Later than 5 years 16,534 3,741 12,793

825,040 115,860 709,180Not later than 1 year 414,369 56,820 357,549

1,239,409 172,680 1,066,729

2001



846,929 144,219 702,710

83

16. Hire purchase creditors (cont’d)

Company

2002 Payments Interest Principal

$ $ $



821,054 144,439 676,615

2001

Payable:

1 year to 5 years 304,032 65,598 238,434Later than 5 years 102,736 14,023 88,713


510,574 98,628 411,946

Lease terms range from 3 to 7 years with options to purchase at the end of the lease term. Lease terms do not containrestrictions concerning dividends, additional debt or further leasing. The average discount rates implicit of theCompany’s and Group’s hire purchase creditors are 7.77% and 7.13% per annum respectively.

17. Term loan

Group and Company2002 2001

$ $

Loan repayable:

Due within 12 months - 200,000Due after 12 months - 403,613

- 603,613

The term loan was fully repaid during the financial year.

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18. Share capital

Company2002 2001 2002 2001

No. of shares No. of shares $ $

Authorised:Ordinary shares of $0.10 each 200,000,000 200,000,000 20,000,000 20,000,000

Issued and fully paid

Balance at 1 JanuaryOrdinary shares of $0.10 each 82,762,000 82,750,000 8,276,200 8,275,000

Issue of ordinary shares of $0.10 each 11,896,000 12,000 1,189,600 1,200

Bonus issue of ordinary shares of $0.10 each 8,312,700 - 831,270 -

Balance at 31 DecemberOrdinary shares of $0.10 each 102,970,700 82,762,000 10,297,070 8,276,200

During the financial year, the Company:

(a) Issued 1,896,000 ordinary shares for cash at a premium of $0.14 per share upon the exercise of share optionspreviously granted;

(b) Capitalised $831,270 from share premium account by way of bonus issue of 8,312,700 ordinary shares of $0.10 eachcredited as fully paid on the basis of one bonus share for every ten existing ordinary shares held by the shareholdersof the Company; and

(c) Issued 10,000,000 ordinary shares for cash at a premium of $0.35 per share via private placement of 10,000,000ordinary shares of $0.10 each to Qian Hu Holdings Pte Ltd.

Qian Hu Pre-IPO Employees’ Share Option Scheme (the “Pre-IPO Scheme”)

There were no options (2001: Nil) granted and 176,000 (2001: 646,000) options were cancelled due to resignation ofemployees in the current financial year. At the end of the financial year, there were 602,000 (2001: 2,674,000) unissuedordinary shares of $0.10 each of the Company under options granted to eligible employees of the Group, other thandirectors and controlling shareholders of the Company, under the Pre-IPO Scheme at $0.24 per share.

Qian Hu Post-IPO Employees’ Share Option Scheme (the “Post-IPO Scheme’)

There were 1,620,000 options (2001: Nil) granted and 26,000 (2001: Nil) options were cancelled due to resignation ofemployees in the current financial year. At the end of the financial year, there were 1,594,000 (2001: Nil) unissuedordinary shares of $0.10 each of the Company under options granted to eligible employees of the Group, includingassociates of controlling shareholders of the Company, under the Post-IPO Scheme at $0.59 per share.

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19. Reserves

Group Company2002 2001 2002 2001

$ $ $ $

Share premiumBalance at 1 January 2,083,567 2,081,887 2,083,567 2,081,887

Arising from the private placement of10,000,000 ordinary shares of $0.10 eachat a premium of $0.35 per share 3,500,000 - 3,500,000 -

Share issue expenses in relation tothe private placement of shares (302,753) - (302,753) -

Arising from the issue of 1,896,000 (2000: 12,000)ordinary shares upon exercise of share optionsat a premium of $0.14 each 265,440 1,680 265,440 1,680

Capitalisation of share premium accountfor bonus issue of shares (831,270) - (831,270) -

Balance at 31 December 4,714,984 2,083,567 4,714,984 2,083,567

Unappropriated profitBalance at 1 January 6,607,103 3,361,160 5,381,485 2,543,589

Net profit for the year 6,547,359 3,558,369 4,805,577 3,150,322

Dividends (Note 26) (376,860) (312,426) (376,860) (312,426)

Balance at 31 December 12,777,602 6,607,103 9,810,202 5,381,485

Translation reserveBalance at 1 January 205,170 25,546 - -

Net movement during the year (117,412) 179,624 - -

Balance at 31 December 87,758 205,170 - -

Total 17,580,344 8,895,840 14,525,186 7,465,052

The share premium account may be applied only for the purposes specified in the Companies Act. The balance is notavailable for distribution of dividends except in the form of shares.

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20. Turnover

Group Company2002 2001 2002 2001

$ $ $ $

Sales of goods- Fishes 24,023,094 18,313,770 22,640,456 18,048,148- Accessories 31,935,035 16,645,506 28,946,843 14,752,341- Plastics and others 6,734,997 6,289,286 277,852 364,205

62,693,126 41,248,562 51,865,151 33,164,694

21. Profit from operations

This is determined after charging (crediting) the following:

Group Company2002 2001 2002 2001

$ $ $ $

Auditors’ remuneration- auditors of the Company 56,500 56,000 45,500 45,000- other auditors 11,118 9,056 - -Non-audit fees- auditors of the Company 19,900 19,800 15,500 15,000Directors’ fees- directors of the Company 26,667 20,000 26,667 20,000Directors’ remuneration- directors of the Company (Note 22) 726,825 633,228 726,825 633,228- directors of subsidiaries 308,148 300,798 - -Amortisation of- land use rights (Note 8) 4,461 8,994 - -- trademarks/customer acquisition costs,

product listing fees (Note 7) 103,811 177,323 100,586 175,483Bad trade debts written off 29,589 11,077 29,589 -Depreciation of- fixed assets (Note 3) 1,273,927 960,256 697,785 604,755- biological assets (Note 4) 29,190 29,190 29,190 29,190Fixed assets written off - 4,712 - -(Gain) loss on disposal of- fixed assets (83,416) (30,975) (34,333) (11,557)- land use rights - (48,703) - -- an associated company 8,813 - - -

87

21. Profit from operations (cont’d)

Group Company2002 2001 2002 2001

$ $ $ $

Gain on divestment in a subsidiary (9,725) - - -Negative goodwill on consolidation (29,453) - - -Provision for- doubtful trade debts (Note 10) 217,196 69,000 170,000 69,000- stock obsolescence written back (Note 9) - (450,000) - (450,000)Operating lease expenses 534,338 425,887 115,463 119,958Personnel expenses (Note 23) 6,885,134 5,643,484 5,031,151 4,130,932Exchange loss (gain), net 93,041 (188,534) (16,198) (77,071)

22. Directors’ remuneration

Number of directors of the Company in remuneration bands is as follows:

2002 2001

$500,000 and above - -$250,000 to $499,999 1 -Below $250,000 5 5

6 5

Summary of Compensation tables for the year ended 31 December 2002 and 2001:

Directors’Name of director Salary* Bonus* fees Total

$ $ $ $

2002

Kenny Yap Kim Lee 184,785 70,000 - 254,785Alvin Yap Ah Seng 167,520 70,000 - 237,520Andy Yap Ah Siong 164,520 70,000 - 234,520Robson Lee Teck Leng - - 10,000 10,000Chang Weng Leong - - 10,000 10,000Tan Tow Ee - - 6,667 6,667

Total 516,825 210,000 26,667 753,492

88


22. Directors’ remuneration (cont’d)Directors’

Salary* Bonus* fees Total$ $ $ $

2001

Kenny Yap Kim Lee 185,229 40,000 - 225,229Alvin Yap Ah Seng 160,479 40,000 - 200,479Andy Yap Ah Siong 167,520 40,000 - 207,520Robson Lee Teck Leng - - 10,000 10,000Chang Weng Leong - - 10,000 10,000

Total 513,228 120,000 20,000 653,228

* The salary and bonus amounts shown are inclusive of allowances and Central Provident Fund contribution.

23. Personnel expenses

Group Company2002 2001 2002 2001

$ $ $ $

Salaries and bonus 6,103,563 5,052,966 4,531,734 3,715,064Central Provident Fund contribution 602,414 513,624 428,906 379,072Staff welfare benefits 179,157 76,894 70,511 36,796

6,885,134 5,643,484 5,031,151 4,130,932

Number of persons employedat the end of the financial year 579 218 120 92

Included in personnel expenses is directors’ remuneration of the Group and of the Company amounting to $1,034,973and $726,825 (2001: $934,026 and $633,228) respectively.

89

24. Financial (expenses) income

Group Company2002 2001 2002 2001

$ $ $ $

Interest expense- term loan (20,343) (38,855) (20,343) (38,855)- hire purchase (57,546) (34,213) (29,720) (17,562)- bank overdrafts (20,271) (8,822) (20,271) (8,660)- bills payable (81,928) (57,126) (82,067) (57,126)

(180,088) (139,016) (152,401) (122,203)

Interest income- fixed deposits 6,262 6,458 4,160 3,559- others 287 3,033 - -

6,549 9,491 4,160 3,559

25. Taxation

Group Company2002 2001 2002 2001

$ $ $ $

Current tax- current year 1,972,900 893,446 1,316,000 711,000- over provision in respect of prior year (896) (229,000) - (213,000)Deferred tax- current year 81,262 173,918 34,000 130,000- under provision in respect of prior years - 22,000 - 22,000Share of tax of associates - 2,214 - -

2,053,266 862,578 1,350,000 650,000

90


25. Taxation (cont’d)

A reconciliation of the tax expense and the product of accounting profit multiplied by the applicable rate is as follows:

Group Company2002 2001 2002 2001

$ $ $ $

Accounting profit 8,588,144 4,372,813 6,155,577 3,800,322

Tax at the applicable tax rate of 22% (2001: 24.5%) 1,889,392 1,071,339 1,354,227 931,079Tax effect of expenses that are not deductible

in determining taxable profit 41,132 63,123 7,323 52,286Tax effect of income not subject to tax - (129,779) - (129,503)Tax exemption (79,979) (25,724) (11,550) (12,862)Tax effect of different tax rate in other countries 136,319 16,102 - -Tax effect of consolidation eliminating entries 20,642 (19,059) - -Unrecognised deferred tax asset 46,656 91,362 - -Over provision in respect of prior year (896) (207,000) - (191,000)Share of tax of associates - 2,214 - -

2,053,266 862,578 1,350,000 650,000

Deferred taxation at 31 December related to the following:

Group Company2002 2001 2002 2001

$ $ $ $

Deferred tax liabilityTax over book depreciation 442,467 309,045 331,000 248,000Unrealised exchange gain - 3,000 - 3,000

442,467 312,045 331,000 251,000

Deferred tax assetProvisions (86,000) (36,000) (73,000) (27,000)

Net deferred tax liability 356,467 276,045 258,000 224,000

The GroupIn accordance with the “Income Tax Law of the People’s Republic of China (“PRC”) for Enterprises with ForeignInvestment and Foreign Enterprises”, the subsidiaries in PRC are entitled to full exemption from Enterprise Income Tax(“EIT”) for the first two years and a 50% reduction in EIT for the next three years, commencing from the first profitableyear after offsetting all tax losses carried forward from the previous five years. The subsidiaries in PRC are in tax lossposition and accordingly no EIT is payable.

91

26. Dividends

Group Company2002 2001 2002 2001

$ $ $ $

Final dividend paid in respect of the previousfinancial year of 0.6 cents (2001: 0.5 cents)per share less tax at 24.5% 374,912 312,381 374,912 312,381

Additional final dividend paid in respect of theprevious financial year arising from issue of sharesunder the Qian Hu Pre-IPO Employees’ Share OptionScheme before book closure date 1,948 45 1,948 45

376,860 312,426 376,860 312,426

The directors propose a final dividend of 0.6 cents (2001: 0.6 cents) per share less tax at 22% (2001: 24.5%) amounting to$481,903 (2001: $374,912) and a special dividend of 0.6 cents (2001: $Nil) per share less tax of 22% amounting to$481,903 (2001: $Nil), in respect of the year ended 31 December 2002 subject to approval at the Annual General Meetingof the Company. The proposed final dividends have not been recognised as a liability as at year end in accordance withSAS 10, Events after the Balance Sheet Date.

27. Earnings per share

Basic earnings per share

The calculation for basic earnings per share is based on consolidated profit after taxation and minority interest of$6,547,359 (2001: $3,558,369).

Number of sharesThe weighted average number of ordinary shares is arrived at as follows:

Weighted average number of shares2002 2001

Issued ordinary shares at beginning of year 82,762,000 82,750,000Adjustments for bonus issue of shares 8,312,700 8,312,700Weighted average number of ordinary shares issued during the year 7,473,948 10,060

Weighted average number of issued ordinary shares at end of year 98,548,648 91,072,760

92


27. Earnings per share (cont’d)

Diluted earnings per share

When calculating diluted earnings per share, the weighted average number of shares is adjusted for the effect of alldilutive potential ordinary shares. The number of unissued shares under options granted under the Qian Hu Pre-IPOEmployees’ Share Option Scheme and Qian Hu Post-IPO Employees’ Share Option Scheme and their exercise prices areset out in the Directors’ Report and Note 29 to the financial statements. The average fair value of one ordinary shareduring financial year 2002 was $0.59 per share. The weighted average number of ordinary shares adjusted for theunissued shares under option is as follows:

2002 2001

Number of sharesWeighted average number of ordinary shares

(used in the calculation of basic earnings per share) 98,548,648 91,072,760Weighted average number of ordinary shares under option 3,190,858 2,917,074Number of shares that would have been issued at fair value (2,263,438) (2,333,659)

Weighted average number of ordinary shares (diluted) 99,476,068 91,656,175

28. Related party transactions

In addition to the related party information disclosed elsewhere in the financial statements, significant transactions withrelated parties, on terms agreed between the parties were as follows:

Group Company2002 2001 2002 2001

$ $ $ $

(a) IncomeSales to subsidiaries - - 11,798,151 3,383,137

(b) ExpensesPurchases from subsidiaries - - 5,617,414 493,212Fees paid to a firm in which a director is a member 73,700 - 73,700 -Consultancy fee paid to a company in which a director has substantial interest 44,000 16,000 12,000 -

93

29. Employee benefits

(a) Qian Hu Pre-IPO Employees’ Share Option Scheme (the “Pre-IPO Scheme”)

The Pre-IPO Scheme was approved and adopted at the Company’s Extraordinary General Meeting held on 9 October2000 to enable eligible employees of the Group, other than directors and controlling shareholders of the Company, toparticipate in the equity of the Company. The Pre-IPO Scheme is administered by the Pre-IPO Option Committee,comprising three directors, Kenny Yap Kim Lee, Chang Weng Leong and Robson Lee Teck Leng.

On 25 October 2000, the following 3,332,000 options were granted to 93 employees of the Group to subscribe forordinary shares of the Company of $0.10 each at an exercise price of $0.24 per share (“Pre-IPO Options”). Of thisamount, 506,000 shares were granted to 10 employees of the Group who are associates of the controlling shareholders ofthe Company.

No. of Exercise Exercise price No. of sharesOption category holders period (per share) under option

Grade C (Entry and mid-level) 41 08.11.2000 – 24 cents 506,00024.10.2010

Grade B (Manager) 34 08.11.2001 – 24 cents 1,482,00024.10.2010

Grade A (Senior Manager) 18 08.11.2001 – 24 cents 1,344,00024.10.2010

93 3,332,000

Other information regarding the Pre-IPO Scheme are set out below:

• Size of Plan

The total number of new shares over which options may be granted shall not exceed 5% of the issued share capital ofthe Company on the day immediately preceding the offer date of the options (“Offer Date”).

• Grant of Option

Options may be granted from time to time during the period when the Pre-IPO Scheme is in force, except that optionshall only be granted on or after third market day on which an announcement on any matter involving unpublishedprice sensitive information is released.

• Acceptance of Option

The grant of an option shall be accepted within 30 days from the Offer Date and accompanied by payment to theCompany of a nominal consideration of $1.

94


29. Employee benefits (cont’d)

• Exercise price

The exercise price of the option is $0.24 per share.

• Option Period

The options are exercisable, in whole or in part at any time in accordance with the relevant applicable vesting scheduleset out in the terms and rules of the Pre-IPO Scheme up to the time (and including) the day immediately preceding thetenth anniversary of the Offer Date.

As at the end of the financial year, details of the options granted under the Pre-IPO Scheme on the unissued ordinaryshares of $0.10 each of the Company were as follows:

Movements of share options outstanding:

Proceeds on Market priceoptions exercised of shares at

Date of No. of options No. of options Credited to Credited to date of issuegrant Exercise outstanding Options Options Options outstanding share share pursuant to Exercise

of options price 01.01.2002 granted exercised cancelled 31.12.2002 capital premium the Scheme period$ $

(Note 18) (Note 18) (Note 19)

25.10.2000 $0.24 2,674,000 - (1,896,000) (176,000) 602,000 189,600 265,440 NA * 08.11.2000to 24.10.2010

(Grade C category)08.11.2001 to

24.10.2010(Grade A and B category)

* Not applicable as the Pre-IPO options were granted before the Company was admitted to the Official List of theSingapore Exchange Securities Trading Limited Dealing and Automated Quotation System (SGX-SESDAQ).

Movements of share options vested:

No. of No. of No. of No. of No. ofDate of grant options vested options vested options exercised options cancelled options vested Exercise

of options 01.01.2002 in 2002 in 2002 in 2002 in 31 Dec 2002 period

25.10.2000 2,674,000 - (1,896,000) (176,000) 602,000 08.11.2000 to

24.10.2010(Grade C category)

08.11.2001 to 24.10.2010(Grade A and B category)

95


(b) Qian Hu Post-IPO Employees’ Share Option Scheme (the “Post-IPO Scheme”)

The Post-IPO Scheme was approved and adopted at the Company’s Extraordinary General Meeting held on 9 October2000 to enable eligible employees of the Group, other than directors and controlling shareholders of the Companyincluding their associates, to participate in the equity of the Company. The Post-IPO Scheme is administered by the Post-IPO Option Committee, comprising three directors, Chang Weng Leong, Robson Lee Teck Leng and Tan Tow Ee.

At an Extraordinary General Meeting held on 19 February 2002, the following modifications to the Post-IPO Scheme wereapproved by the shareholders of the Company:

(a) The Post-IPO Scheme will be extended to include the participation of associates of controlling shareholders. Suchassociates must be confirmed full-time employees.

(b) The exercise price of the Post-IPO options will be set at a discount of 20% to the prevailing market price of the shares.The associates of controlling shareholders will be entitled to the same rate of discount to the market price of theshares as other employees who are selected by the Committee to receive discounted options.

Other information regarding the Post-IPO Scheme are set out below:

• Size of Plan

The total number of new shares over which options may be granted shall not exceed 10% of the issued share capital ofthe Company on the day immediately preceding the offer date of the options (“Offer Date”).

• Grant of Option

Options may be granted from time to time during the period when the Post-IPO Scheme is in force, except that optionshall only be granted on or after third market day on which an announcement on any matter involving unpublished pricesensitive information is released.

• Acceptance of Option

The grant of an option shall be accepted within 30 days from the Offer Date and accompanied by payment to theCompany of a nominal consideration of $1.

• Exercise Period

The exercise period of an option granted at a discount of 20% to the prevailing market price of the shares commencesafter two years from the Offer Date.

96



As at the end of the financial year, details of the options granted under the Post-IPO Scheme on the unissued ordinaryshares of $0.10 each of the Company were as follows:

Movements of share options outstanding:

Proceeds on Market priceoptions exercised of shares at

Date of No. of options No. of options Credited to Credited to date of issue Exercisegrant Exercise outstanding Options Options Options outstanding share share pursuant to period

of options price 01.01.2002 granted exercised cancelled 31.12.2002 capital premium the Scheme$ $ $

01.08.2002 $0.59 - 1,620,000 - (26,000) 1,594,000 - - 0.715 01.08.2004

to

31.07.2012

Movements of share options vested:

No. of No. of No. of No. of No. ofDate of grant options vested options vested options exercised options cancelled options vested Exercise

of options 01.01.2002 in 2002 in 2002 in 2002 in 31 Dec 2002 period

01.08.2002 - 1,620,000 - (26,000) 1,594,000 01.08.2004

to31.07.2012

30. Commitments

As at 31 December 2002, the Group and the Company have commitments for future minimum lease payments in respectof land and office premises with terms of more than one year as follows:

Group Company2002 2001 2002 2001

$ $ $ $

Future minimum lease payments- not later than 1 year 340,000 416,000 85,000 112,000- 1 year through 5 years 584,000 794,000 337,000 338,000- later than 5 years 535,000 634,000 494,000 585,000

1,459,000 1,844,000 916,000 1,035,000

Lease terms do not contain restrictions on the Group’s and the Company’s activities concerning dividends, additionaldebt or further leasing.

97

31. Segment information

(a) Analysis by Business Segments

The Group is organised on a worldwide basis into three main operating segments, namely:

(a) Fish(b) Accessories(c) Plastics and others

Inter-segment pricing is on an arm’s length basis.

Plastics and2002 Fish Accessories others Eliminations Group

$’000 $’000 $’000 $’000 $’000

TurnoverExternal sales 24,023 31,935 6,735 - 62,693Inter-segment sales 1,625 12,748 1,333 (15,706) -

Total sales 25,648 44,683 8,068 (15,706) 62,693

ResultsSegment results 2,438 7,139 272 (85) 9,764Unallocated expenses (1,142)

8,622Financial expenses - net (173)Share of profit of associates 139Taxation (2,053)Minority interests 12

Net profit for the year 6,547

Assets and LiabilitiesAssets 13,488 22,169 5,177 - 40,834Unallocated assets 2,902

Total assets 43,736

Liabilities 4,247 7,822 1,460 - 13,529Unallocated liabilities 1,981

Total liabilities 15,510

98


31. Segment information (cont’d)


$’000 $’000 $’000 $’000 $’000

Other informationCapital expenditure 1,213 1,099 188 - 2,500Depreciation and amortisation 628 467 316 - 1,411Other non-cash expenses (income) 166 (49) 16 - 133

2001

TurnoverExternal sales 18,314 16,646 6,289 - 41,249Inter-segment sales 511 3,721 179 (4,411) -

Total sales 18,825 20,367 6,468 (4,411) 41,249

ResultsSegment results 2,086 2,675 545 21 5,327Unallocated expenses (817)

4,510Financial expenses - net (130)Share of loss of associates (7)Taxation (863)Minority interests 48

Net profit for the year 3,558

Assets and LiabilitiesAssets 11,144 10,582 5,457 - 27,183Investment in associates 315Unallocated assets 82

Total assets 27,580

Liabilities 3,158 2,919 1,695 - 7,772Unallocated liabilities 2,575

Total liabilities 10,347

99

31. Segment information (cont’d)


$’000 $’000 $’000 $’000 $’000

Other informationCapital expenditure 389 651 922 - 1,962Depreciation and amortisation 493 421 262 - 1,176Other non-cash expenses (income) 73 (455) (63) - (445)

(b) Analysis by Geographical Segments

Turnover is based on the location of customers regardless of where the goods are produced. Assets and additions toproperty, plant and equipment are based on the location of those assets.

Turnover Assets Capital expenditure2002 2001 2002 2001 2002 2001

$’000 $’000 $’000 $’000 $’000 $’000

Singapore 34,286 24,666 27,786 20,622 1,470 1,417Other Asian countries 22,065 11,430 15,950 6,958 1,030 545Europe 4,583 3,891 - - - -Others 1,759 1,262 - - - -

Total 62,693 41,249 43,736 27,580 2,500 1,962

32. Financial instruments

Financial risk management objectives and policies

The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, credit risk and foreignexchange risk. The policies for managing each of these risks are summarised below.

It is the Group’s policy not to trade in derivative contracts.

Interest rate risk

The Group obtains additional financing through bank borrowings and leasing arrangements. The Group’s policy is toobtain the most favourable interest rates available without increasing its foreign currency exposure.

Surplus funds are placed with reputable banks.

Information relating to the Group’s interest rate exposure is also disclosed in the notes on the Group’s borrowings,including hire purchase contracts.

100


32. Financial instruments (cont’d)

Liquidity risk

In the management of liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemedadequate by management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows.

During the financial year, the Company raised net proceeds amounting to approximately $4.2 million via privateplacement of 10,000,000 new ordinary shares of par value $0.10 each in the Company, at a subscription price of $0.45 pershare. The funds raised are used for the Group’s working capital purposes.

Credit risk

The carrying amounts of cash and cash equivalents, trade and other debtors and amount due from associates representthe Group’s maximum exposure to credit risk in relation to financial assets. No other financial assets carry a significantexposure to credit risk.

The Group has no significant concentrations of credit risk.

Foreign exchange risk

The Group incurs foreign exchange risk on sales and purchases that are denominated in a currency other than Singaporedollars. The currencies giving rise to this risk are primarily United States dollar, Euro and Japanese Yen.

The Group does not have any formal hedging policy against foreign exchange fluctuations. However, the Groupcontinuously monitor the exchange rates of the major currencies and enter into hedging contracts with banks from time totime whenever the management detect any movements in the respective exchange rates which may impact on theGroup’s profitability.

Foreign currencies received are kept in foreign currencies accounts and are converted to the respective measurementcurrencies of the group companies on a need-to basis so as to minimise the foreign exchange exposure.

Fair value of financial instruments

Fair value is defined as the amount at which the instrument could be exchanged in a current transaction betweenknowledgeable willing parties in an arm’s length transaction, other than a forced or liquidation sale. Fair values areobtained from quoted market prices and discounted cash flow models as appropriate.

The following methods and assumptions are used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents and other current receivables

The carrying amount approximates fair value due to the relatively short-term maturity of these financial instruments.

101

32. Financial instruments (cont’d)

Other current payables

The carrying amount approximates fair value because of the short period to maturity.

Quoted investments

The fair value of quoted investment is estimated based on quoted market price for this investment.

Hire purchase creditors

The fair value of hire purchase creditors is arrived at by discounting the future contractual cash flows using the currentrates available for hire purchase contracts with the same maturity profile.

As at 31 December 2002, the fair values of financial assets and financial liabilities which do not approximate the carryingamounts in the balance sheet are presented in the following table:

Group CompanyCarrying Estimated Carrying Estimated

amount fair value amount fair value$ $ $ $

Financial liabilityHire purchase creditors 1,066,729 1,055,310 676,615 667,152

33. Comparative figures

(a) Prior year comparative figures were audited by a firm of certified public accountants other than Ernst & Young.

(b) The comparative amounts of interest expense on bills payable and cost of sales have been reclassified to reflect moreappropriately the nature of the accounts.

Group Company2001 balance 2001 balance 2001 balance 2001 balance

as reclassified as previously as reclassified as previouslyreported reported

$ $ $ $

Profit and Loss AccountsCost of sales 26,465,598 26,522,724 22,011,534 22,068,660Financial expenses 139,016 81,890 122,203 65,077

102

Statistics of ShareholdersAs at 13 February 2003

Authorised Share Capital: S$20,000,000Issued and fully Paid-up Capital: S$10,299,170Class of Shares: Ordinary share of S$0.10 eachNumber of shares: 102,991,700

Analysis of Shareholders

No. ofRange of Shareholdings Shareholders % Shares %

1 – 999 61 5.40 18,801 0.021,001 – 10,000 694 61.41 3,886,300 3.7710,001 – 1,000,000 361 31.95 22,484,188 21.831,000,001 and above 14 1.24 76,602,411 74.38

Total 1,130 100.00 102,991,700 100.00

Substantial Shareholders

Direct Interest Deemed InterestName of Shareholders No. of Shares % No. of Shares %

1. Qian Hu Holdings Pte Ltd - - 30,267,369 (1) 29.392. Yap Ah Seng Alvin 5,191,560 5.04 33,000 (2) 0.0323. Yap Ah Siong Andy 5,191,560 5.04 148,500 (2) 0.1444. Yap Hock Huat 5,191,560 5.04 70,300 (2) 0.0685. Yap Kim Choon 5,191,560 5.04 - -6. Yap Ping Heng 5,191,560 5.04 25,000 (2) 0.0247. Yap Kim Lee Kenny 4,697,605 4.56 - -8. Yap Kim Chuan 3,336,559 3.24 1,855,001 (3) 1.80(1) held by Credit Suisse (S) Nominees Pte Ltd (2) held by spouse (3) held by Hong Leong Finance Nominees Pte Ltd

Top Twenty Shareholders

Name of Shareholders No. of Shares %

1. Credit Suisse (S) Nominees Pte Ltd 30,267,369 29.392. Yap Ah Seng Alvin 5,191,560 5.043. Yap Ah Siong Andy 5,191,560 5.044. Yap Hock Huat 5,191,560 5.045. Yap Kim Choon 5,191,560 5.046. Yap Ping Heng 5,191,560 5.047. Yap Kim Lee Kenny 4,697,605 4.568. Hong Leong Finance Nominees Pte Ltd 4,131,878 4.019. Yap Kim Chuan 3,336,559 3.2410. Yap Hey Cha 2,216,200 2.1511. Ang Kim Sua 1,846,000 1.7912. J M Sassoon & Co (Pte) Ltd 1,650,000 1.6013. Chia Chong Ming 1,289,000 1.2514. BNP Paribas Nominees Singapore Pte Ltd 1,210,000 1.1815. Peh Tong Hai 606,500 0.5916. Ng Wah Hong 603,735 0.5917. Tan Ait Soon 590,181 0.5718. Phillip Securities Pte Ltd 588,500 0.5719. Lim Boo Hua 479,000 0.4720. Goh Chiew Ing 410,000 0.40

Total 79,880,327 77.56

Based on the information provided, to the best knowledge of the Directors and the substantial shareholders of the Company, 26.71% of the issued sharecapital of the Company is held in the hands of the public as at 13 February 2003. Accordingly, Rule 723 of the Singapore Exchange Listing Manual hasbeen compiled with.

103

NOTICE IS HEREBY GIVEN that the Fourth Annual General Meeting of the Company will be held at No. 71 Jalan Lekar,Singapore 698950 on Tuesday, 18 March 2003 at 11.00 a.m. to transact the following business: -

Ordinary Business

1 To receive and adopt the Directors’ Report and Audited Accounts for the financial year ended 31 December 2002 and theAuditors’ Report thereon. [Resolution 1]

2 (i) To declare a first and final dividend of 6% per ordinary share less 22% Singapore income tax for the financial yearended 31 December 2002. [Resolution 2(i)]

(ii) To declare a special dividend of 6% per ordinary share less 22% Singapore income tax for the financial year ended31 December 2002. [Resolution 2(ii)]

3 To re-elect Mr Tan Tow Ee, who is retiring in accordance with Article 88 of the Company’s Articles of Association, asDirector of the Company. [see Explanatory Note (a)] [Resolution 3]

4 To re-elect the following directors, who are retiring by rotation in accordance with Article 89 of the Company’s Articles ofAssociation, as Directors of the Company :-

(a) Mr Robson Lee Teck Leng [see Explanatory Note (a)] [Resolution 4]

(b) Mr Chang Weng Leong [see Explanatory Note (a)] [Resolution 5]

5 To approve the sum of $26,667.00 as Directors’ fees for the financial year ended 31 December 2002. [Resolution 6]

6 To re-appoint Messrs Ernst & Young as Auditors of the Company and to authorise the Directors to fix theirremuneration. [Resolution 7]

7 To transact any other business that may be transacted at an Annual General Meeting.

Special Business

8 To consider and, if thought fit, to pass the following as Ordinary Resolution, with or without modifications: -

Ordinary Resolution: -General Mandate to authorise the Directors to issue shares or convertible securities

“THAT pursuant to Section 161 of the Companies Act, Cap. 50 and the listing rules of the Singapore Exchange SecuritiesTrading Limited (the “Listing Rules”), authority be and is hereby given to the Directors of the Company to allot and issue: -

(a) shares; or(b) convertible securities; or(c) additional securities issued pursuant to Rule 829 of the Listing Rules; or(d) shares arising from the conversion of the securities in (b) and (c) above,

in the Company (whether by way of rights, bonus or otherwise) at any time to such persons and upon such terms andconditions and for such purposes as the Directors may in their absolute discretion deem fit, provided that: (i) theaggregate number of shares and convertible securities to be issued pursuant to this Resolution must be not more than 50%

Notice of Annual General Meeting

104 Explanatory Notes:

(a) Mr Tan Tow Ee, Mr Robson Lee Teck Leng and Mr Chang Weng Leong, if re-elected, will remain as members of the Company’s Audit Committee,Nominating Committee and Remuneration Committee and will also be considered as independent directors of the Company. Mr Robson Lee Teck Lengwill continue to be the Chairman of the Audit Committee, while Mr Tan Tow Ee and Mr Chang Weng Leong will continue to be the Chairman of theNominating Committee and the Remuneration Committee respectively.

(b) Resolution 8, if passed, will empower the Directors from the date of the Annual General Meeting until the date of the next annual general meeting of theCompany, to issue shares and convertible securities in the Company up to an aggregate number not exceeding 50% of the issued share capital of theCompany, of which the aggregate number issued other than on a pro rata basis to all existing shareholders of the Company shall not exceed 20% of theissued share capital of the Company, as more particularly set out in the Resolution.

Notes:

A member entitled to attend and vote at the Annual General Meeting may appoint not more than two proxies to attend and vote on his behalf and where amember appoints more than one proxy, he shall specify the proportion of his shareholding to be represented by each proxy. A proxy need not be a memberof the Company. The instrument appointing a proxy or proxies must be deposited at the registered office of the Company at No. 71 Jalan Lekar, Singapore698950 not less than 48 hours before the time set for the Annual General Meeting.

Notice of Book Closure and Dividends Payment Dates

NOTICE IS HEREBY GIVEN that the Share Transfer Books and Register of Members of the Company will be closed on31 March 2003 for the preparation of dividends warrants.

Duly completed registrable transfers received by the Company’s Share Registrar, M & C Services Private Limited,138 Robinson Road #17-00 The Corporate Office, Singapore 068906 up to 5.00 p.m. on 28 March 2003 will be registered todetermine shareholders’ entitlements to the said dividends.

Members whose Securities Accounts with the Central Depository (Pte) Limited are credited with shares at 5.00 p.m. on28 March 2003 will be entitled to the proposed dividends.

The proposed dividends, if approved by the members at the Fourth Annual General Meeting to be held on 18 March 2003,will be paid on 10 April 2003.

of the issued share capital of the Company (calculated in accordance with (ii) below), of which the aggregate number ofshares and convertible securities issued other than on a pro rata basis to existing shareholders must be not more than 20%of the issued share capital of the Company (calculated in accordance with (ii) below); and (ii) for the purpose ofdetermining the number of shares and convertible securities that may be issued pursuant to (i) above, the percentage ofissued share capital shall be calculated based on the Company’s issued share capital at the date of the passing of thisResolution after adjusting for new shares arising from the conversion of convertible securities or employee share optionson issue when this Resolution is passed, and any subsequent consolidation or subdivision of shares. Unless revoked orvaried by ordinary resolution of the shareholders of the Company in general meeting, this Resolution shall remain in forceuntil the earlier of the conclusion of the next Annual General Meeting of the Company or the date by which the next AnnualGeneral Meeting of the Company is required by law to be held, whichever is earlier.[see Explanatory Note (b)] [Resolution 8]

By Order of the Board

Lai Chin YeeCompany SecretarySingapore

28 February 2003

Proxy Form

I/We ______________________________________ NRIC/Passport/Co. Registration No. ________________________________

of ___________________________________________________________________________________________________________

being a member/members of QIAN HU CORPORATION LIMITED hereby appoint

as my/our proxy/proxies to attend and to vote for me/us on my/our behalf and, if necessary, to demand a poll at the AnnualGeneral Meeting (“AGM”) of the Company to be held on Tuesday, 18 March 2003 at 11.00 a.m. and at any adjournment thereof.I/We direct my/our proxy/proxies to vote for or against the Resolutions to be proposed at the AGM as indicated hereunder. If nospecific directions as to voting are given, the proxy/proxies will vote or abstain from voting at his/their discretion, as he/they willon any other matter arising at the AGM. If no person is named in the above boxes, the Chairman of the AGM shall be my/ourproxy to vote, for or against the Resolutions to be proposed at the AGM as indicated hereunder for me/us and on my/our behalfat the AGM and at any adjournment thereof.

Dated this _______ day of _________________2003

____________________________________________Signature(s) of Member(s) orCommon Seal of Corporate Member

IMPORTANT: PLEASE READ NOTES OVERLEAF

Name Address NRIC/Passport No. Proportion of Shareholdings (%)

Name Address NRIC/Passport No. Proportion of Shareholdings (%)

No. Resolutions Relating To : *For *Against **For **Against

AS ORDINARY BUSINESS1 Directors’ Report and Audited Accounts for the

financial year ended 31 December 20022 (i) Payment of proposed first and final dividend2 (ii) Payment of special dividend3 Re-election of Mr Tan Tow Ee as director4 Re-election of Mr Robson Lee Teck Leng as director5 Re-election of Mr Chang Weng Leong as director6 Approval of Directors’ fees7 Re-appointment of Ernst & Young as auditors

AS SPECIAL BUSINESS8 Authority to allot and issue new shares

To be used on ashow of hands

To be used in theevent of poll

Qian Hu Corporation Limited(Incorporated in the Republic of Singapore)

and/or (delete as appropriate)

1. For investors who have usedtheir CPF monies to buy Qian HuCorporation Limited’s shares, theAnnual Report is forwarded to themat the request of their CPFApproved Nominees and is sentsolely FOR INFORMATION ONLY.

2. This Proxy Form is not valid for useby CPF investors and shall beineffective for all intents andpurposes if used or purportedto be used by them.

IMPORTANT

* Please indicate your vote “For” or “Against” with a “X” within the box provided.** If you wish to exercise all your votes “For” or “Against”, please indicate with a “X” within the box provided. Alternatively, please indicate the number of votea as appropriate.

Total Number of Shares Held

Notes:

1 Please insert the total number of shares held by you. If you have shares entered against your name in the Depository Register (as defined in Section 130Aof the Companies Act, Cap. 50), you should insert that number. If you have shares registered in your name in the Register of Members of the Company,you should insert that number. If you have shares entered against your name in the Depository Register and shares registered in your name in theRegister of Members, you should insert the aggregate number. If no number is inserted, this form of proxy will be deemed to relate to all the shares heldby you.

2 A member entitled to attend and vote at a meeting of the Company is entitled to appoint not more than two proxies to attend and vote on his behalf.A proxy need not be a member of the Company.

3. Where a member appoints two proxies, he shall specify the proportion of his shareholding to be represented by each proxy. If no such proportion ornumber is specified, the nomination shall be deemed to be alternative.

4 The instrument appointing a proxy or proxies must be deposited at the Company’s registered office at No. 71 Jalan Lekar, Singapore 698950 not less than48 hours before the time set for the AGM.

5 The instrument appointing a proxy or proxies must be under the hand of the appointer or of his attorney duly authorised in writing. Where the instrumentappointing a proxy or proxies is executed by a corporation, it must be executed under its common seal or signed on its behalf by an attorney dulyauthorised in writing or by an authorised officer of the corporation.

6 Where an instrument appointing a proxy or proxies is signed on behalf of the appointer by an attorney, the letter or the power of attorney (or otherauthority) or a duly certified copy thereof must (failing previous registration with the Company) be lodged with the instrument of proxy, failing which theinstrument may be treated as invalid.

7 A corporation which is a member may by resolution of its directors or other governing body authorise such person as it thinks fit to act as itsrepresentative at the AGM, in accordance with Section 179 of the Companies Act, Chapter. 50.

8 The Company shall be entitled to reject this instrument of proxy if it is incomplete, improperly completed, illegible or where the true intentions of theappointer are not ascertainable from the instructions of the appointer specified in this instrument of proxy. In addition, in the case of members whoseshares are entered in the Depository Register, the Company may reject an instrument of proxy lodged if the member, being the appointer, is not shownto have shares entered against his name in the Depository Register as at 48 hours before the time set for holding the AGM, as certified by The CentralDepository (Pte) Limited to the Company.

Stronger,Faster,Better.

Qian Hu Corporation LimitedAnnual Report 2002

Contents10. Financial Highlights12. Chairman’s Message15. Board of Directors17. Corporate Information18. Key Management20. Group Structure21. Financial Calendar22. Business Review24. The Global Ornamental Fish Market26. The Qian Hu Business Model29. Our Investor Relations Efforts30. Our Workplace32. Reaching Out33. Caring for the Environment34. The Qian Hu Story36. Corporate Governance Statement42. Risk Factors43. Contents for Financial Statements102. Statistics of Shareholders103. Notice of Annual General Meeting

MISSIONSTATEMENT

We want to create shareholders’ value by

becoming a world-class ornamental fish and

accessories company through innovative and

quality products and services.

COMPANYPROFILE

Incorporated in 1998, Qian Hu provides a spectrum of

one-stop services including the distribution of over 500

species of ornamental fish from all around the world as well

as the manufacture and distribution of a wide range of

aquarium accessories, including pet foods and

medications. The Group, which has subsidiaries in

Malaysia, Thailand and the PRC, also includes the

manufacture and distribution of plastic bags into its

vertically-integrated business model.

STRONGER,FASTER,BETTER.

Since our listing in November 2000, Qian Hu Corporation Limited has

continued its growth path. The compounded annual growth rate of its sales

and net profit reached 36.0% and 44.7% respectively from FY2000 to FY2002

– buoyed by consistent, quarter-to-quarter growth of our aquarium and pet

accessories and ornamental fish distribution segments.

On our second anniversary of being a public company, Qian Hu leaped to

the Singapore Exchange’s main board on 11 November 2002 – another

significant milestone in our corporate history.

Twice winner of the Securities Investors Association (Singapore)’s Most

Transparent Company Award*, and recently-voted second in SESDAQ’s

Most Admired Company Awards, Qian Hu is becoming an even stronger

player in the global ornamental fish industry as it continues to create value

for its shareholders.

* SESDAQ/Small Caps Category

strengA single thrust of its tail, the mighty Arowana,or Dragon Fish, is propelled forward.

Qian Hu’s key revenue drivers – ornamentalfish distribution and our accessoriesbusinesses – provide consistently stronggrowth in sales and earnings both on aquarter-to-quarter basis and year-on-year.

– Group turnover: $62.7 million [ 52.0%]• Ornamental fish: $24.0 million [ 31.2%]• Accessories: $31.9 million [ 91.9%]• Plastics: $6.7 million [ 7.1%]

– Profit before tax: $8.6 million [ 96.4%]• Ornamental fish: $2.4 million [ 16.9%]• Accessories: $7.3 million [ 174.2%]• Plastics: $272,000 [ 51.3%]

Qian Hu’s business model of being afully-integrated ornamental fish serviceprovider, focussing on:

(1) the breeding of Dragon Fish and thedistribution of over 500 varieties ofornamental fish

(2) the manufacture and distribution ofaquarium and pet accessories

has provided us the right product mix toleverage on the growth of the ornamentalfish industry in the region and beyond.Contributing more than 4% of the globalfish market, Qian Hu helps to secureSingapore’s position as the ornamental fishcapital of the world.

The anterior fins of a fish keep it in a positionof equilibrium, no matter how calm or turbulentthe waters.

b laa n

Qian Hu’s policy has always been to achievethe best practices in every area of ourbusiness, may it be service quality, businessintegrity or corporate governance andtransparency.

– Topped the list in Total ShareholderReturn for “Other Services” sector(Shareholder Value Survey by Business Times andLEK Consulting)

– Most Transparent Company Award(SESDAQ/Small caps category), SecuritiesInvestors Association (Singapore), 2002and 2001

– Top 3 “Best Small Companies” byAsiamoney (2002/03)

– Most Admired Company in SESDAQ(1st Runner-Up), November 2002

– Highly Commended in Grand Prix for BestOverall Investor Relations Award by IR Asiaand Asian Wall Street Journal, 2002

– Best Annual Report Award, 1st Runner-Up(SESDAQ category) 2002

– Singapore Quality Circle

– ISO 9002 and 14001

How to spot an award-winning fish? Look atthe brilliance of the eyes, the sheen andcolour of its scales.

qua

10

Financial Highlights

Growth IndicatorsNet Profit by Activities

(Full year ended 31 December) 20012002

Turnover by Activities(Full year ended 31 December)

20012002

Turnover by Geographical Regions(Full year ended 31 December) 20012002

Net Profit by Geographical Regions(Full year ended 31 December)

20012002

Growth Indicators

10%Plastic & Others

50%Aquarium &

Pet Accessories

40%OrnamentalFish

3%Plastic & Others

73%Aquarium &

Pet Accessories

24%OrnamentalFish

34%Overseas

66%Singapore

47%Overseas

53%Singapore

15%Plastic & Others

40%Aquarium &

Pet Accessories

45%OrnamentalFish

11%Plastic & Others

51%Aquarium &

Pet Accessories

38%OrnamentalFish

40%Overseas

60%Singapore

45%Overseas

55%Singapore

0

10

20

30

40

50

60

70

1998 1999 2000 2001 20020

1

2

3

4

5

6

7

Turnover Net Profit

Turnover S$m Net Profit S$m

Net Profit Margin (%)

Net Profit Margin (%) EPS (cts)

1998 1999 2000 2001 20020

5

10

15

EPS (cts)

0

1

2

3

4

5

6

7

11

Value-Added Statement

2002 2001$’000 $’000

Revenue earned 62,693 41,249less : Purchase of goods (45,979) (30,541)

Gross value added 16,714 10,708

Other operating income 653 639Exchange (loss) gain (93) 189Share of profit (loss) of associated company 139 (7)

Total value added 17,413 11,529

Distribution :

To employees in salaries and other related costs 6,885 5,643

To government in corporate and other taxes 2,155 981

To providers of capital : – Interest paid on borrowings from bank 180 139

Retained for re-investment and future growth – Depreciation and amortisation 1,411 1,176 – Accumulated profits 6,547 3,558 – Minority interest (12) (48)

Non-production cost and income : – Bad debts and provision for doubtful debts 247 80

Total distribution 17,413 11,529

Productivity Data2002 2001

Number of employees 579 218

Value added per employee ($’000) 30 53Value added per $ of employment cost 2.53 2.04Value added per $ sales 0.28 0.28Value added per $ of investment in fixed assets 1.29 1.05

Financial Ratios

2000 2001 2002

EPS 4.95 cents 3.88 cents 6.58 cents

Return on Equity 22.6% 20.7% 23.5%

Return on Assets 13.6% 12.9% 15.0%

Net Assets per share 16.7 cents 20.8 cents 27.4 cents

Debt/Equity Ratio 0.09 0.11 0.04

Trade Debtors Turnover 59 days 66 days 62 days

Inventory Turnover 69 days 78 days 88 days

13

Chairman’s Message

My Dear Shareholders

Thanks to all of your support, Qian HuCorporation Limited was transferred

to the main board of the SingaporeExchange on 11 November 2002

which happened to coincide withthe second anniversary of ourpublic listing.

It has always been part of our corporate missionto increase shareholder value by trading on themain board, thereby attracting more institutionalinterest in our stock. Earlier in the year, as we

responded to the repeated requests from ourinvestors and shareholders to increase the liquidity of

our stock, we placed out 10 million new shares in Aprilwhich not only increased our free float of shares to 25%,but also enabled us to raise new funds for expansion of ouroverseas operations more aggressively instead of relyingon bank borrowings.

The Group, having consistently reported strongfundamentals quarter-to-quarter, has indeed grown fromstrength to strength for the full year ended 31 December2002.

Financial Results

Overall, Group turnover grew 52% to $62.7 million, whilenet profit attributable to shareholders surged 84% to$6.6 million.

All of our core business activities experienced growth, dueto a bigger customer base in our regional hubs ofSingapore, Thailand, Malaysia, and China.

Turnover from our ornamental fish business grew by31.2% to $24 million buoyed by increased sales to agrowing number of retail outlets in Singapore, includingour in-house store in Sungei Tengah Agrotechnology Park.In addition, the Group managed to increase its export ofornamental fish from Singapore and China to morecountries around the world. Our accessoriesmanufacturing and distribution business surged nearly92% to $31.9 million in sales due to significantimprovement of our market share in Malaysia andThailand. With a 174.2% jump in profit before tax to $7.3million, our accessories business was the main profitcontributor to the Group. Revenue from plastics and other

businesses grew modestly by 7.1% to $6.7 million as aresult of local market competitiveness which was mitigatedby the Group’s efforts to focus on selling more high-valueitems and expanding its distribution channels overseas.

Dividend

While it has always been our policy to declare a dividendwhen we are profitable, we are also mindful that as agrowing company, a fine balance has to be struck betweenretaining cash for expansion purposes, and cash fordividend payouts, depending on the situation andopportunities.

After our FY2001 results were announced, our Directorsdeclared a 6% final gross dividend and issued 1 bonusshare for every 10 existing shares. For FY2002, it is ourdesire to share our success with our shareholders, hence,our Directors have recommended a final gross dividend of6% per share plus a special dividend of 6% per share,which if approved, will be paid to shareholders on10 April 2003.

Achieving Broad-based Recognition

It is indeed very encouraging and heartening to receive apat on the back once in a while from our stakeholders andthe public. Besides winning the Most Admired SESDAQCompany award, we received – for the second time – theMost Transparent Company Award (SESDAQ/Small Capscategory) from the Securities Investors Association(Singapore) in recognition of our unflinching commitmentto corporate governance and transparency.

We are also pleased that our efforts in producing qualityannual reports was recognized by the Annual ReportAwards committee – comprising the Institute of CertifiedPublic Accountants of Singapore, Securities InvestorsAssociation (Singapore), Singapore Institute ofManagement, Singapore Institute of Directors, SingaporeExchange Limited and The Business Times - and was votedfirst runner-up in the Best Annual Report Award 2002(SESDAQ category).

Qian Hu’s policy has always been to achieve best practicein our standards of business integrity and transparency forall of our activities, which includes a commitment to thehighest standards of corporate governance throughout theGroup. This year, we raised the ante in our quest of beingmore transparent by releasing our FY2002 results fully-audited on 20 January 2003.

It has been our practice to release our full-year results

14

Kenny Yap “The Fish”

Executive Chairman &Managing Director

within 30 days of our year-end with a combined briefingfor media, analysts, fund managers and some members ofthe investment community.

Qian Hu was also one of the earliest companies toembrace quarterly reporting, way ahead of the publicdebate about the pros and cons of making such timelyreporting mandatory. We have consistently taken thesame key messages to dealers, remisiers and clients ofmajor investment houses. Accessibility to the media andkey stakeholders in the investment community hasbecome an important feature of Qian Hu’s investorrelations commitment. Investors can also get regularupdates through a dedicated Investors Corner on ourwebsite, www.qianhu.com. Our efforts were “highlycommended” in the Grand Prix for Best Overall InvestorRelations Award organized by IR Asia and Asian WallStreet Journal in Hong Kong.

Increasing shareholder value is one of the values we holddear to our hearts, besides the continual focus on runningour business efficiently. We are heartened that Qian Hutopped the list in Total Shareholder Return (TSR) for the“Other Services” sector in a recent Shareholder ValueSurvey conducted by Business Times and the globalstrategic management firm, LEK Consulting, during the12 months ended 30 June 2002.

We are also elated that Qian Hu topped the Singapore AllEquities Index (Sesall) ranking of 313 listed companies.

Corporate Governance

In line with a key recommendation from the Code ofCorporate Governance requiring all members of the AuditCommittee to be non-executive directors, an additionalindependent director was appointed on to the Board.In addition, a Nominating Committee and a RemunerationCommittee, both consisting of 3 independent directors,were established during the year.

Business Prospects

The future of the Group depends on our ability to extractmaximum potential from our overseas network and seethem move from gestation to maturity, particularly in theornamental fish and accessories segments. We areencouraged to learn that in the midst of global economicuncertainties, the ornamental fish industry worldwide hascontinued to do well, having been ranked as the world’ssecond most popular hobby after photography.

In the current year FY2003, we expect to maintain ahealthy growth in our turnover and overall profitability – inour sales of over 500 species and varieties of ornamentalfish, as well as a wide range of accessories in Singaporeand our export markets of more than 60 countries.

In the past two years, we have significantly expanded ourregional distribution network through our overseassubsidiaries in the PRC, Malaysia and Thailand. Fullyoperational and well-established, our overseas hubs willcontinue to optimize the sales of ornamental fish, especiallythe highly-prized Dragon Fish, and accessories in the region.We will also take advantage of the import deregulation ofornamental fishes in Taiwan to further penetrate and build upmarket presence there and in the PRC.

We announced, in January 2003, the proposed acquisition ofKim Kang Aquaculture Sdn Bhd, a leading Dragon Fishbreeder in Batu Pahat, Malaysia, for a consideration of $7.7million which was funded 50% in cash, and the balancethrough the issue of new shares at 96 Singapore cents each.Acquiring Kim Kang, which has the requisite operationalcapacity, land, infrastructure and brooder stock, will ensurea consistent and reliable supply of Dragon Fish for ouroverseas subsidiaries as well as new markets such as Taiwanand the PRC. This backward integration is expected to bepositive and will help our Group to enjoy better margins andprofitability from the higher value-added business ofbreeding Dragon Fish.

A substantial part of our growth of in the current year will bedriven by our overseas operations. We will discuss in greaterdetail the business prospects for each overseas subsidiary inthe “Business Review” section of this annual report.

In line with our commitment to delivering strong returns andvalue growth to our shareholders, we shall continue toidentify and evaluate relevant opportunities for expansion.A case in point is our new associate company, Jin Jien HsingEnterprises Co Ltd which distributes pet foods in Taiwan.

Special Mentions

This has really been a very exciting year for Qian Hu, and Ihave all of the colleagues in the Group to thank for theircommitment and dedication. We will need to rally togethereven more as we take another giant leap towards becominga world-class organisation.

I would also like to thank my fellow Directors for their notablecontributions and advice, and to our customers, suppliers,business associates, and most importantly, to you our valuedshareholders for your continued support of Qian Hu.

15

Board of Directors

Andy Yap Ah SiongDeputy Managing Director

Mr Andy Yap, a founding memberof the Group, heads the Group’s

ornamental fish operations asDeputy Managing Director.

Andy holds a diploma in BusinessStudies from Ngee Ann Polytechnicand was the managing partner for

Qian Hu Fish Farm Trading from 1989to 1998. In 2000, Andy, together withKenny Yap and Alvin Yap, was one ofthe Top 12 Entrepreneurs of the 12th

Rotary-ASME Entrepreneur of theYear as well as a finalist at the

10th Rotary-ASME Entrepreneurof the Year in 1998.

Alvin Yap Ah SengDeputy Managing Director

Mr Alvin Yap, a founding member of theGroup, oversees the Group’s aquarium

and pet accessories operations inhis current capacity as Deputy

Managing Director.

Alvin holds a diploma in MechanicalEngineering from Singapore

Polytechnic and was the managingpartner for Yi Hu Fish Farm Trading

from 1988 to 1998. A member of theAquarium Fish Dealers Association

since 1990, Alvin served as its Treasurerin 1992 and 1993. In 2000, Alvin,

together with Kenny Yap and Andy Yap,was one of the Top 12 Entrepreneurs

of the 12th Rotary-ASMEEntrepreneur of the Year as well

as a finalist at the 10thRotary-ASME Entrepreneur

of the Year in 1998.

Kenny Yap Kim LeeExecutive Chairman and

Managing Director

Mr Kenny Yap is the Executive Chairman and ManagingDirector of Qian Hu Corporation Limited, the only

integrated ornamental fish service provider listed on themain board of the Singapore Exchange.

Through his leadership, vision and passion for the industry,Kenny plays a key role in establishing Singapore as the

ornamental fish capital of the world, with Qian Huaccounting for more than 4% of the global fish market.He has a string of awards to his name – Young Chinese

Entrepreneur of the Year by Yazhou Zhoukan in 2002, oneof the 50 Stars of Asia by Business Week in 2001;the PSB/International Institute of Management’s

International Management Action Award in 2000, andthe Singapore National Youth Award in 1998.

Kenny graduated from Ohio State University (USA) with a1st Class Honours degree in Business Administration.

He currently serves as Secretary to Chong PangCommunity Centre Management Committee and theSingapore Aquarium Fish Exporters’ Association as

well as a member of Ahmad IbrahimPrimary School’s advisory committee.

16

Chang Weng LeongIndependent Director

Appointed in 2000, Chang Weng Leong servesas Qian Hu’s Independent Director. He is

currently the Principal Consultant of AlchemyBusiness Consultants, a management

consultancy firm. Mr Chang is serving with theSingapore Accreditation Council as an

Assessor for its Quality Management SystemAccreditation Scheme. He is also acting as

Assessor, Auditor & Technical Expert forcertification bodies and organisations in

management system assessments.Mr Chang attained a Masters of Science

degree in Mechanical Engineering from theNational University of Singapore. He was with

SISIR from 1991 to 1994 and from 1994 to 1998,he was a director in SP Consulting

International Pte Ltd.

Mr Chang is a registered Senior Auditor withthe Singapore Accreditation Council and aLead Auditor with the Institute of Quality

Assurance (IRCA UK). He is also theEvaluator and Verifying Auditor

appointed by the SingaporeAccreditation Council.

Tan Tow EeIndependent Director

Tan Tow Ee was appointed in May2002 as an Independent Directorof Qian Hu Corporation Limited.

He is also a member of theAudit Committee.

Mr Tan is currently managingprivate funds and also providesconsultancy services. He has

more than 12 years ofprofessional experience working

with international corporationswhere he was managing their

sizeable investments. He holdsa Honours Degree in

Finance from Ohio StateUniversity(USA).

Robson Lee Teck LengIndependent Director

Robson Lee is a partner in Shook Lin & Bok’s corporatefinance & international finance practice and has been withthe firm since 1994. He is also a partner in the firm’s Chinapractice, focusing on cross-border corporate transactions in

the People’s Republic of China.

With a LLB (Hons) from the National University of Singapore,Robson is currently the Chairman of the Audit Committee of

Qian Hu Corporation Limited and Chairman of theRemuneration Committee of Sim Lian Group Limited, both

listed on the Main Board of the Singapore Exchange Limited.He runs an active practice advising corporate issuers in a

number of industries ranging from high-tech, food andbeverage, specialty chemicals and pharmaceuticals, and

their underwriters in fund-raising and stock market flotations.

He is also the Secretary of the Board of Governors of theChinese High School and the College Management

Committee of Hwa Chong Junior College, as well as a trusteeof the land on which the Chinese High School and HwaChong Junior College are situated. He has structured a

number of corporate finance transactions and advises publiclisted companies on securities transactions, cross-border

mergers and acquisitions and foreign joint ventures.

17

Corporate Information

Share RegistrarM & C Services Private Limited138 Robinson Road#17-00 The Corporate OfficeSingapore 068906

AuditorsErnst and Young10 Collyer Quay#21-01 Ocean BuildingSingapore 049315Partner-in-ChargeSteven Phan Swee Kim(with effect from financial year ended 31 December 2000)

Principal BankersThe Development Bank of Singapore LtdOverseas-Chinese Banking Corporation LimitedMalayan Banking BerhardUnited Overseas Bank Limited

Board of DirectorsKenny Yap Kim Lee(Executive Chairman and Managing Director)Alvin Yap Ah SengAndy Yap Ah SiongRobson Lee Teck LengChang Weng LeongTan Tow Ee

Company SecretaryLai Chin Yee

Audit CommitteeRobson Lee Teck Leng (Chairman)Chang Weng LeongTan Tow Ee

Nominating CommitteeTan Tow Ee (Chairman)Robson Lee Teck LengChang Weng Leong

Remuneration CommitteeChang Weng Leong (Chairman)Robson Lee Teck LengTan Tow Ee

Registered OfficeNo. 71 Jalan LekarSingapore 698950Tel: (65) 6766 7087Fax: (65) 6766 3995Website: www.qianhu.com

18

Lai Chin YeeGroup Financial Controller

Ms Lai is responsible for the Group’s accounting, finance, treasury and tax functions. Prior tojoining the Group in May 2000, Ms Lai was an auditor with international accounting firms since1987. She holds a Bachelor’s degree in Accountancy from the National University of Singaporeand is a member of the Institute of Certified Public Accountants of Singapore.

Low Eng HuaGroup General Manager

Mr Low joined the Group in April 2001, and is responsible for overall management and businessdevelopment of the Group. He had worked in Engage Electronics (S) Pte Ltd from 1993 to 2001where he rose through the ranks from Application Engineer to Deputy Operations Manager, andST Microelectronics Pte Ltd from 1992 to 1993. He holds a Bachelor’s degree in Engineeringfrom the National University of Singapore.

Yap Kim ChoonDivision Head, Wan Hu Division

As one of our founding members, Mr Yap joined the Group in 1988 as head of Wan Hu division.He specializes in the rearing and breeding of Dragon Fish and has helped us win prizes ininternational competitions.

Thomas Ng Wah HongManaging Director, Guan Guan Aquarium Sdn Bhd

Prior to joining Guan Guan in 1998, Mr Ng was a director of Guan Guan Industries Sdn Bhdsince 1990, and Agemac Verdas (Malaysia) Sdn Bhd from 1996 to 1998. He holds a diploma inCivil Engineering from the Singapore Polytechnic.

Jimmy Tan Boon KimManaging Director, Thai Qian Hu Company Limited

Prior to his current appointment in Thai Qian Hu, Mr Tan was the head of Daudo divisionoverseeing import and export and wholesale of ornamental fish. He was also the soleproprietor of Daudo Aquarium for 9 years and a partner of Sea Palace Tropical Fish for 6 years.

Key Management

19

Alex ChuangGeneral Manager, Guangzhou Wan Jiang Technology Co Ltd

Appointed as the General Manager of the Guangzhou subsidiary in 2000, Mr Chuang, whoholds a degree in Economics, is responsible for business development and the day-to-dayoperations of the company.

Lee Kim HwatManaging Director, Tat Leng Plastic Pte Ltd

Mr Lee has been overseeing and managing the operations and business development of TatLeng for more than 10 years, and is responsible for the growth of our plastics business inSingapore.

Teo Boon HockManager, Fujian Anxi Qian Long Plastics Private Co Ltd

Mr Teo joined Qian Hu in 2001 as Manager of the Group’s plastics manufacturing business inthe PRC. Prior to his appointment, he was in charge of quality assurance and the engineeringdepartment of a plastic injection molding firm. Mr Teo holds a diploma in ProductionTechnology from the German Singapore Institute.

Tony Yap Keng HuatGeneral Manager, Beijing Qian Yang Aquarium Co Ltd

Mr Yap has been working in the Singapore fish export division since 1989. Currently, as theGeneral Manager of the Beijing subsidiary, Mr Yap oversees the business development and thedaily operations of the company.

Viravat ValaisathienGeneral Manager, Thai Qian Hu Company Limited

Mr Valaisathien, a law graduate from St John’s University in Thailand, was appointed GeneralManager of Thai Qian Hu in 2002. He is responsible for the company’s purchasing anddomestic sales activities as well as its day-to-day operations.

20

Group Structure

Subsidiaries

Associate

Qian HuCorporation Limited

Qian Hu Fish Farm TradingYi Hu Fish Farm Trading

Wan Hu Fish Farm Trading

74%Qian Hu MarketingCo Ltd (Thailand)

60%Thai Qian Hu

Company Limited(Thailand)

49%*NNTL (Thailand)Limited (Thailand)

*The Group has votingcontrol at general

meetings andBoard meetings

100%Tat Leng Plastic Pte Ltd

(Singapore)

100%Guan Guan Aquarium

Sdn Bhd (Malaysia)

100%Beijing Qian Yang

Aquarium Co Ltd (China)

100%Fujian Anxi Qian LongPlastics Private Co Ltd

(China)

50%Jin Jien Hsing

Enterprises Co Ltd(Taiwan)

60%Guangzhou WanJiang Technology

Co Ltd (China)

21

Financial Calendar

28 January Media & analysts’ briefing for FY2001 results

19 February Extraordinary General Meeting

18 March Bonus issue

2 April Release of Annual Report 2001

18 April Annual General Meeting

29 April Media & analysts’ briefing for 1Q2002 results

8 May Private placement of 10 million new ordinary shares at $0.45 each

10 May Payment of final dividends declared for 2001

24 July Media & analysts’ briefing for 1H2002 results

22 August Extraordinary General Meeting

14 October Release of 3Q2002 results

11 November Transfer of listing to SGX Main Board

20 January Media & analysts’ briefing for FY2002 results

20 January Proposed acquisition of Kim Kang Aquaculture Sdn Bhd

28 February Release of Annual Report 2002

18 March Annual General Meeting

10 April Payment of final dividends declared for 2002

April Release of 1Q2003 results

July Media & analysts’ briefing for 1H2003 results

October Release of 3Q2003 results

2003

2002

22

All of our business segments – ornamental fish, accessories, plastics and

other business – registered revenue growth, which led to a 52% increase in

turnover to $62.7 million for the year ended 31 December 2002.

The manufacture and distribution of aquarium and pet accessories is the

largest core activity of the Group, accounting for 51% of our Group turnover,

an increase of 11% from the year-ago period. The breeding, farming and

distribution of ornamental fish now accounts for 38%, down from 45% a year

ago. The manufacture and sale of plastic bags, a supplementary activity of

the Group, accounts for 11%.

In terms of geographical segments, the overseas portion of our sales - from

Asia, Europe and other regions – accounted for 45% of turnover, gaining 5

percentage points from a year ago. Singapore, however still remains our

biggest market, although we envisage overseas contributions will continue to

be an important engine of growth going forward as we focus on expanding

our operations in untapped regional markets such as India, Indonesia and

Vietnam. In FY2002, turnover from overseas operations grew by 71.3% while

our Singapore operations generated an increase of 39% in sales.

Business Review

23

Ornamental FishSales of ornamental fish grew by 31.2% year-on-year to$24 million due to increased sales to more retail outletsin Singapore, including our in-house shop in SungeiTengah Agrotechnology Park. The rise in fish exportsfrom Singapore and the PRC to 60 countries worldwide,and positive contributions from our subsidiaries inMalaysia and Thailand also led to the increase.

As a result of the increased sales volume, the operatingprofit before tax from our ornamental fish business grewby 16.9% to $2.4 million in FY2002.

Since the deregulation of import restrictions fromTaiwanese authorities, the pent-up demand for DragonFish has challenged supply. Dragon Fish appeals to aniche market that is not susceptible to the boom andbusts of economic cycles.

During the year in review, the export of Dragon Fish toTaiwan alone contributed 23% of the increase in sales.The Taiwan market is poised to grow further, along withthe expanding PRC market.

On 20 January 2003, we announced the proposedacquisition of a 65% stake in Kim Kang Aquaculture SdnBhd, a leading Dragon Fish breeder based in Batu Pahat,Malaysia, for S$7.7 million.

Kim Kang, which has the requisite operational capacity,land, infrastructure and brooder stock, will enable us tosubstantially our supply of Dragon Fish to the market,and enhance our ability to ride the growth in its demandin the current year and in the coming years.

Aquarium andPet AccessoriesTurnover from ouraccessories businesssurged nearly 92% due tothe significant improvementin sales from our Malaysiaand Thailand subsidiaries as aresult of gains in market share. Ouroverseas operations, including Wan Jiang – ourGuangzhou-based accessories manufacturingoperations which became a subsidiary in 4Q2002 –contributed approximately 65% of the increase from thisbusiness segment.

Domestically, we have managed to expand ourdistribution network to more local retailers andsupermarkets.

The highest profit contributor in our Group during theyear in review, our accessories business raked in a174.2% jump in operating profit before tax to $7.3 millionas a result of higher sales volume from both Singaporeand overseas operations. Gross profit margins are alsohigher as a result of backward integration of themanufacturing of accessories. Our Thailand subsidiaryalso managed to operationally profitable after incurringset-up and restructuring costs a year earlier.

Plastics and OthersRevenue from plastics and other business experienceda more modest growth due to local marketcompetitiveness, having achieved a 7.1% increase to$6.7 million.

Despite the increase in turnover, this segment recordeda 51% dip in operating profit before tax to $270,000because of a lower gross profit margin brought about byhigher operating costs and losses incurred by one of oursubsidiaries in the PRC.

24

The Global Ornamental Fish Market

Today, as more people are seeking holistic, relaxing hobbies to augment the

stresses of urban living, and as the concept of leisure moves indoors, it is little

wonder that keeping ornamental fish has become the second most popular

hobby, after photography. As such, the ornamental fish business is an

important commercial activity that will continue to expand in the future,

according to a report “The Ornamental Fish Market Oct 2001” published by

the Food and Agriculture Organization of the United Nations.

Asia contributes more than 60% of the world’s supply of ornamental fish, with

Singapore being the largest exporter, accounting for about 30% of global

supply, followed by the United States, Malaysia, Czech Republic, Indonesia,

Sri Lanka, Japan, the Philippines, and Israel.

The distribution network for ornamental fish is a complex system, intricately

linked among fishermen or collectors, the breeder, wholesaler, exporter,

importer, trans-shipper, and retailer.

Our Hubs and Distribution Network

Malaysia

Thailand

Beijing

Singapore

Guangzhou

Xiamen

Taiwan

Singapore (Fish, Accessories & Plastic)

Malaysia (Fish, Accessories)

Thailand (Fish, Accessories)

Beijing, PRC (Fish, Accessories)

Guangzhou, PRC (Accessories)

Xiamen, PRC (Plastic)

Taiwan (Accessories)

Our export markets

26

Qian Hu is uniquely positioned as an integrated ornamental fish service

provider, providing a one-stop service for domestic and international

wholesalers, retailers and consumers.

Qian Hu is not just a breeder, distributor or manufacturer. The fact of the

matter is, we are all of the above. Our business model hinges on the 4 pillars

of core activities:

1 Ornamental Fish

2 Aquarium & pet accessories

3 Export

4 Domestic distribution

Each of our business segments – whether it be the breeding of Dragon Fish,

or the import, farming, export of ornamental fish; manufacture and

distribution of aquarium and pet accessories, or production of plastic bags –

are integral links within our total value chain.

As our business model is exportable, expandable and scalable, Qian Hu is

differentiated from the rest of the competition in terms of its integrated

services, brand, distribution network, manufacturing capabilities, and most

importantly, its quality, innovation and service culture throughout the Group.

The Qian Hu Business Model

27

The Qian Hu Value Chain

Breeding of Dragon FishSince 1995, Qian Hu established an early presence in thebreeding and distributing of Dragon Fish, being one ofthe earliest to be registered with the Agri-VeterinaryAuthority (AVA). The barriers to entry are high –knowledge and experience are crucial to make itsuccessful, along with high capital investments involved.This is why there are presently only 6 registered farms inSingapore.

Qian Hu’s 350 pieces of brooder stock – Dragon Fishkept solely for the purpose of propagating its species– are valued at $1.5 million as fixed assets, based on theprices of similar grades of Dragon Fish in the market.

In 1999, a second generation of Dragon Fish wassuccessfully nurtured which were then released for salein 2000 after receiving a licence from the United Nation’sConvention on International Trade in EndangeredSpecies of Wild Fauna and Flora, commonly knownas CITES.

Qian Hu’s Integrated Value Chain

Today, the Group exports Dragon Fish mainly to ourGroup subsidiaries in Malaysia, Thailand and the PRCalong with markets like Japan and Hong Kong. Theexport sales for Dragon Fish contributed about 7% of thetotal Group’s turnover and 5% of the Group’s profit beforetax in FY2002. However, with more markets, such asTaiwan opening up in FY2002, the Group expects todiversify its risk of relying on certain Asian markets.

Import and local sourcingThe fish that we scour from various parts of Asia, Africaand South America are inspected for species, size,quantity and health upon arrival. Any found dead-on-arrival, or are of inferior quality, are returned to the localsupplier, or in the case of an overseas supplier, the cost ofthe affected fish will be deducted from the invoice.

QuarantineAll imported fish are first quarantined upon arrival asrequired by AVA, so that parasites and bacterial infections

Farming offish to

marketablesize

Export toSubsidiaries

(In Malaysia,China &

Thailand)

Export to60

Countries

Conditioningfor export

DomesticDistribution

Manufacturing of Accessories

fromWan Jiang

Plastic bagsfrom

our subsidiaryTat Leng

Quarantine

Import of500 species& varieties

Breeding ofDragon Fish

SouthAmerica

AsiaAfrica

28

are identified and treated with appropriate medicinesand fish tonics. Inspected daily, all quarantined fishundergo the prophylactic process which usebacteriological and chemical preparations to eliminateparasites and bacteria. Minor surgical procedures arealso carried out on Dragon Fish for aesthetic reasons.The quarantine process, which usually takes about 48hours, helps to detect, control, treat and contain anyspread of disease to other healthy fish.

FarmingThrough our intensive farming process which takesanywhere between a month to 6 months, the fish arenurtured to a marketable size that will fetch higher valuefrom retail and wholesale customers. During this process,the fries are properly fed and monitored by carefullyobserving their skin, colour, swimming posture, appetiteas well as the pH level and hardness of the water.

ConditioningA few days before the fish are exported to our customersin over 60 countries, the fish are placed on a fast so thattheir wastes would not pollute the water in theoxygenated plastic bag. The conditioning process alsoincludes regulating the water quality, waste reductiontechniques, temperature control and spaceacclimatisation – so that the fish are used to the confinedspaces. Proper conditioning minimises the risk of dead-on-arrival of our fish to our customers. Currently, ourtarget survival rate for our fish is more than 97%.

Final PackingAfter final inspection, fish are packed in potable waterthat are free of pathogens and contaminants. Water usedfor packing are stored in a special storage tank which isaerated 24-hours a day to increase the level of oxygen inthe water, and to remove chlorine.

Fish are packed in polyethylene bags manufactured byour subsidiary, Tat Leng. During packing, oxygen and

medications are added to minimise the growth of micro-organisms. The plastic bags of fish are then placed instyrofoam boxes for added insulation before beingpacked in the larger carton boxes for export.

Manufacture and Distribution ofAccessoriesThe distribution of aquarium accessories complementsour ornamental fish operations by providing a “one-stop”shop. The Accessories segment is an important growthdriver for the Group as we have observed that for everydollar spent on ornamental fish, the consumer wouldinvariably spend an average of five dollars onaccessories.

To date, we have distributed more than 5,000 types ofaquarium and pet accessories for about 27 majormanufacturers and principals.

Under our proprietary Ocean Free brand, are productssuch as filters, fish tanks, and pumps that are designedand manufactured through our subsidiary in Guangzhou -Wan Jiang. Ocean Free also has a wide range of fishfoods, tonics and medications sourced from Taiwan,China, Malaysia and Thailand and are repackaged underOcean Free brand.

Food products for dogs, marketed under two of ourproprietary brands, Bark and Nature Gift, while cat foods,under the Aristo-Cats Yi Hu brand name, are distributedin Singapore, Malaysia and Indonesia.

We are currently working on further improving ourvarious retail brand identities, after receiving a grant fromIE Singapore’s Brandas Scheme.

Manufacture of Plastic BagsThe production of plastic bags is an ancillary businessthat complements our core activity of distributingornamental fish as these bags have to be of a certaingrade in order to ensure the proper packing of our fish

for export. In addition, oursubsidiaries, Tat Leng

(Singapore) and Qian Long(PRC) also manufacturesplastic bags forcompanies in theornamental fish, foodand electronicsindustries.

29

As we embarked on our SESDAQ listing in November 2000, we had resolved to befully committed to our responsibility as a listed company and being transparent toour shareholders and investors. We were the first listed company to initiate anonline open forum on Shareinvestor.com, providing a platform for investors to askquestions about the Company and air their views. This helps to achieve a deeperappreciation of our business and our industry.

From the second half of our fiscal year 2001, Qian Hu was one of the earliest listedcompanies to embrace quarterly reporting, way ahead of the public debate aboutits pros and cons. In addition to our usual practice of holding a media and analystsbriefing twice a year, we ensured that timely announcements of our first and thirdquarter financial results were disseminated through Masnet and in the form ofpress releases.

We believe we are also the first and only company that invites regular participantsin the forums on Shareinvestor.com to our half-year and full-year briefings. Thishas provided an additional opportunity for us to meet them face-to-face. We planto start reaching out to forum participants on another investors portal,Wallstraits.com soon.

Besides having regular briefings to analysts, fund managers and retail investors, wehave also consistently taken the same key messages to dealers, remisiers andclients of major broking houses. Accessibility to the media and key stakeholders inthe investment community has become an important feature of Qian Hu’s investorrelations commitment. For instance, investors can get regular updates through adedicated Investors Corner on our website, www.qianhu.com.

Another main communications channel is through our annual report. Increasinglywe are striving to educate our shareholders about our industry not only inSingapore, but the region and beyond. We are pleased that our efforts inproducing quality annual reports was recognized by the Annual Report Awardscommittee – comprising the Institute of Certified Public Accountants of Singapore,Securities Investors Association (Singapore), Singapore Institute of Management,Singapore Institute of Directors, Singapore Exchange Limited and The BusinessTimes – and was voted first runner-up in the Best Annual Report Award (SESDAQcategory).

Investor relations aside, we are also committed to our public responsibility. Ourfarm at Sungei Tengah Agrotechnology Park, which is part of the SingaporeTourism Board’s agro-tourism network, is open to the public where they can gain abetter appreciation of our core operations and industry.

Our Investor Relations Efforts

30

We have important relationships with a wide range of stakeholders, including

employees, customers and suppliers. We engage these stakeholders in a

multiplicity of ways such as through an annual employee survey and supplier

relationship management initiatives.

What sets Qian Hu apart, however, is the strong cord of teamwork, camaraderie

and commitment that is uniquely part of the Qian Hu culture. Not only is Qian

Hu a fun place to work in, we have also inculcated a quality culture that is

absolutely essential for us to deliver a standard of service that is second to

none.

Our staff understand that in order to be a successful business, we must not only

produce quality products and services, but be differentiated by our customer

focus that pervades all that we do. These values are instilled in our staff through

exemplary leadership, hands-on management, our ISO-certified quality

procedures, and customer feedback. Qian Hu has a formal system in place

where organizational quality values are communicated to the rank and file

through the Quality Task Force comprising all divisional managers.

Our managers and quality champions are encouraged to upgrade their

knowledge of quality practices by attending various seminars, and continually

benchmarking against the best-in-class by participating in

awards and competitions.

Our Workplace

31

At Qian Hu, we adopt a transparent, consultative approach to management – continually seeking to explain our policyrationales, and encouraging staff participation and feedback. This is done with the objective of inculcating a strongsense of family and teamwork amongst all staff within the Group.

Training/Skills UpgradingIn preparation for the conversion to ISO 9001:2000 standard in 2002, our staff attended the new ISO standard awarenessworkshop in June. In addition key staff also participated in Internal Quality Audit courses conducted by our externalconsultants.

The Group participated in International Enterprise Singapore’s China Global Partners Programme which is aimed atdeveloping the relevant skills of executives so that they can play a more significant role in Singapore’s business relationswith China. One of our staff, who was posted to our Guangzhou subsidiary Wan Jiang, was selected for the Programme.In the near future, we hope to identify more staff for this enrichment programme as we seek to expand our presenceregionally.

In the current year 2003, we will commit more training resources to better equip our staff to offer even higher levels ofcustomer service, further improve productivity and for career advancement.

WelfareIn 2002, we expanded our annual staff survey to our overseas subsidiaries in the Group. Of those who responded,89.1% expressed that they were very happy with the Company. The 9.4% decrease from the previous year was largelydue to an increased pool of respondents, since this year was the first time we extended the survey to the overseassubsidiaries. While we are mindful that there may be some fewer employees in the Group that may take some time tofeel totally at home, the overall good response from our staff bears testimony that Qian Hu is indeed a happyenvironment to work in. We will continue to improve our staff welfare that will continue to foster such a conduciveenvironment for the continual growth of the Group – such as remembering an individual’s birthday, profit-sharing andstock options.

Qian Hu Employees’ Share Option Scheme (“ESOS”)Administered by a committee, the Qian Hu ESOS grants share options to eligible employees at a discount to prevailingmarketing prices with a vesting period of 2 years. The number of shares granted to each employee will depend on theperformance of the Company and the Group; the individual performance of the employee; the overall contribution ofthe employee to the success and development of the Company and the Group.

32

Just as our business is to provide a sense of well-being for those who appreciate caring for their ornamental fish, weare continually mindful of the plight of the underprivileged in our society.

In order to motivate and encourage every staff member to participate in community outreach projects, Qian Hucontributes a dollar for every dollar that our staff pledge from their monthly salaries. In addition, our staff are involvedin the SHARE programme and various fund-raising activities for certain charities. Apart from regular visits to homesfor the aged every two months, our staff also provide opportunities for them to visit our farm. During the year inreview, the total contribution to charity from our employees and the company amounted to approximately $60,000.

Our staff involvement is, on average, about 60% and that translates to about 2 work days per employee annually.

As part of our efforts to promote the ornamental fish industry, we set up the Qian Hu Agro-Education Centre at ourSingapore farm – an activity centre reminiscent of our old farm in old Nee Soon, complete with poultry, fruit trees andgarden spices. The Centre hopes to give the younger generation of Singaporeans a taste of how “kampong” life waslike back in the old days. One of the highlights of the Centre’s activities must surely be the catching of “longkang” fish– a favourite past time of old.

As one of the few truly agricultural landmarks in Singapore, Qian Hu Fish Farm has been recognised by the SingaporeTourism Board as an agro-tourism destination.

Reaching Out

33

Globally, investors are paying more attention to howcompanies manage social, environmental and ethicalissues.

At Qian Hu, we are keenly aware of our responsibilitytowards the environment as it is inextricably linked to ourbusiness of promoting ornamental fish as a hobby ofchoice. We aim to be a responsible company, balancingour business goal of creating sustainable value with astrong commitment to containing the environmentalimpact of our activities to a practicable minimum.

Since 1997, we have had an integrated ISO 14001Environmental Management System in place to minimisethe stress that our operations may have on theenvironment – such as the recycling of rain water for usein our operations thereby reducing our reliance onpotable water, and cutting down on the usage of plasticbags where possible. In so doing, we have set clearenvironmental goals and objectives that are closelymonitored according to the guidelines set out in ourenvironment policy:

– To comply with all applicable laws, regulations andstandards. We will also collaborate with theauthorities and with other companies of the sector todevelop standards and practical guides aimed atprotecting natural resources, and the environment.

– To undertake programmes of continual improvementand prevention of pollution.

– To reduce the use of environmental unfriendlypacking materials and strive to develop alternativesby adopting new technologies, when available.

– To reduce resource consumption and wastegeneration.

– To provide the necessary training and support to staffto ensure that they are able to fulfil the commitments.

– To undertake reviews to ensure compliance withthis policy.

Caring for theEnvironment

34

The Qian Hu Story

Qian Hu’s history can be traced back to the early days ofthe Company’s pioneers, two brothers who were in thepig farming business – Mr Yap Tik Huay, the father of theGroup’s Executive Chairman Kenny Yap, and his brotherYap Hey Cha.

In 1985, their pig farm was eradicated due to theGovernment’s move to stem pollution and free up moreland for residential development. At that point in time, TikHuay’s three sons, Yap Peng Heng, Yap HockHuat and Yap Kim Choon joined thefamily business. They convertedthe old pig pens into concreteponds and started breedingguppies for the localfish exporters. However, in1989, during a heavythunderstorm, theirentire stock of guppieswas washed away.

Having to start all overagain, and with a newname “Qian Hu“ –which means athousand lakes inChinese, Kenny and twoof his cousins, Alvin andAndy, were more thanever determined to put theircollective efforts towardsrebuilding Qian Hu.

Little did they realise, however, that they werein for another setback. After their failure in rearingguppies, they went on to farm high-fin loaches despiteknowing very little about this particular variety of fish. Inone fell swoop, their entire stock of 4,000 loaches died.They lost almost everything, except for their resolve,mettle and drive to succeed. Since then, however, theylearnt from this lesson, realising their mistake of notdiversifying risks, and not knowing enough about theirproducts. In fact, this lesson was so valuable to them thatthe high-fin loach became Qian Hu’s mascot to serve as adaily reminder of where they were, and where they neverwanted to be again.

In 1990, Qian Hu expanded into the local wholesaledistribution business, and increased its range ofornamental fish to include Discus, Chichlid, and Gourami.

It also began diversifying into the aquarium accessoriesbusiness. Two years later, Qian Hu started exporting tothe rest of the world, a journey that helped positionSingapore as a major player in the export of ornamentalfish.

In 1993, Qian Hu entered into a joint venture with TheChina Aquaculture Society and incorporated BeijingQianyang Aquarium Co., Ltd, based in Beijing, to supply

cold-water ornamental fish and aquariumaccessories to Northern China. Two years

later, Qian Hu acquired full ownershipof the joint venture company.

In 1995, a year after the moveto its present location within

Sungei TengahAgrotechnology Park,Qian Hu developedquality systems for itsoperations, leading tothree ISO 9002certifications forconditioning and packingof ornamental fish forexport (1996); the trading,quarantine and breeding of

Dragon Fish (1997), and theretail and wholesale of

aquarium accessories and petproducts (2000).

The farm was landscaped in such a waythat runoffs from heavy rainfall would not affect

the fish stock and breeding ponds. This unique systemof recycling water won Qian Hu the ISO 14001certification for its environmental management systeminvolved in importing, exporting, conditioning,distributing and farming of tropical fish in 1998.

1997 was also an exciting year for Qian Hu. During thatyear, its proprietary auto-packing machines for thepacking of ornamental fish – a project encouraged by theAgri-food and Veterinary Authority of Singapore (AVA),and partially funded by the EDB Innovative DevelopmentScheme – was launched. This was followed by Qian Hu’sadmission into the Productivity and Standards Board’sPromising Small and Medium Enterprises Programme,which helped the Group formulate and develop itsstrategic business plan.

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Since 1999, Qian Hu began distributing aquarium andpet accessories to Malaysia, China and Thailand. Muchgrowth was expected in this business as for every dollarspent on ornamental fish, five more would be spent onaccessories.

The year 2000 not only marked the beginning of the newmillennium, it was also the year that Qian Hu CorporationLimited was listed on the SingaporeExchange’s SESDAQ.

Its goal is to create shareholders’value by becoming a world-classornamental fish and accessoriescompany, through its spirit ofinnovation as well as productand service quality. In just ayear after its public listing,Qian Hu was honoured for itscommitment towards goodcorporate governance andtransparency when it was votedone of the most transparentcompanies (SESDAQ/Small Caps– up to $100 million category) by theSingapore Investors Association(Singapore).

A joint venture company inGuangzhou, Wan JiangTechnology Co Ltd, wasestablished in 2001 togetherwith a Taiwanese partner, toproduce the Group’sproprietary brands ofaquarium and petaccessories as well as otherthird party brands. Theseaccessories were beingdistributed throughout theGroup’s regional subsidiaries, andother countries such as Japan,Germany, United Kingdom andbeyond. Qian Hu subsequently increasedits stake in Wan Jiang to 60% a year later, thusmaking it a subsidiary of the Group.

In that same year, the Group set up a new subsidiary inThailand – Thai Qian Hu Company Limited – which hadreceived approval from the country’s Board ofInvestments to export and distribute tropical fish.

2002 was an extremely eventful year for Qian Hu as it wastransferred to the main board of the Singapore Exchange

in November. Its corporate achievements were alsobroad-based, such as one of the Most TransparentCompanies (SESDAQ/Small Caps) by Singapore InvestorsAssociation (Singapore) for the second time running; MostAdmired Company on SESDAQ; highly commended forBest Overall Investor Relations award by IR Asia and AsianWall Street Journal; first runner-up in the Best AnnualReport Award (SESDAQ category) as well as being among

the top 3 “Best Small Companies” in a pollorganized by Asiamoney.

That was also the year that a newfish division in Guan Guan

(Malaysia) was set up anda new associate company, JinJien Hsing Enterprises Ltd, adistributor of pet foods inTaiwan, joined the Group.

In 2003, Qian Hu made a steptowards backward integration

by acquiring a leading DragonFish breeder in Batu Pahat,

Malaysia – Kim Kang AquacultureSdn Bhd. This helps to secure aconsistent and reliable supply of the

highly-prized Arowana for ouroverseas subsidiaries as well asnew markets in Taiwan andthe PRC.

Beijing Qian Yang, in 2003,joined the many of Qian Hu’soverseas units such as TatLeng, Guan Guan and ThaiQian Hu, to receive the

international mark of quality– ISO 9002.

To improve our communicationswith customers, investors and

shareholders, an intelligentcustomer service phone hotline, Qian

Hu Voice, was launched. With this system,callers are able to get information on their

reward points, give feedback and even obtain the latestQian Hu stock quotes in real-time.

Looking forward, Qian Hu’s Singapore operations wouldcontinue to grow organically, while the bulk of Qian Hu’sgrowth in the next few years would be driven by itsoverseas operations led by (1) its accessoriesmanufacturing, (2) breeding of Dragon Fish, and (3) thedistribution of ornamental fish and accessories activities.

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Corporate Governance Statement

The Board of Directors and management are committed to high standards of corporate governance and embrace the best practices contained in the BestPractice Guide issued by the Singapore Exchange Securities Trading Limited (the “SGX-ST”) so as to ensure greater transparency and protection ofshareholders’ interests. This statement outlines the main corporate governance practices that were in place throughout the financial year.

Board Matters

Role of the Board of DirectorsThe Board’s primary role is to protect and enhance long-term shareholder value. It sets the overall strategy for the Group and supervises executivemanagement. To fulfil this role, the Board is responsible for the overall corporate governance of the Group including setting its strategic direction,establishing goals for management and monitoring the achievement of these goals.

Board ProcessesTo assist in the execution of its responsibilities, the Board has established a number of Board Committees including an Executive Committee, an AuditCommittee, a Nominating Committee and a Remuneration Committee. These committees function within clearly defined terms of reference and operatingprocedures, which are reviewed on a regular basis. The effectiveness of each committee is also constantly monitored.

The full Board currently holds 4 scheduled meetings each year. In addition, it holds strategy meetings and special meetings at such other times as maybe necessary to address any specific significant matters that may arise.

Matters Requiring Board ApprovalThe directors have identified a number of areas for which the Board has direct responsibility for decision-making. The Board meets to consider thefollowing corporate events and actions:

• approval of quarterly results announcements;• approval of the annual report and accounts;• declaration of interim dividends and proposal of final dividends;• convening of shareholders’ meetings;• approval of corporate strategies; and• material acquisitions and disposal of assets.

All other matters are delegated to committees whose actions are reported to and monitored by the Board.

Access to InformationDirectors are from time to time furnished with detailed information concerning the Group to enable them to be fully cognisant of the decisions and actionsof the Group’s executive management. All directors have unrestricted access to the Company’s records and information and receive monthly managementaccounts to enable them to constantly keep track of the Group’s financial position. Detailed Board papers are prepared for each meeting of the Board andare normally circulated a week in advance of each meeting. The Board papers include sufficient information from management on financial, business andcorporate issues to enable the directors to be properly briefed on issues to be considered at Board meetings. All the independent directors have accessto all levels of senior executives in the Group, and are encouraged to speak to other employees to seek additional information if they so require.

The Company Secretary attends all Board meetings and is responsible to ensure that established procedures and all relevant statutes and regulationswhich are applicable to the Company are complied with.

Each director has the right to seek independent legal and other professional advice, at the Company’s expense, concerning any aspect of the Group’soperations or undertakings in order to fulfil their duties and responsibilities as directors.

Directors’ Meetings held in 2002In the course of the year under review, the number of meetings held and attended by each member of the Board is as follows:

Number of BoardName of director Meetings held Attendance

Kenny Yap Kim Lee (Chairman) 4 4Alvin Yap Ah Seng 4 4Andy Yap Ah Siong 4 2Robson Lee Teck Leng 4 4Chang Weng Leong 4 4Tan Tow Ee 4 2 (appointed only with effect from 1 May 2002)

Training of DirectorsAll directors receive appropriate training to develop individual skills as required. The Group provides extensive background information about its history,mission and values to its directors. The Company also provides ongoing education on Board processes, governance and best practices. Directors also

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have the opportunity to visit the Group’s operational facilities and meet with management to gain a better understanding of business operations. Newlyappointed directors are also given training appropriate to the level of their previous experience.

Board Composition and BalancePresently, the Board comprises three executive directors and three independent directors. The names and the key information of the directors of theCompany in office at the date of this Statement are set out in the Directors’ Report.

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

• the Board should comprise at least one-third of independent non-executive directors;

• the Board should have enough directors to serve on various committees of the Board without over-burdening the directors or making it difficult for themto fully discharge their responsibilities;

• directors appointed by the Board are subject to election by shareholders at the following annual general meeting and thereafter directors are subject tore-election once every three years. The term of office for each executive director is fixed by his service contract with the Company which also regulateshis terms of employment. Presently, all the three executive directors of the Company are employed under service contracts which will expire on 24October 2003.

The Board constantly examines its size and, with a view to determining the impact of its number upon effectiveness, decides on what it considers anappropriate size for itself. The composition of the Board is reviewed on an annual basis by a Nominating Committee to ensure that the Board has theappropriate mix of expertise and experience. When a vacancy exists, through whatever cause, or where it is considered that the Board would benefit fromthe services of a new director with particular skills, the Committee, in consultation with the Board, determines the selection criteria and selects candidateswith the appropriate expertise and experience for the position. The Board then nominates the most suitable candidate who is only appointed to the Boardby the Company in general meeting.

Independent Members of the Board of DirectorsThe Board of Directors has three independent members, representing 50% of the Board: Mr Robson Lee Teck Leng, Mr Chang Weng Leong, and Mr TanTow Ee. The criterion of independence is based on the definition given in the Code of Corporate Governance issued by the Corporate GovernanceCommittee. The Board considers an “independent” director as one who has no relationship with the Company, its related companies or its officers thatcould interfere, or be reasonably perceived to interfere, with the exercise of the director’s independent judgement of the Group’s affairs.

Chairman and Chief Executive OfficerIt is the view of the Board that it is in the best interests of the Group to adopt a single leadership structure i.e. where the CEO and chairman of the Board isthe same person, so as to ensure that the decision-making process of the Group would not be unnecessarily hindered.

The Group’s Executive Chairman and CEO is Mr Kenny Yap Kim Lee, who is responsible for the day-to-day running of the Group as well as the exercise ofcontrol over the quality, quantity and timeliness of information flow between the Board and management. He has played an instrumental role in developingthe business of the Group and has also provided the Group with strong leadership and vision.

All major decisions made by the Executive Chairman and CEO are reviewed by the Audit Committee. His performance and appointment to the Board isbeing reviewed periodically by the Nominating Committee and his remuneration package is being reviewed periodically by the Remuneration Committee.Both the Nominating Committee and the Remuneration Committee comprise of only the independent directors of the Company. As such, the Boardbelieves that there are adequate safeguards in place against an uneven concentration of power and authority in a single individual.

Board CommitteesTo assist the Board in the execution of its duties, the Board has delegated specific functions to the following committees:

Executive CommitteeThe Executive Committee was established in July 2000. It is chaired by Mr Kenny Yap Kim Lee and comprises all the executive directors and two keysenior management personnel of the Group. The Executive Committee is entrusted with the conduct of the Group’s business and affairs, in line with theoverall strategy set by the Board. The Committee meets on a monthly basis and on such other times where necessary.

The number of meetings held and attendance during the last financial year were as follows:

Number ofName of director/executive Appointment meetings held Attendance

Kenny Yap Kim Lee (Chairman) CEO 12 12Alvin Yap Ah Seng (Member) Executive Director 12 12Andy Yap Ah Siong (Member) Executive Director 12 10Low Eng Hua (Member) Group General Manager 12 3 (on overseas posting)Lai Chin Yee (Member) Group Financial Controller 12 12

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Audit CommitteeThe Audit Committee was established in October 2000. It is chaired by Mr Robson Lee Teck Leng and its other members are Mr Chang Weng Leong andMr Tan Tow Ee. All three members are independent directors of the Company. The Audit Committee meets regularly with the Group’s external andinternal auditors and its executive management to review accounting, auditing and financial reporting matters so as to ensure that an effective controlenvironment is maintained in the Group.

The Audit Committee also monitors proposed changes in accounting policies, reviews the internal audit functions and discusses the accountingimplications of major transactions. In addition, the Committee advises the Board regarding the adequacy of the Group’s internal controls and the contentsand presentation of its reports.

Specifically, the Audit Committee:

• reviews the audit plans and scope of audit examination of the external auditors;

• evaluates the overall effectiveness of both the internal and external audits through regular meetings with each group of auditors;

• reviews the adequacy of the internal audit function;

• determine that no restrictions are being placed by management upon the work of the internal and external auditors;

• evaluates the adequacy of the internal control systems of the Group by reviewing written reports from the internal and external auditors, andmanagement’s responses and actions to correct any deficiencies;

• evaluates the adherence to the Group’s administrative, operating and internal accounting controls;

• reviews the annual and quarterly financial statements and announcements to shareholders before submission to the Board for adoption;

• reviews interested person transactions (as defined in Chapter 9 of the Listing Manual of the SGX-ST) to ensure that they are on normal commercialterms and not prejudicial to the interests of the Company or its shareholders; and

• considers other matters as requested by the Board.

The Audit Committee is authorised to investigate any matter within its terms of reference, and has full access to management and also full discretion toinvite any executive director or executive officer to attend its meetings, as well as reasonable resources to enable it to discharge its function properly.Annually, the Audit Committee meets with the internal auditors and the external auditors separately, without the presence of management. This is to reviewthe adequacy of audit arrangements, with particular emphasis on the scope and quality of their audits, the independence and objectivity of the externalauditors and the observations of the auditors.


Number ofName of director Appointment meetings held Attendance

Robson Lee Teck Leng (Chairman) Independent 4 4Chang Weng Leong (Member) Independent 4 4Tan Tow Ee (Member) Independent 4 2 (appointed only with effect from 1 May 2002)

Nominating CommitteeThis committee was established in July 2002 and comprises the three independent directors of the Company. The chairman of the Nominating Committeeis Mr Tan Tow Ee.

The responsibilities of the Nominating Committee are to determine the criteria for identifying candidates and reviewing nominations for the appointmentof directors to the Board and also to decide how the Board’s performance may be evaluated and propose objective performance criteria for the Board’sapproval.

In addition, the Nominating Committee also performs the following functions:

• assess the contribution of each individual director to the effectiveness of the Board;• re-nominate any director, having regard to the director’s contribution and performance;• determine on an annual basis whether a director is independent;• decide whether a director is able to and has been adequately carrying out his or her duties as a director of the Company, particularly when the director

has multiple board representations; and• identify gaps in the mix of skills, experience and other qualities required in an effective board so as to better nominate or recommend suitable

candidates to fill the gaps.

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The Nominating Committee has adopted a formal process for the evaluation of the performance of the Board. Objective performance criteria used toassess the performance of the Board include:

• the Company’s share price performance vis-à-vis the Singapore Straits Times Index;• return on assets (ROA);• return on equity (ROE);• return on investment (ROI); and• profitability on capital employed.

A member of the Nominating Committee holds office until the next Annual General Meeting following that member’s appointment and may, subject to theprior approval of the Board, be re-appointed to such office. Where, by virtue of any vacancy in the membership of the Nominating Committee for anyreason, the number of members of the Nominating Committee is reduced to less than three (or such other number as may be determined by the SGX-ST), the Board shall, within three months thereafter, appoint such number of new members to the Nominating Committee. Any new member appointedshall hold office for the remainder of the term of office of the member of the Nominating Committee in whose place he or she is appointed.

The Nominating Committee regulates its own procedures and in particular the calling of meetings, the notice to be given of such meetings, the voting andproceedings thereat. The Company also maintains records of the deliberations and proceedings of the Nominating Committee.



Tan Tow Ee (Chairman) Independent 1 1Robson Lee Teck Leng (Member) Independent 1 1Chang Weng Leong (Member) Independent 1 1

Remuneration CommitteeThis committee was established in July 2002 and comprises the three independent directors of the Company and is chaired by Mr Chang Weng Leong. Itmeets at least two times annually.

The Remuneration Committee reviews and approves recommendations on remuneration policies and packages for key executives. The review covers allaspects of remuneration, including but not limited to directors’ fees, salaries, allowances, bonuses, share options, and benefits-in-kind. The committee’srecommendations are made in consultation with the chairman of the Board and submitted for endorsement by the entire Board.

Annual reviews of the compensation of directors are also carried out by the Remuneration Committee to ensure that the remuneration of the executivedirectors and senior management commensurate with their performance and value-add to the Group, giving due regard to the financial and commercialhealth and business needs of the Group. The performance of the CEO (along with that of other senior executives) is reviewed periodically by theRemuneration Committee and the full Board.

The Remuneration Committee also administers the Qian Hu Post-IPO Employees’ Share Option Scheme (the “ESOS”) which was implemented on 8November 2000 as a share incentive scheme. Employees of the Group who are directors (whether executive or non-executive) of the Company,controlling shareholders of the Company or the associates of such controlling shareholders of the Company are not entitled to participate in this ESOS.Amendments to the ESOS rules were made on 19 February 2002 to, inter alia: -

(a) allow the participation of the associates of the controlling shareholders of the Company in the ESOS; and(b)allow the grant of options at discounted exercise prices.

Other details of the ESOS are found in the Directors’ Report.



Chang Weng Leong (Chairman) Independent 1 1Robson Lee Teck Leng (Member) Independent 1 1Tan Tow Ee (Member) Independent 1 1

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* Remuneration amounts shown are inclusive of salary, bonus, allowances and Central Provident Fund contribution.

Mr Yap Ping Heng, Mr Yap Hock Huat, Mr Yap Kim Choon and Mr Yap Kim Chuan are the brothers of Mr Kenny Yap Kim Lee, CEO. They are also cousins toMr Alvin Yap Ah Seng and Mr Andy Yap Ah Siong, the executive directors.

Accountability and Audit

In presenting the annual financial statements and quarterly announcements to shareholders, it is the aim of the Board to provide the shareholders with adetailed analysis, explanation and assessment of the Group’s financial position and prospects. Management currently provides the Board withappropriately detailed management accounts of the Group’s performance, position and prospects on a quarterly basis.

Internal ControlsThe Board acknowledges that it is responsible for the overall internal control framework, but recognises that no cost effective internal control system willpreclude all errors and irregularities, as a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and canprovide only reasonable and not absolute assurance against material misstatement or loss. The directors regularly review the effectiveness of all internalcontrols, including operational controls.

Remuneration Matters

The Group’s remuneration policy is to provide compensation packages at market rates which reward good performance and attract, retain and motivatemanagers and directors.

The Remuneration Committee determines the remuneration packages for the Executive Chairman and the executive directors based on the performanceof the Group and the individual. Independent directors are paid directors’ fees, determined by the full Board based on the effort, time spent andresponsibilities of the independent directors. The payment is subject to approval of the Company at each AGM.

Details of remuneration paid to the directors of the Company for the year ended 31 December 2002 are set out below:

Directors’Name of director *Salary * Bonus fees Total

$’000 $’000 $’000 $’000

Kenny Yap Kim Lee, CEO 185 70 - 255Alvin Yap Ah Seng, Executive 167 70 - 237Andy Yap Ah Siong, Executive 164 70 - 234Robson Lee Teck Leng, Independent - - 10 10Chang Weng Leong, Independent - - 10 10Tan Tow Ee, Independent - - 7 7

516 210 27 753

* The salary and bonus amounts shown are inclusive of allowances and Central Provident Fund contribution.(None of the directors of the Company are entitled to participate in the Employees’ Share Option Scheme)

Details of remuneration paid to the top 10 executives (who are not directors of the Company) of the Group for the year ended 31 December 2002 are setout below:

*Total Share options Exercise Date ofName of executive Remuneration granted price expiry

$’000 (number of options) $

Yap Ping Heng 155 - - -Yap Hock Huat 155 - - -Yap Kim Choon 155 - - -Yap Kim Chuan 84 - - -Lai Chin Yee 138 36,000 0.59 31 July 2012Low Eng Hua 109 36,000 0.59 31 July 2012Thomas Ng Wah Hong 93 - - -Jimmy Tan Boon Kim 128 40,000 0.59 31 July 2012Lee Kim Hwat 115 40,000 0.59 31 July 2012Alex Chuang 84 - - -

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Risk assessment and evaluation takes place as an integral part of the annual strategic planning cycle. Having identified the risks to achievement of theirstrategic objectives, each business is required to document the management and mitigating actions in place and proposed in respect of eachsignificant risk.

Internal AuditThe Board recognises and is responsible for maintaining a system of internal control processes to safeguard shareholders’ investments and the Group’sbusiness and assets. The effectiveness of the internal financial control systems and procedures are monitored by management and the internal auditfunction is overseen by the Group Financial Controller in order to identify, analyse and manage the risks incurred by the Group in its activities andpromote continuous improvement to the Group’s operations. At least once every quarterly, all major operating entities are closely examined by the GroupFinancial Controller, who reports to the chairman of the Audit Committee on any material non-compliance and internal control weaknesses and the AuditCommittee will oversee and monitor the implementation of any improvements thereto.

Communication with Shareholders

The Company does not practise selective disclosure. In line with continuous disclosure obligations of the Company pursuant to the SGX-ST’s Listing Rulesand the Singapore Companies Act, the Board’s policy is that all shareholders should be equally and timely informed of all major developments that impactthe Group.

Information is communicated to shareholders on a timely basis through:

• annual reports that are prepared and issued to all shareholders. The Board makes every effort to ensure that the annual report includes all relevantinformation about the Group, including future developments and other disclosures required by the Companies Act and Singapore Statements ofAccounting Standard;

• quarterly financial statements containing a summary of the financial information and affairs of the Group for the period are published through theMASNET and news releases;

• notices of and explanatory memoranda for annual general meetings and extraordinary general meetings;

• press and analyst briefings for the Group’s half-year and full-year results as well as other briefings, as appropriate;

• press releases on major developments of the Group;

• disclosures to the SGX-ST; and

• the Group’s website at www.qianhu.com at which shareholders can access information on the Group. The website provides, inter alia, corporateannouncements, press releases, annual reports, and profiles of the Group.

In addition, shareholders are encouraged to attend the AGM to ensure a high level of accountability and to stay informed of the Group’s strategy and goals.The AGM is the principal forum for dialogue with shareholders.

The notice of the AGM is despatched to shareholders, together with explanatory notes or a circular on items of special business, at least 14 working daysbefore the meeting. The Board welcomes questions from shareholders who have an opportunity to raise issues either informally or formally before or atthe AGM. The Chairmen of the Audit, Remuneration and Nominating Committees are normally available at the meeting to answer those questions relatingto the work of these committees.

Dealing in Securities

The Group has procedures in place prohibiting dealings in the Company’s shares by its officers while in possession of price sensitive information andduring the period commencing one month prior to the announcement of the Company’s quarterly, half-yearly and full year results. Directors andexecutives are also expected to observe insider trading laws at all times even when dealing in securities within permitted trading period.

Compliance with Existing Best Pratices Guide of The Singapore Exchange

The Board of Directors confirms that for the financial year ended 31 December 2002, the Company has complied with the principal corporate governancerecommendations set out in the Best Practices Guide issued by the SGX-ST.

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Risk Factors

Acquisition of Kim Kang Aquaculture Sdn Bhd (“Kim Kang”)

As in all business acquisitions, there is always an adjustment period before the systems of the new business can be fully integrated into the Group’smanagement and operations. To minimize disruption and to ensure continuity in the operations of Kim Kang after the proposed acquisition, the originalowner of Kim Kang, Mr Goh Siak Ngan, and his team of experienced operations personnel will be employed by our Group. Mr Goh and his wife willcontinue to hold a 35% equity stake in Kim Kang after the acquisition and have entered into a shareholders’ agreement with our Company to underscoretheir commitment to further grow Kim Kang as a joint venture with our Company. Our Group has more than 10 years business relationship with Mr Gohand we have over the last decade built a good relationship of trust and confidence with each other.

Outbreak of diseases and infection

Ornamental fish, like other livestock, is susceptible to disease and infection. However, different breeds of fishes are vulnerable to different types ofdiseases. While it is possible that a rare or virulent strain of bacteria or virus may infect a particular breed of fish in the farm, fatal infection across breedsis uncommon. We have institutionalized a comprehensive health management and quarantine system for all our domestic and overseas operations toensure a consistently high standard of good health care management and hygiene for our fishes. Currently, all our domestic and overseas fish operationshave attained ISO 9002 certification.

We will also institutionalize our comprehensive health management and quarantine system in Kim Kang after the completion of our acquisition to minimizeany problems regarding health care and hygiene. It should be noted that Kim Kang breeds mainly Dragon Fish which is a very robust and hardy fishexisting since pre-historic times. Any disease or bacteria strong enough to affect the Dragon Fish is expected to be very rare.

Suppliers, customers and general business risks

None of our suppliers or customers contribute more than 5% of our Group’s turnover. While our Group faces the normal business risks associated withageing collections and slow moving stocks, we have adopted a prudent accounting policy of a general 10% provision for all trade debts overdue for morethan 120 days and a full provision for all non-moving stocks of a duration of more than 6 months.

Not reliant on the sale of any particular type of fish

Based on the FY 2002, Luo Han sales contributed approximately 5% of our fish sales and less than 2% of our Group total turnover. We sell over 500 speciesand varieties of ornamental fishes to more than 60 countries and are not reliant on the sale of any particular type or specimen of fish. Even after theacquisition of Kim Kang, our Group will not be reliant on the sale of the Dragon Fish because of our critical spread of fishes that we sell.

Fluctuations in foreign exchange currencies against the Sing Dollar

In FY 2002, approximately 90% of our sales were denominated in Singapore Dollars. Around 50% of our supplies were purchased in Sing Dollars, while therest were in Euros, US dollars and the Japanese Yen. While our Group does not have any formal hedging policy against foreign exchange fluctuations, wecontinuously monitor the exchange rates of the major currencies and enter into hedging contracts with our banks from time to time whenever we detectany movements in the respective exchange rates which may impact on our profitability.

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Qian Hu Corporation LimitedNo.71 Jalan Lekar, Singapore 698950

Tel 65 6766 7087 Fax 65 6766 3995www.qianhu.com

qianhu ar pg8-29qianhu.listedcompany.com/misc/ar2002.pdf · kenny yap kim lee alvin yap ......

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