A n n u a l R e p o r t HUPSteel. HUPSteel. HUPSteel Limited (Company Registration Number: D)

Transcription

1 HUPSteel A n n u a l R e p o r t HUPSteel HUPSteel Limited (Company Registration Number: D)

2 01 vision, mission and values 02 chairman s statement 06 board of directors 08 operations review 11 key management staff 12 financial highlights 13 corporate governance 22 directors report 26 statement by directors 27 auditors report 28 financial statements 76 shareholders information 78 notice of thirteenth annual general meeting proxy form contents Board of Directors Mr Tang See Chim Mr Lim Kim Thor Mr Lim Boh Chuan Mr Lim Yee Kim Mr Lim Beo Peng Mr Lim Eng Chong Dr Lim Puay Koon Mr Ong Kian Min Executive Committee Mr Lim Kim Thor Mr Lim Boh Chuan Mr Lim Yee Kim Mr Lim Beo Peng Non-executive Chairman, Independent Director Chief Executive Officer Deputy Managing Director Executive Director Executive Director Non-executive Director Non-executive Director Independent, Non-executive Director Chairman Audit Committee Mr Tang See Chim Chairman (appointed on 29/7/05) Mr Ong Kian Min Dr Lim Puay Koon Nominating Committee Mr Tang See Chim Chairman (appointed on 29/7/05) Mr Ong Kian Min Mr Lim Eng Chong Remuneration Committee Mr Ong Kian Min Chairman (appointed on 29/7/05) Mr Tang See Chim Mr Lim Kim Thor Mr Lim Eng Chong Company Secretaries Mr Tan Cher Liang Ms Julie Koh Ngin Joo corporate information Share Registrar Tricor Barbinder Share Registration Services 8 Cross Street #11-00 PWC Building Singapore Tel : (65) Auditors PricewaterhouseCoopers 8 Cross Street #17-00 PWC Building Singapore Tel : (65) Audit Partner-in-charge Ms Quek Bin Hwee Date of appointment : 13/1/2003 Registered Address 10 Collyer Quay #19-08 Ocean Building Singapore Business Office 116 Neythal Road Singapore Tel : (65) Fax : (65) Website:

3 vision To be the preferred global total solution provider of steel products and services mission Harness our Resources for Sustainable Growth and Profit Understand and provide value-added services to meet customer s needs Pursue Organization and People Excellence values SERVICE We seek to provide quality service that goes the extra mile to all internal and external customers, suppliers and colleagues. We will do this by establishing a relationship based on mutual respect, trust and integrity. This will lead to service that is prompt, efficient, friendly, trustworthy and solutions-based. TEAMWORK We will strive to achieve our shared vision by living our shared values and aligning ourselves towards our common goals. We will show respect for all individuals through mutual trust, open communication and motivation. We will be enthusiastic and supportive of each other as we strive to attain inter-dependence and co-operation. ENTERPRISING We will seize challenging business opportunities that would put us ahead of our competitors. We will be proactive and innovative market leaders by taking the initiative to be different and not being afraid to break the status quo. We will be visionary in our outlook and persevering in our united efforts. EXCELLENCE We will strive to be excellent and professional in our product knowledge and duties. We will take personal responsibility and accountability for our partners and customers to ensure quality products and reliable service to them. We believe in developing our people to their maximum potential so that they are enabled and equipped to provide total solutions. LIFELONG LEARNING We will grow with the right heart, mind and skill-sets to achieve personal and organizational success. We will equip through mentoring, coaching, training and development to create a culture of continuous learning and enthusiastic sharing of experiences. We believe in relevant and applied knowledge as the foundations to building leadership quality. HUPSteel Limited 0 1

4 chairman s statement Dear Shareholders, The year in review This financial year was indeed a memorable one for the Group as we celebrated the Group s 60 years of founding with an Open House and a Gala Dinner for about 1,000 guests at the Meritus Mandarin Hotel. The Company had also changed its name to HUPSteel Limited to mark the beginning of a new chapter in the history of the Group., the Group reported a revenue of $186.2M (FY05: $197.8M) and a net profit after tax of $15.7M (FY05: $21.6M). Although revenue and net profit after tax declined 5.9% and 27.3% respectively compared with the previous financial year ended 30 June 2005 ( FY05 ), it is important to stress that FY05 was an exceptional year for the Group as its inventory costs were low while enjoying high selling price due to strong demand and tight market supply of steel products. year ended 30 June 2006 ( FY06 ) saw a general increase in the supply of steel products. Though market demand had remained strong, the greater supply of steel plates precipitated a significant price correction and the Group had to adjust the selling prices for its steel plates for most of FY06 to remain competitive. However, selling prices for steel plates had since made a remarkable recovery in the final quarter of FY06. Business and margin for the Group s other products like pipes, fittings and structural products remained stable throughout the financial year as a result of the robust demand in the Oil, Gas and Shipbuilding sectors. Outlook During the year, the Group conducted an in-depth review of its business and came to the conclusion that its services and product offerings must be more integrated to focus on customers needs. At the same time, the Group must grow its business to better serve its customers and to enhance shareholder value. To achieve these aims, the Group had reorganized itself into 3 divisions, namely, the Steel Business, Business Development and Corporate Services divisions. The Steel Business Division encompasses all the Group s existing businesses and will strive to expand its businesses by becoming the preferred global total solution provider for steel products and services for its customers. It will strive to build closer relationship with its customers to understand and meet their needs for steel products and related services. The Business Development Division will continue to look out for new products to meet the market s changing needs, strengthen our overseas markets and establish presence in new markets. This division will also seek out opportunities 0 2 A n n u a l R e p o r t

5 chairman s statement This financial year was indeed a memorable one for the Group as we celebrated the Group s 60 years of founding with an Open House and a Gala Dinner for about 1,000 guests at the Meritus Mandarin Hotel. The Company had also changed its name to HUPSteel Limited to mark the beginning of a new chapter in the history of the Group. for merger and acquisition in order to further enlarge the Group s business. All of these activities will be supported by a group of dedicated personnel from Finance, Human Resources, Administration and Information Technology departments, now consolidated under the Corporate Services Division. The Group believes that demand for its steel products will remain steady in the new financial year amidst the booming Oil, Gas and Shipbuilding sectors. These sectors have reported order books filled till 2009 which augurs well for the Group. In addition, the expected strong growth of the economy for the rest of the year should bring good business prospect for the Group. With the construction of the integrated resorts expected to begin soon, various planned and ongoing government infrastructure projects like the circle line, rejuvenating of Orchard Road, the new Business and Centre and others should boost demand for the Group s structural steel products. To cater to increasing business volume, the Group has decided to expand its storage space by constructing a warehouse extension at its flagship premises at Neythal Road. The construction is expected to begin in the third quarter of 2006 and when the extension is completed, the Group s storage capacity will increase to over 33,000 square meters. This will enable the Group to centralize storage of its stocks, thereby better to manage its warehousing and logistic functions and to enhance efficiency. Dividend The Directors are pleased to recommend a first and final dividend of 0.5 cent (FY05: 0.5 cent) per share less tax at 20%. Given the Group s strong operating performance, the Directors further propose a special dividend of 1.5 cents (FY05: 2.5 cents) per share less tax at 20% to express our appreciation for the support from our shareholders. In addition, the Board of Directors is also recommending a bonus dividend of cents less tax at 20% and proposed a renounceable non-underwritten rights issue of shares in the ratio of 1 right share for every 4 existing shares held by the shareholders with a subscription price of $0.10 per rights share. Shareholders will be given an option to elect to use the bonus dividend declared to fully subscribe for their rights without further cash outlay. The aim of this exercise is to utilize most of the accummulated Section 44A tax credit before it expires so that shareholders may benefit from the tax refund arising if their personal income tax rate is lower than the corporate tax rates. The Board of Directors is looking forward to the support of the shareholders to approve the rights issue at the forthcoming Annual General Meeting to be held on 26th October Acknowledgement I would like to thank my fellow Directors for their support and wise counsel and the Management and staff for their loyalty, dedication and contributions to the Group. I would also like to express the Group s appreciation to our customers, suppliers and business associates for their continuing support and for joining us in making our 60th anniversary celebrations such a joyous and memorable occasion. Finally, I would like to thank all of you, our shareholders, for your commitment, support and loyalty to the Group. Tang See Chim Non-executive Chairman 14 Sept 2006 HUPSteel Limited 0 3

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8 board of directors Lim Yee Kim Lim Boh Chuan Lim Kim Thor Tang See Chim TANG SEE CHIM Mr Tang See Chim, 74, has been an Independent Director of the Company since 1994, was appointed as the Non Executive Chairman of the Board of Directors on 21 Feburary He is also the Chairman of the Audit and Nominating Committees and a member of the Remuneration Committee. Mr Tang has been in law practice for the last 40 years and since the beginning of 1993, has been a consultant to the law firm of David Lim & Partners. He was a Member of Parliament from 1966 to 1988 and was the Parliamentary Secretary to the Minister for Finance from 1968 to 1970 and the Minister of State for Finance from 1970 to Mr Tang was Deputy Speaker of Parliament from 1972 to Mr Tang is also an Independent Director of City Development Ltd, G K Goh Holdings Ltd and New Toyo International Holdings Ltd. Mr Tang graduated with a Bachelor of Science (Honours) degree in Economics from the London School of Economics, University of London. Mr Tang qualified as a Barrister-at-Law at the Middle Temple, London. LIM KIM THOR Mr Lim Kim Thor, 53, has been a Director of the Company since 1978 and was appointed as the Chief Executive Officer of the Company in He is the Chairman of the Executive Committee and a member of the Remuneration Committee. Mr Lim has close to 30 years of experience in the industrial hardware and steel pipe business. He enjoys close and strategic relationships with leading global steel product manufacturers and suppliers as well as major customers in the marine engineering and oil and gas industries. Mr Lim is responsible for the execution of the Group s business strategy and business expansion. LIM BOH CHUAN Mr Lim Boh Chuan, 48, has been a Director of the Company since Mr B C Lim was appointed as the Deputy Managing Director in 1994 and as a member of the Executive Committee since Mr B C Lim has over 20 years of experience in industrial hardware business. Mr Lim assists Chief Executive Officer in general management and is responsible for the Group s property business and is in charge of the Business Development Division of the Group. Mr Lim graduated with a Bachelor degree in Estate Management from the National University of Singapore. He is a member of the Singapore Institute of Directors since Mr Lim is the Patron of the Hwa Chong Junior College s Alumni Association. He is also the Vice Chairman of the Hwa Chong Institution Board of Governors. He is the Chairman of the Hwa Chong International School. In 2003, Mr Lim had the honour of receiving the Service To Education Award from the Ministry of Education. LIM YEE KIM Mr Lim Yee Kim, 58, has been an Executive Director of the Company since 1973 and has accumulated close to 40 years of experience in the industrial hardware business. In December 2002, Mr Lim was appointed as the General Manager (Sales and Procurement) of the Company, with principal responsibility for the sales of the Group s industrial hardware business and the sourcing and procurement of pipe fittings to meet customers various needs. As a member of the Executive Committee, Mr Lim also assists the Chief Executive Officer in marketing strategy and warehouse management. Mr Lim is an active member of the Singapore Metal & Machinery Association. 0 6 A n n u a l R e p o r t

9 board of directors Lim Puay Koon Lim Eng Chong Ong Kian Min Lim Beo Peng LIM BEO PENG Mr Lim Beo Peng, 45, has been a Director of the Company since 1993 and is a member of the Executive Committee. He assumed Executive functions in 2005 by being in charge of the newly created Corporate Service Division which provides the back room service and support to the Group. Mr Lim graduated with a Bachelor degree in Business Administration from the National University of Singapore. Mr Lim has over 18 years of experience in the industrial hardware business. Beside his business interest, Mr Lim is also represented in the 38th Honorary Committee ( ) of the Singapore Metal & Machinery Association. LIM ENG CHONG Mr Lim Eng Chong, 49, has been a Director of the Company since 1992 and is currently a member of the Nominating Committee and was appointed as a member of Remuneration Committee on 14 July Mr Lim holds a Master in Business Administration (MBA) degree from McGill University. Mr Lim has more than 20 years of multinational experience in international business and strategic market development. He is currently a director and the President of Canadec Pte Ltd, the appointed regional representative of Maple Leaf Foods Inc. LIM PUAY KOON Dr Lim Puay Koon, 46, has been a Director of the Company since 1993 and is currently a member of the Audit Committee. Dr Lim holds a PhD in computer and systems engineering, and a Master in Business Administration (MBA) degree from Rensselaer Polytechnic Institute (USA). Dr Lim has more than 20 years of experience in the IT industry and has held various management and systems engineering positions in Hewlett-Packard, Dell Asia Pacific, the National Computer Board (now part of Infocomm Development Authority or IDA) and the New York State Office (USA). He is currently the Director and General Manager, HP Managed Services, South- East Asia. ONG KIAN MIN Mr Ong Kian Min, 46, has been an Independent Director of the Company since 2003 and is the Chairman of the Remuneration Committee and a member of the Audit and Nominating Committees. Mr Ong is currently an Advocate and Solicitor and a consultant with Drew & Napier LLC, a Singapore law firm. He was called to the Bar of England and Wales in 1988 and to the Singapore Bar the following year. Mr Ong has also been a Member of Parliament since January Mr Ong was awarded the President Scholarship and Police Force Scholarship in He holds a Bachelor of Laws (Honours) external degree from the University of London and a Bachelor of Science (Honours) degree from the Imperial College of Science and Technology in England. HUPSteel Limited 0 7

10 operations review Your preferred Global Total Solution Provider for Steel Products and Services. General For the financial year ended 30 June 2006 ( FY06 ), the Group continued to benefit from strong demand for steel products from the Oil, Gas and Marine sectors. Our Group which carries a comprehensive range of structural steel products, pipes and fittings is in an excellent position to meet our customers needs for steel products. Generally, both global and local factors will have similar effects on the demand and supply of the Group s products as they essentially fall under the same class of material. However certain products may be more extensively used by a particular sector and hence are more susceptible to conditions arising from it, like structural steel plates for the ship building sector. Pipes, fittings and structural steel In the last 2 years, fast growing demand for oil and escalating oil prices had been driving producers to step up both explorations and drilling activities. This had resulted in our internationally renowned local yards receiving overwhelming orders to build oil rigs and related marine vessels. This surge in demand for rigs and marine vessels had also provided opportunities for our smaller local shipbuilders to break into the industry. As a result, there was a strong demand for steel products ranging from structural steel products to pipes and fittings which are needed for the construction of these structures. This increase in activities from these sectors in FY05 drove up demand significantly in the midst of tight supply causing prices of steel products to escalate rapidly. The impact of such increase in demand was first experienced in the financial year ended 30 June 2005 ( FY05 ) and continued well into FY06. Consequently, there was great volatility in prices of the Group s steel plates business one of the major products offered by the Group. Plates are required in the construction of marine vessels and were in great demand in FY05. This had led to many shipyards stockpiling their inventory of plates and even procuring them directly from steel mills in order to meet tight delivery schedules. This coupled with a robust demand from the booming China economy induced steel mills to raise up their production to increase supply. This increase in supply was felt in the first half of FY06 and the market was not able to absorb the additional quantity fast enough as most shipyards were still holding inventory. At the same time, the Chinese Government begun to take steps to prevent its economy from overheating thereby further dampening demand for steel. Although there were new shipbuilding contracts concluded, the market could not prevent a downward price correction for plates. This affected the Group s performance in the first 3 quarters of FY06. Throughout this period, the shipyards continued to work through their stock in hand while mills adjusted their production and supply allocation. The Group also took the precaution to run down its plates inventory to free resources and to wait for an opportune time to replenish its plate inventory. Market situation began to improve in the last quarter of FY06 as the market had worked out its excess inventory and prices recovered gradually. 0 8 A n n u a l R e p o r t

11 operations review With the prices for all its categories of steel products higher than a year ago, the Group is adopting a cautious approach in managing its inventories in order to minimize exposure to price fluctuation risks but at the same time ensuring that it would be able to meet the customers requirements in a timely manner. However demand for the Group s pipe and fittings had remained stable in FY06 in spite of price increases. As a result, business from pipe and fittings registered an increase in the turnover for FY06 of 4% to $87.9M from $84.6M for FY05. Sandblasting, General Hardwares & Properties With the boom in the local shipbuilding sector, the Group s sandblasting service offered through Sinip Steel Industries Pte Ltd, one of the Group s subsidiaries also enjoyed brisk business throughout FY06. Revenue for the Group s general hardware business also rose in tandem with the improvement in the local economy. Turnover for sandblasting services and general hardware for FY06 rose nearly twofold to $6.7M compared to $3.9M FY05. Performance by the Group s properties business still remains below average for FY06 as prevailing conditions for local property and property rental markets have yet recovered sufficiently in spite of stronger economy growth in The management constantly reviews the developments of the property market and seeks expert advice on how to better deploy the properties that it holds. Profit & Loss Revenue of the Group for FY06 was $186.2M compared to $197.8M recorded in FY05, a slight decrease of 5.8%. The higher revenue in FY05 could be attributed to purchasing spurs by shipyards to stockpile their material due to the large number of orders they had received and in the face of perceived supply shortages. However they have since adjusted the purchasing pattern to take into consideration of the market supply of steel products and rising prices. In addition, lower turnover for FY06 was also due to the lower selling prices of plates and the lower gross margin of 20.1% for FY06 compared with 24.6% achieved in FY05. Net profit after tax for FY06 reduced to $15.7M from $21.6M for FY05. The net profit margin was 8.4% compared to 10.9% of the last financial year. It is important to note that the net profit after tax for FY05 was exceptional as selling prices rose rapidly during the course of that year and part of the Group s stocks was carried at a lower cost. In FY06, the Group continued to derive 68% of its revenue from the local market, 26% from Asia and the rest from countries outside of Asia. The larger proportion in local sales was mainly due to sales of plates and other structural steel products to local customers involved in building rigs and marine vessels for their overseas clients. On the other hand, export sales were mainly generated by the pipes and fittings segment of the Group s business. Today, the Group s major operations are consolidated at its flagship building in Neythal Road. Its modern warehouse has a total gross floor area of over 30,000 square meters housing 3 double storey warehouse blocks and an attached 5 stories office block. It also has 2 other offsite storage area totaling 12,500 square meters to meet the warehousing meets of the Group and a fleet of delivery trucks and trailers to ensure timely delivery to our customers. The Group has also embarked on the construction of a warehouse extension at its Neythal Road site which will further add close to another 2,000 square meters of storage space when completed. Presently, the Group employs a work force of about 150 employees. HUPSteel Limited 0 9

12 operations review Balance Sheet Current assets of the Group stood at $109.5M and were made up mainly of trade receivables and inventories with balances at $53.4M and $44.4M respectively. Trade receivables of $53.4M was only slightly lower than $55.1M for FY05 as a result of strong sales made in the 4th quarter of FY06. Inventories balance fell 34.1% to $44.4M in FY06 from $67.5M when compared to a year ago as a result of the Group s initiative to run down its stock holding of plates. Current liabilities declined over two times to $31.7M from $72.7M. This reduction arose mainly from the much lower balance of borrowings of $17.7M at the end of FY06 (FY05: $58.8M). The borrowings were essentially made up of trust receipts incurred in the normal course of business. With the plates prices experiencing considerable fluctuations during most part of FY06, the Group had exercised caution in replenishing the products while paying down trust receipts that were due. This was made possible by the positive cash flow generated from the Group s operating activities. Following the implementation of the various Reporting Standards ( FRS ), long term equities and bonds held by the Group are now grouped as Available for sale financial assets and are marked to market value at the balance sheet date. Any excess of market value above costs is taken to the Fair Value Reserve account in the balance sheet. Another significant change resulting from the amendment to the Companies Act, effective in January 2006, was the abolishment of the par value concept of shares and the elimination of the Share Premium Account. As a result, the amount in the Share Premium Account had now been consolidated into the Share Capital Account. The strong cash inflow generated for FY06 had also allowed the Group to pay down its trust receipts and bank loans when they became due. The positive cash inflow had also enabled the Group to make the dividend payout of $7.2M for FY05 in December Corporate Events The Group celebrated its 60th year of founding with a host of activities on 15 November For the day, the Group was privileged that Mr Chua Tian Poh, President of Singapore Chinese Chamber of Commerce officiated at our Open House at our Neythal Road premises, an event to enable our suppliers and business associates to familiarize with the Group s operations. The celebration culminated in a gala dinner held at the Meritus Mandarin Hotel. The Guest of Honour for this joyous occasion was Dr Vivian Balakrishan, Minister for Community Development, Youth and Sports, and Second Minister for Trade and Industry and was attended by close to 1,000 guests consisting of both local and overseas customers, suppliers and business associates. During the celebration, the Group announced the change of its name from Hup Seng Huat Co. Ltd to HUPSteel Limited and launched its new corporate logo. The new name and logo signified yet another chapter in the history of HUPSteel Limited and its commitment to achieve our mission of Your Preferred Global Total Solution Provider of Steel Products & Services. In conjunction with the 60th anniversary celebration, the Group also rewarded our loyal shareholders with a bonus issue of shares of one for every five existing shares held. A total of 60.3M new shares were issued and listed on the Stock Exchange of Singapore on the 24th January The number of shares in issue hence increased from 301.5M to 361.8M at the end of this exercise. As part of the continuous effort to review its organizational effectiveness, the Group has recently reorganized itself into 3 core divisions namely Steel Business, Business Development and Corporate Services divisions. The new organizational structure will allow the Group to stay focus in its core steel business and yet, at the same time, continue to seek new markets for its products, look out for new and exciting investment opportunities to expand and diversify its business. Lim Kim Thor Chief Executive Officer 1 0 A n n u a l R e p o r t

13 key management staff JOE LIM KIM SAN Mr Joe Lim Kim San, was appointed an Executive Director of Thong Seng Metal Pte Ltd ( Thong Seng ), a wholly owned subsidiary of the Company, since His main responsibility is to assist the Group s Chief Executive Officer in the sales and business operations of Thong Seng. Mr Lim holds a Master in Business Administration (MBA) degree. TEO BOON DAT Mr Teo Boon Dat, is the Sales Manager of the Company. Mr Teo is mainly responsible for domestic sales supplying to various industries such as engineering, trading, shipbuilding and ship repair. Mr Teo also has sales account responsibility for certain customers in Malaysia and Hong Kong. Mr Teo has close to 20 years of sales experience in the industrial hardware business and he has been instrumental in procuring certain large order term contracts from one of the largest local ship building and ship repair companies. Mr Teo joined the Company as a Sales Executive in 1983 and was promoted to Sales Manager since Mr Teo holds a G.C.E. A Level Certificate. CHAI CHO LIM Mr Chai Cho Lim, is the Sales Manager of the Company. Mr Chai is mainly responsible for export sales to markets spanning the South and South East Asia, Middle East and Oceania regions. Mr Chai has more than 14 years of sales experience in the industrial hardware business serving key accounts and customers in the oil and gas industry. Mr Chai joined the Company as a Senior Sales Executive in 1995 and was promoted to Sales Manager in Mr Chai holds a Bachelor of Business Administration degree (major in Marketing) from the National University of Singapore. PHILIP TEO LEONG SENG Mr Philip Teo, is the Marketing Manager of the Company since He is responsible for the marketing, sales and procurement of stainless steel products. His previous experiences included a 2 years stint in Japan and also managing an Anglo- Swedish company responsible for the SEA region. Mr. Philip Teo holds a B.Eng. (Hons) Degree from the University of Glasgow. THOMAS ONG HAN BOON Mr Thomas Ong Han Boon, is the Marketing Manager of Hoe Seng Huat Pte Ltd, a wholly owned subsidiary of the Company. Mr. Ong is involved in sales, marketing and procurement activities of the Company. He is also responsible for new market development and overseeing the sales and marketing team. He has been in the industrial hardware and steel business for over 36 years. Mr. Ong holds a GCE A Level Certificate. LIM HOR SOON Mr Lim Hor Soon, is the Sales Manager of Thong Seng Metal Pte Ltd, a wholly owned subsidiary of the Company. His main responsibility is in sales, marketing and procurement. Mr Lim has been instrumental in maintaining strong account relationship and continuously securing the revolving supply contracts from the Keppel Group of companies over the last 20 years. Mr Lim joined the Company as a Sales Executive in 1963 and was promoted to Sales Manager since LIM KOK WAH As the Head of Logistics, Mr Lim Kok Wah, is responsible for the logistics and warehousing function of the Group. He also assists the General Manager (Sales & Procurement) in procurement of pipe fittings to meet the customers various needs. He first joined the Company as the Corporate Development Manager in December 2001 and was promoted to the Head of Logistics in January Mr Lim has several years of experience in public accounting with one of the Big Four public accounting firms and internal audit experience. Mr Lim is a Certified Public Accountant (CPA) and a Certified Internal Auditor (CIA). Mr Lim holds a Bachelor of Accountancy degree (Honours) from Nanyang Technological University. YAP CHUEN KONG Mr Yap Chuen Kong, joined the Company as the Group Controller. He is in charge of financial reporting, taxation, treasury, internal control systems and corporate advisory matters for the Group and the Company. He started his career with one of the Big Four public accounting firms and has since accumulated years of accounting and management experience from working in other public listed companies and private enterprises. Mr Yap graduated from Nanyang Technological University with a degree in Bachelor of Accountancy (Honours). PECK KIM GEE Mr Peck Kim Gee, joined the Company as a Project Development Manager in His main responsibilities are assisting the Deputy Managing Director in project management, ISO, property related matters and the Group s property business. He is also the appointed Fire Safety Manager for the Group s warehouse. Prior to joining the Company, Mr Peck has several years of experience in public accounting. Mr Peck holds a Bachelor of Business Administration degree in Finance and a Master of Business Administration degree. LAM CHIEW SENG Mr Lam Chiew Seng, is appointed as the Logistic cum Safety Manager for the Group with effect from August Mr Lam is responsible for the day-to-day operation of the Group s logistic functions and is in charge of the Group s safety matters. Previously, he was the Marketing Director of Pressure Products Sdn Bhd, a wholly owned subsidiary of the Company incorporated in Malaysia. Mr Lam holds a G.C.E. O Level Certificate. LUCY LAZAROUS-SIM Ms Lucy Lazarous-Sim is the Human Resource Manager for the Company & its group of Companies since June Prior to joining the Group, she has more than 18 years of experience in the field of Admin & Human Resource, in various industries. Ms Lazarous oversees the full spectrum of HR activities for the Group which includes policies formulation, recruitment, compensation & benefits management, performance management, training & development, industrial relations, succession planning, career management, employee communication and work life balance. Ms Lazarous holds a Diploma in Administrative Management. NG MEI CHOO Ms Ng Mei Choo, joined as Finance and Admin Manager of Pressure Products Sdn Bhd ( Pressure Products ), a wholly owned subsidiary of the Company incorporated in Malaysia, since Her main responsibilities is to assist the Managing Director in overseeing the Company s daily operation relating to financial reporting, taxation, secretarial, human resource and the day-to-day sales and marketing related matters. Ms Ng started her career with a Public Listed Company in Malaysia and has since accumulated years of corporate experiences. Ms Ng holds a Bachelor of Economics (Honours) degree and a Master in Accountancy from University of Malaya, Malaysia. HUPSteel Limited 1 1

14 financial highlights Turnover by Geographical Locations FY2006 FY2005 FY2004 FY2003 FY2002 $ 000 $ 000 $ 000 $ 000 $ 000 Singapore 127, ,019 62,556 24,341 29,393 Malaysia 21,589 28,713 23,400 20,791 7,486 Other South East Asia Countries 27,695 30,207 14,111 6,469 8,963 Other Countries 9,512 14,880 6,917 2,506 2, , , ,984 54,107 48,826 Results of Operation Turnover 186, , ,984 54,107 48,826 Net profit attributable to shareholders 15,729 21,608 13,806 1,400 1,910 Earnings per share (cents) Net asset value per share (cents) Gross dividend per share (cents) 5.125* * Subject to approval by shareholders FY2006 FY2005 FY2004 FY2003 FY2002 $ 000 $ 000 $ 000 $ 000 $ 000 Position Property, plant and equipment 32,949 33,826 34,876 38,493 30,423 Other non-current assets 16,098 14,293 14,271 10,381 21,236 Non-current assets 49,047 48,119 49,147 48,874 51,659 Current assets 109, ,274 78,646 45,121 45,357 Current liabilities 31,710 72,678 21,507 4,477 7,858 Net current assets 77,756 69,596 57,139 40,644 37,499 Non-current liabilities 988 2,218 8, ,163 Net assets 125, ,497 97,557 88,667 87,995 Share capital and Share premium 59,317 59,317 58,289 62,036 61,563 Reserves 842 (1,017) Retained earnings 65,656 57,163 39,173 26,542 26, , ,463 97,462 88,578 87,876 Minority interest , ,497 97,557 88,667 87, A n n u a l R e p o r t

15 corporate governance The Board of Directors of the Group is committed to maintaining the a high standard of corporate governance by complying with the Code of Corporate Governance ( the Code ) reviewed by the Singapore Council on Corporate Disclosure and Governance, whose recommendations to revise the Code have been accepted by the Government in July 2005 ( the revised Code ). This Report describes the Company s corporate governance framework in place with reference to the revised Code and the Best Practice Guide. BOARD MATTERS Principle 1 : The Board s Conduct of its Affairs The Board s primary role is to protect and enhance long-term shareholders value and its primary functions are to establish the corporate and strategic policies of the Group, ensures effective management leadership, proper conduct of the Group s businesses and to monitor the Group s performance. Matters which are specifically reserved for the Board include material acquisition and disposal proposals, major corporate or financial restructuring, strategic business initiatives i.e board policies, strategies and financial objectives of the Group, major fund raising exercises, approving nominations of directors and appointment of key executives, approval for the release of quarterly and full year results, approval of annual audited accounts for the Group and the Directors Report thereto, proposals of dividends and authorization of material interested person transactions and other significant corporate actions. Additionally, the Board delegates and entrusts certain of its functions and powers to Board Committees such as Executive Committee ( EC ), Audit Committee ( AC ), Remuneration Committee ( RC ), and Nominating Committee ( NC ). The EC comprises of Mr Lim Kim Thor (Chairman), Mr Lim Boh Chuan, Mr Lim Yee Kim and Mr Lim Beo Peng. The EC is established principally to assist the Board in making decisions expeditiously and is mainly responsible for planning and strategy, Group policy review, attending to urgent and important business or business of an unusual and extraordinary nature, and any other functions delegated by the Board. The Board comprises of members with strong business credentials, industry knowledge and from various professions such as banking, information technology, financial and the legal profession. The Management regularly furnishes the Board with updates concerning the changes in laws, regulations or accounting standards where they may be applicable and relevant in enabling the Board to carry out its duties and responsibilities properly. To facilitate the effective and efficient discharge of duties and responsibilities, the directors are provided with extensive information on the Group s business activities, strategic directions and policies with regular and timely updates whenever there are any new developments. Newly appointed directors are given briefings by the Management on the Group s business activities, strategic directions, policies and the regulatory environment in which it operates, as well as their statutory and other duties and responsibilities as directors. HUPSteel Limited 1 3

16 corporate governance The Board is scheduled to meet at least four times a year and where necessary, hold additional meetings to address significant issues that may arise. The attendance of the directors at Board and Board committees meetings is as follow. Board Meeting Executive Committee Audit Committee Remuneration Committee Nominating Committee Held Attend Held Attend Held Attend Held Attend Held Attend Tang See Chim (1) Lim Kim Thor Lim Boh Chuan Lim Yee Kim Lim Eng Chong Lim Puay Koon Lim Beo Peng Ong Kian Min (2) (1) Mr Tang See Chim was appointed as the Chairman of the NC on 29th July 2005 and stepped down as Chairman of the RC. Mr Tang remains as a member of the RC. (2) Mr Ong Kian Min was appointed as the Chairman of the RC and a member of the AC and NC on 29th July Principle 2 : Board s Composition and Balance The Board of Directors comprises 8 directors, 2 of whom are independent non-executive and 2 of whom are non independent and non-executive. To comply with the recommendation of The Code with regard to one third of the Board being independent, the Board will continue to actively look for suitable candidates to be appointed as Independent Directors. The NC reviews the independence of each director annually. At each annual general meeting, one-third of the directors are subject to retirement by rotation. However, the Chief Executive Officer shall not while he continues to hold that office be subject to retirement by rotation. Directors who have attained the age of 70 and above are subject to annual retirement and re-appointment in accordance with Section 153(6) of the Companies Act, Cap. 50. Key information about the directors is detailed in the Board of Directors section. The NC is of the view that there is a good balance between the executive and non-executive directors and a strong independent element on the Board to enable an objective judgment of the corporate affairs of the Group by board members. The Board is also of the opinion that its current size and current mix of expertise and experience of its members, as a group, provide core competencies in areas such as accounting and finance, business and management experience, industry knowledge necessary in the discharge of its duties and responsibilities. The Board, through the NC, examines on an on-going basis the size and the composition of the Board to evaluate whether the Board is effective in carrying out its duties. 1 4 A n n u a l R e p o r t

17 corporate governance Principle 3 : Role of Chairman and Chief Executive Officer Mr Tang See Chim is the Non Executive Chairman of the Board of Directors while Mr Lim Kim Thor is the Chief Executive Officer of the Group. The Chairman is responsible for board proceedings in the best interests of the Group. The Chairman ensures that the Board members work together with the Management and that the Board engages Management in constructive discussions on various matters, including strategic issues and business planning processes. The Chief Executive Officer ( CEO ) bears executive responsibility for the Group s business. The CEO oversees the daily running of the Group s operations and is responsible to execute strategies and policies adopted by the Board. Principle 4 : Board membership The NC is made up of members all of whom are non-executive and the majority of whom are independent. The NC, which meets at least once every financial year, comprises three members namely: Tang See Chim (Chairman- Independent non-executive) Ong Kian Min (Independent non-executive) Lim Eng Chong (Non Independent and non-executive) The NC has adopted its terms of reference that describes the responsibilities of its members. The NC is responsible for the identification and selection of new directors. The NC make recommendations to the Board on all Board appointments, review all nominations and re-nominations having regard to directors contributions and past performance (eg. Attendance, preparedness, participation and candour), to assess the effectiveness of the Board as a whole. The NC also determines annually whether or not a director is independent. In considering the appointment of any new director, the NC ensures that the new director possesses the necessary skills, knowledge and experience that could facilitate the Board in the making of sound and well-considered decisions. The directors submit themselves for re-nomination and re-election at regular intervals. Under the Articles of Association of the Company, at each Annual General Meeting one-third of the directors for the time being (or, if their number is not a multiple of three, the number nearest to but not greater than one-third) shall retire from office by rotation, provided that no director holding office as Chief Executive Officer shall be subject to retirement by rotation or to be taken into account in determining the number of directors to retire. The NC has recommended for re-election of Mr Lim Beo Peng as director of the company pursuant to Article 88 at the forthcoming AGM. The NC has also recommended the re-appointment of Mr Tang See Chim as director of the company according to section 153(6) of the Companies Act, Cap 50 at the forthcoming AGM. The Board has accepted the NC s recommendation and the two retiring directors have offered themselves for re-election. The structure, size and composition of the Board are reviewed periodically by the NC to ensure relevance. HUPSteel Limited 1 5

18 corporate governance Principle 5 : Board Performance The NC assesses the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board on an annual basis. In its assessment of the Board effectiveness, the NC takes into consideration the frequency of the Board meetings, the rate at which issues raised are adequately dealt with and the reports from the various committees. In the like manner, the NC is able to assess the contribution of each individual director to the effectiveness of the Board. The NC has conducted a Board s performance evaluation as a whole in FY2006, participated by all directors. The assessment parameters are broadly based on the attendance records at the meetings of the Board and the relevant board committees, intensity of participation at meetings, sense of independence, quality of contributions and workload requirements. Principle 6 : Access to Information The Board has separate and independent access to the Management. Requests for information from the Board are dealt with promptly. The Board is informed of all material events and transactions as and when they occur. The company secretary attends all board meetings and is responsible for ensuring that board procedures are followed. REMUNERATION MATTERS Principle 7 : Procedures for Developing Remuneration Policies Principle 8 : Level and Mix of Remuneration Principle 9 : Disclosure on Remuneration The RC, which meets at least once every financial year, comprises of 4 directors, of which 2 are independent, 1 non executive and 1 executive. The composition of the RC is as follows:- Ong Kian Min (Chairman- Independent non-executive director) Tang See Chim (Independent non-executive director) Lim Kim Thor (Chief Executive Officer) Lim Eng Chong (Non-independent and non-executive) The RC carried out their duties in accordance with the written Terms of Reference. The primary objective of the RC are to make recommendations to the Board on the Group s framework of remuneration for directors and key executives and to determine specific remuneration packages for all the executive directors. The RC is also responsible for administering the Company s Employee Stock Options Scheme. The RC is chaired by an independent non-executive director and the committee has access to expert advice inside and outside the Group for knowledge on executive compensation. 1 6 A n n u a l R e p o r t

19 corporate governance The RC s recommendations are made in consultation with the Chairman of the Board and are submitted for endorsement by the entire Board. The RC takes into account the pay and employment conditions within the industry and in comparable companies, as well as the Company s relative performance and the performance of the individual directors when setting remuneration packages so as to attract, retain and motivate the directors needed to run the Group successfully. All aspects of the remuneration, including but not limited to directors fees, salaries, allowances, bonuses, profit sharing incentives, and benefits in kind are covered in the review by the RC. A proportion of the executive directors remuneration is linked to performance. Remuneration Report Name of Director $500,000 and above Lim Kim Thor Lim Boh Chuan Base Salary (%) Variable Payments (%) Other Benefits (%) Fees (%) Total (%) $250,001 and $500,000 Lim Yee Kim Below $250,000 Lim Beo Peng Lim Eng Chong Lim Puay Koon Tang See Chim Ong Kian Min The Group adopts a remuneration policy for staff comprising a fixed component and a variable component. The fixed component is in the form of a base salary. The variable component is in the form of a variable bonus that is linked to the performance of the Group and of the individual staff. Staff appraisals are conducted once a year. The Employees Share Option Scheme is another element of the variable component to align the interests of staff with that of the shareholders. Details of options granted can be found in the Directors Report. The Board is of the view that disclosure of the remuneration of key management staff who are not directors will be detrimental to the Group s interest because of the very competitive nature of the industry the Group operates in. There is no employee in the Group, being an immediate family member of a director, whose remuneration exceeded S$150,000 during the year. HUPSteel Limited 1 7

20 corporate governance ACCOUNTABILITY AND AUDIT Principle 10 : Accountability The Board account to the shareholders through providing timely information relating to the financial and operations of the Group as well as any issues faced by the Group regularly and as and when required through announcement releases to the SGX-ST. Principle 11 : Audit Committee Principle 12 : Internal Controls The AC comprises 3 directors of whom 2 are independent and 1 non executive and all members have accounting or financial management expertise. The composition of AC is as follows:- Tang See Chim (Chairman- Independent non-executive director) Lim Puay Koon (Non-independent and non-executive director) Ong Kian Min (Independent non-executive director) Details of the functions and responsibilities of the AC are found in the Directors Report. The AC has full access to and co-operation from Management and it meets external and internal auditors without the presence of Company s Management. With the assistance of the external and internal auditors, the AC conducts annual review of all material internal controls. The AC is satisfied that the Group s material internal controls are adequate. The AC confirmed that it has undertaken a review of all non-audit services provided by the external auditors and is satisfied that such services would not, in the AC s opinion, affect the independence of the auditors. Principle 13 : Internal Audit The Group has outsourced the internal audit functions to Messrs Ernst & Young. The internal auditors undertake the following functions and responsibilities in line with the Standards for the Professional Practice of Internal Auditing: review the effectiveness of the Group s material internal controls; provide assurance that key business and operational risks are identified and managed; ensure internal controls are in place and functioning as intended; and ensure operations are conducted in an effective and efficient manner. The Internal Auditor reports directly to the Chairman of the Audit Committee and make recommendations on their findings. 1 8 A n n u a l R e p o r t