EUROPTRONIC GROUP LTD

Transcription

1 Inspiring Success 2008 Annual Report EUROPTRONIC GROUP LTD Co. Reg. No.: K No 80 Marine Parade Road #16-08 Tel: (65) Fax: (65) Website: Enquiry: SO6332_Cover.indd 1 Inspiring Success 2008 Annual Report 4/4/09 2:55:23 PM

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3 Our Work It is important we get back in touch with what Europtronic has always been about - and always will be about - in a very tangible way. Our values underpin our relations with our shareholders, and we bring these values to life in our policies, processes and daily operations. Integrity We only do the right thing for our employees, the company and society as a whole. Our shareholders expect us to manage the company this way, and this continues to anchor our beliefs and behaviours today. Passion This embodies the way our people and management approach their work and is key in achieving the Group s objectives. Innovation We value innovation at work and encourage our people to contribute to the continual improvement of our products, processes and quality control systems.

4 Inspiring People We create a corporate culture in which people are involved as much as possible in decision making and planning. This increases ownership and commitment, retains our best employees, and fosters an environment in which people choose to be motivated and contributing. We believe that only when our people are empowered, will they be both happy and truly inspired.

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6 Inspiring Leadership Traditional models of leadership that have worked so well in the past may not be applicable anymore in today s changed business landscape. We are aware strong leadership in these changing times will be critical to survival, and also essential in inspiring confidence in our people.

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8 Inspiring Vision We are dedicated to operating the company on a sound financial basis that creates maximum value for our shareholders and stakeholders. It is our raison d être, and will continue to serve as an inspiration in the way we create and drive growth.

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10 One of the key initiatives I will be personally leading is developing a bigger pool of talents. Huang Shih-An Chairman Huang Shih-An

11 Chairman s Address Dear Shareholders: ( Europtronic or The Group ) ended the year with a net loss of $6.7 million. Revenue of the Group decreased by 13.8% from $82.0 million in FY2007 to $70.7 million in FY2008. This was largely attributable to the global economic downturn across all industries, which saw a deep plunge in customer orders as a result of overall lower consumer demand. A Changing Business Climate As the business climate continues to be one of tighter economic conditions, the Group will focus strongly on its core businesses of manufacturing and distribution, by providing high quality capacitors, inductors and a wide range of other components to global multinational corporations. Our China strategy will remain intact, and the Group has concrete plans to penetrate deeper into the Chinese market and widen its customer base. New products will be added to the Group s distributed product range to boost its existing product portfolio, which will help to sustain and grow the core capabilities of the distribution division. The manufacturing division will continue to identify and target new industries with better margins. The depth and breadth of the financial crisis in 2008 has called for a shift in our investment priorities. Accordingly, the Group has decided not to proceed with the acquisition of the remaining 75% shareholding of Shanghai Dinghan Biotechnology Co., Ltd. at this moment. The parties are keeping open the option of revisiting the matter at a more opportune time. We will conduct continual review of our investment portfolio in relation to our growth strategy. Ultimately, the aim is to build a stronger position in our core expertise in electronics component manufacturing, and to dispose of existing assets of lower materiality. Back to Basics One of the key initiatives I will be personally leading is developing a bigger pool of talents. Talented employees are central to our growth aspirations. This year, the focus will be on attracting exceptional management talent as well as to retain and develop the identified top performers to attain and maintain the Group s competitive advantage. I agree that people and companies grow together. Companies who are committed to provide maximum growth opportunities to its employees will find that effort reflected in their own growth. As part of the Group s continued emphasis on training and development, a Quality Circle Programme was established in Improving product quality, productivity and boosting staff retention is the aim of this initiative. The Group will continue its mission on improving the quality of management system processes for control over purchasing and inventory, as well as cash and credit management. In view of the rising cost of raw materials, cost-containment continues to be focal point in maintaining the Group s competitive advantage. Rigorous practices in cost management, inventory control and procurement efficiency remain as key priorities for the Group in Besides enhancing these back-end processes, we will also be looking at improving the overall customer service process flow. Dividend The Board has decided not to recommend a final dividend for 2008 in order to be consistent with other cash conservation measures the Group will be undertaking. Acknowledgement As we move into 2009, like most other businesses, we are concerned about the potential impact of the uncertainties that lie ahead. The Group, however, believes pockets of opportunities are still available despite the challenging economic environment. By reshaping its business model to be flexible, adaptive and integrated to meet the fluidity of the market conditions, we will prepare the Group to emerge stronger from this crisis. It remains for me to thank my dedicated colleagues on the Board, who are generous in the provision of their time and talents as well as to the hardworking and brilliant management team and staff, both in Singapore and abroad. Last but not least, I would also like to thank our shareholders for their continued support. 9 Yours sincerely, Huang Shih-An

12 From left to right 1. Chen Wan Shou, Arthur Non-Executive Director 4. Huang Chuang Shueh-Ou Vice Chairman 2. Lim Lee Meng Independent Director 5. Chiu Jin Yi, Cheyne Independent Director 3. Huang Shih-An Chairman

13 Board of Directors Huang Shih-An Chairman One of the Group s co-founders, Mr. Huang was appointed to the Board in November His primary responsibilities include the charting and reviewing of the Group s corporate developments, strategic initiatives, marketing operations, and overseas businesses. Mr. Huang has over 30 years of management experience in the electronic components industry. He holds a Bachelor degree in International Trade and Finance from the Chinese Culture University and an Executive MBA from the National University of Singapore. Huang Chuang Shueh-Ou Vice Chairman One of the Group s co-founders, Mrs. Huang is responsible for the Group s operational and administrative matters as well as investment policies and financial issues. She was appointed to the Board in November In 1999, Mrs. Huang received the Model of Overseas Entrepreneur Award from the China Youth Career Development Association Headquarters, Republic of China. She holds a Diploma in Management from the Singapore Institute of Management. Chen Wan Shou, Arthur Non-Executive Director Mr. Chen Wan Shou, Arthur was appointed as an Executive Director in January 2005 and was re-designated as non-executive director on March 1, He is a member of the Company s Audit, Nominating and Remuneration Committees. Mr. Chen has over 20 years of work experience in top management positions at Motorola. Before becoming the Vice-President and Regional Director for its Southeast Asia Region, he was Vice-President and Global Sales Director for Motorola Semiconductors Consumer Solutions Group. Mr. Chen holds a Master Degree in Solid States Science from National Chiao Tung University in Taiwan. Chiu Jin Yi, Cheyne Independent Director Mr. Chiu was appointed to the Board in March He is currently Chairman of the Company s Nominating and Remuneration Committees, as well as a member of the Audit Committee. Prior to his retirement in 2000, Mr. Chiu was the Taiwan representative to Singapore from 1994 to 1996, and the Minister for Civil Service of Taiwan from 1996 to He holds a Bachelor degree in Law from the National Cheng-Chi University and an Executive MBA from the National University of Singapore. Lim Lee Meng Independent Director Mr. Lim was appointed to the Board in March He is Chairman of the Company s Audit Committee, as well as a member of the Nominating and Remuneration Committees. Mr. Lim also holds independent directorships in several public listed companies in Singapore, including Datapulse Technology Limited, Teckwah Industrial Corporation Ltd and Tye Soon Ltd. He is currently a senior partner of an accounting firm and has more than 20 years experience in the industry. Mr. Lim has a Bachelor of Commerce degree from Nanyang University, a diploma in Business Law from the National University of Singapore, and a MBA degree from Hull University. 11

14 Senior Management Justin Huang Chien-Hung Justin Huang Chien-Hung is Chief Executive Officer for the Group. Mr. Huang leads and motivates the management team to achieve corporate targets and manage budgetary control. Mr. Huang s responsibilities include strategic planning and exploring new business opportunities and strategic alliances, as well as enhancing and developing new and existing business. Mr. Huang holds a Degree in Electronic and Electrical Engineering from the University College of London, United Kingdom. Tan Chee Kong Timothy Tan Joo Kwang Timothy Tan Joo Kwang is Vice President of Marketing (Greater China) for the Components Distribution Business Unit (CDBU). He joined the company in 2001, bringing more than ten years of experience in product marketing, channel management and business development in the electronics industry. He is responsible for driving the overall marketing activities of CDBU s product lines in the Greater China region. He was previously from SGS Thomson Microelectronic, and served with the Republic of Singapore Air Force for six years. Mr. Tan holds a Diploma in Electronics and Communication Engineering from Singapore Polytechnic. 12 Tan Chee Kong is General Manager of the Components Manufacturing Business Unit (CMBU). He is responsible for the overall day-to-day operations of the Group s manufacturing facilities in Suzhou and Shenzhen. He was previously Group Information Technology Director, responsible for planning, designing and implementing IT infrastructure and systems. Mr. Tan holds a Bachelor Degree in Commerce, Information Technology and Systems from Curtin University in Australia. Chen Kun Chi Chen Kun Chi is General Manager of Housing Technology Corp, a wholly-owned subsidiary of Europtronic Group. He has over 20 years of research and working experience in the field of ferrite development and production management. From 1980 to 1991, Mr. Chen accumulated significant research experience by working for Taiwan s Industrial Technology Research Institute, a well-known research establishment in Taiwan. Previously, he held research and development and sales positions in Chilisin and Mag. Layers. Charis Guo Chun Hua Charis Guo Chun Hua serves as Vice President of Sales (Greater China) for the Components Distribution Business Unit (CDBU). With over ten years experience in the electronics industry, his responsibilities include developing growth and sales strategies, as well as setting of business development goals and objectives for the Greater China region. Prior to joining Europtronic, Mr. Guo held various engineering and sales positions at Honeywell and Motorola. Mr. Guo graduated from China Electronic Science & Technology University with a major in telecommunication engineering. He is a current student of the Executive MBA programme at Tsinghua University in China. Donna Huang Yun Ju Donna Huang Yun Ju serves as Group Human Resources Director. She guides and manages the overall provision of human resources services, policies and programmes for the Group. Ms. Huang works with the management in providing a high performance culture that emphasises empowerment, quality, productivity and the ongoing development of a talent pool. Mr. Chen holds a Master degree from National Cheng Kung University in Taiwan. Ms. Huang graduated from Lancaster University, UK, with a BSc (Hons) in management, and has a Washington-Fudan Executive MBA from the Olin School of Business at Washington University in the US.

15 Corporate Profile Europtronic Group, a SGX-listed company headquartered in Singapore, has key businesses in electronic components manufacturing and distribution, and a rapidly-growing biotechnology unit. Originally established in 1977 as Taiwan CTI Industrial Corporation, Europtronic has grown from a trading company into an integrated manufacturer and distributor of electronic components. The company produces its own brand of film capacitors at two state-of-the art factories located in Shenzhen and Suzhou, in the People s Republic of China. These products include metallized and non-metallized polypropylene film capacitors, and metallized polypropylene film capacitors for AC circuits (X2). It also produces chip inductors and chip beads via its 82.97% wholly-owned subsidiary Housing Technology Corp. in Hsinchu, Taiwan. In addition, the Group distributes other various active and passive components for established international brands, including AVX, Sharp, Micro Crystal, Tyco, JST and Semikron. These include products such as aluminum electrolytic and MLCC capacitors, opto-electronic devices such as transmitters and receivers, flat panel displays, base-band crystals, connectors, and diodes. Europtronic Green Energy, established in 2008, is now one of the leading plantlet propagators in Asia. Using biotechnology, the unit specialises in the tissue culturing of fuel crop seedlings and ornamental plantlets. Based in Singapore, it is also one of the select few companies to start breeding and propogating clonal Jatropha seedlings and plantlets in China for clients across Asia Pacific region. The Group has a strong geographical presence in the People s Republic of China, as well as offices in Singapore, Beijing, Hong Kong, London, Shanghai, Shenzhen, Taipei, Tianjin, Chengdu and Xiamen. In 2002, Europtronic was officially listed on the main board of the Singapore Stock Exchange (SGX) under the symbol ETGL. 13

16 Financial Highlights Turnover (S$m) Profit After Tax (S$m) (10) (9.3) 0.2 (6.7) Earnings Per Share (Cents) 4.0 Net Tangible Assets Per Share (Cents) (3.0) (2.72) 0.05 (1.87) NTA & EPS for 2003, and 2004 are adjusted for 5:4 Bonus Share Issue in May 2004 * Restated after adoption of revised Financial Reporting Standard ( FRS )

17 Group Structure 100% Europtronic (H.K.) Company Limited 100% Europtronic Electronic (Shenzhen) Co., Ltd 100% Europtronic (Suzhou) Co., Ltd 100% Europtronic Investment Pte Ltd 100% Europtronic (Singapore) Pte Ltd 100% Crypson Electronics (S) Pte Ltd 100% Crypson Electronics (HK) Co., Limited 100% Crypson Electronics (Shanghai) Pte Ltd 100% 15 Europtronic (Taiwan) Ind. Corp 100% Housing Technology Corp. 83% UPT Component (S) Pte Ltd 100% UPT Crypson Component (Shanghai) Co., Limited 100% Europtronic Green Energy Pte Ltd 100% Europtronic Technology (Suzhou) Co., Ltd 100%

18 Global Network Suzhou Beijing Tianjin London Shanghai Taipei Hsinchu Xiamen 16 Singapore Shenzhen Hong Kong Chengdu

19 Operations Review Manufacturing Division The revenue contribution to the Group from the manufacturing division in FY2008 was $24.0 million or 34%. Compared to FY2007, there was a decrease in revenue coupled with a decrease in gross profit. Revenue declined by 6.5%. In an environment of escalating operational costs, with raw material prices at historic highs, rising labour costs and increasingly competitive electronic components industry, the Group s strategic decision to focus on research and development (R&D) in 2008 has paid off had been a harvest year in terms of R&D achievements for the manufacturing division. We have successfully eliminated halogenated compounds from our major product lines. This reflects the Group s ongoing dedication to providing our customers with products that meet environmental guidelines such as RoHS regulations, as well as Halogen-free or Green mold compound needs. It is our intent to provide products which are best-in-class in both reliability and quality meeting the exact requirements our customers value. One significant R&D milestone achieved in 2008 is the development of a new Axial-Type Metallized Polyester Film Capacitor (MPHT series) which delivers less noise interference. This low noise design feature not only enhances the quality of our capacitors, but also directly passes on cost savings to customers in the way of the lesser need for other noise-correcting components. Another new product we have successfully developed is a high voltage (450~500V) MPH/DMPE series of capacitor, which is not only superior in its noise-reduction feature but also in its compact size. 17

20 Operations Review The Group will continue its long-term approach to product innovation and is expecting a strong flow of research and development milestones moving forward. In the R&D pipeline: MPX Pitch 7.5 Safety Capacitor (mini series) - a smaller sized safety capacitor, suitable for across the-line capacitors, EMI (electromagnetic interference) filters and spark killer circuits. Metallized polypropylene film AC motor capacitor (450VAC) - widely used for starting and running of AC single-phase motors at 50Hz/60Hz frequency power, with self-healing properties and extremely stable and reliability performance. Snubber capacitor for IGBTs (Isolated Gate Bipolar Transistors) - widely used in high voltage, high frequency circuit. We also managed to obtain widely accepted international product safety standards UL-approved and VDE Certification Marks for our 305V Safety Capacitor MPX2 series. This commitment to continual product quality and high safety standards is not surprising, given the strong quality-oriented work practice we emphasise at all our three manufacturing facilities. New business was secured with large organisations such as Delta Electronics, PowerNet and Innolux. The growth potential we had earlier identified in Power Industry proved rewarding, with its revenue contribution now occupying 28% of our total revenues in the manufacturing division. We will continue to identify new strategic partnerships, as well as target new industries to widen our customer base. The Group s ability to obviate the fluctuations of manufacturing cyclicality clearly demonstrated over recent years will be challenged further in 2009 by the global economic downturn and a tougher cost landscape. We will continue with our rigorous cost management practices, and work closely with our OEM (Original Equipment Manufacturer) partners. With our focused product portfolio and long pedigree of innovation, the Group is ready to be tested on its resilience to weather the difficult times ahead. 18

21 Operations Review Distribution Division 2008 had been an eventful year for the Group s distribution division. We were off to a good start at the beginning of 2008; however when effects of the economic slowdown kicked in, an overall decline in revenue of 17.1% from S$56.4 million in FY2007 to S$46.7 million in FY2008 was registered. and NCC (Nippon Chemi-Con) products in China, the Group s share of market in the non-consumer/ industrial segment has expanded. This foray is in line with the Group s wider strategy to continue steer growth by entering new markets, identifying new suppliers and hence increasing overall gross profit margins. With the aim of accelerating the overall sales process and enhancing the customer purchasing experience, the distribution division underwent a reorganisation exercise during the year. Excellent progress was made customer satisfaction rate has gone up and repeat customer orders represented 80 percent of the total orders in FY2008. As a further testament to the division s commitment in operational excellence, the Group s wholly-owned subsidiary, UPT Crypson Component (Shanghai) Co., Limited, adopted ISO9000 as a model for quality assurance and obtained ISO9001:2000 certification in July The Group was also awarded a 2-year renewal of the Sony Green Partner (GP) Certification, for a second consecutive time. With Nihon Inter Electronics Corporation (NIEC) also on board as one of our principal suppliers, the distribution division has now an optimal mix of product and service offerings that will meet the immediate demands of our existing and potential customers. Moving forward, the Group s China strategy remains intact. The distribution division will continue consolidating its foothold in the world s fastest growing market by penetrating deeper into the Chinese market in Strengthening of its sales force, especially in Taiwan and Hong Kong, is also in the planning pipeline. The Group will continue to increase its distributed product range by adding new products this year to its existing product portfolio that will help sustain and grow the core capabilities of the distribution division. We responded to the industry s price-competitive nature by venturing beyond the traditional consumer segments. Now as a preferred distributor for Semikron The global woes expected for the industry in 2009 may be already looming, but the Group believes pockets of revenue opportunities are still available. 19 Breakdown by Business Activities Revenue 2008 Distribution 66% Manufacturing 34% Revenue 2007 Distribution 69% Manufacturing 31%

22 Financial Review 20 Group revenue decreased by S$11.3 million or 13.8% from S$82.0 million in FY2007 to S$70.7 million in FY2008. The decrease was mainly due to the global economic downturn across all industries, which saw a deep plunge in customer orders as a result of overall lower consumer demand. The Group registered a decrease in gross profit of S$7.3 million or 59.8% to S$4.9 million in FY2008, compared with S$12.2 million in FY2007. Group gross profit margin decreased by 7.9% to 6.9% in FY2008 from 14.8% in FY2007. This substantial reduction in gross profit and gross profit margin was predominantly due to the Group s decision to lower overall gross profit margin in a bid to secure more customer orders and to clear existing inventories. Other operating income increased by S$2.2 million. Included in this operating income was negative goodwill of S$1.6 million arising from the acquisition of associated company, Dinghan Biotechnology Co Ltd. Selling and distribution expenses decreased by S$0.4 million or 10.3%. Other operating expenses increased by S$2.7 million. This was due to a provision of S$1.2 million made for inventory obsolescence, as part of the Group s latest policy for impairment of inventory in FY2008. S$1.5 million of inventory was written off due to a fire incident in Housing Technology Corp. Ltd, a subsidiary of the Group. Administrative expenses remained in check. Finance costs decreased by 20.7% due to a decrease in interest rate from 5.8% to an average at 5.2%. Inventory decreased by S$2.8 million as a result of our strategy to lower inventory on hand and Group s new policy for allowance for impairment of inventory. Trade payables decreased by S$8.6 million which was due to decrease in purchases. Trade receivables decreased by S$8.0 million to S$17.3 million which was due to decrease in sales. Total borrowings increased from S$43.5 million in FY2007 to S$48.9 million in FY2008 due to higher utilisation of banking facilities for trade financing purposes. The decrease in cash and bank balances was due mainly to settlement of trade payables which decreased from S$19.1 million in FY2007 to S$10.5 million in FY2008. There was a net current liabilities as at FY2008. This was partly due to a significant drop in the share price of a financial asset available-for-sale, and an increase in bank borrowings.

23 Corporate Information BOARD OF DIRECTORS Mr. Huang Shih-An Chairman Mrs. Huang Chuang Shueh-Ou Vice Chairman Mr. Chen Wan Shou, Arthur Non-Executive Director Mr. Chiu Jin Yi, Cheyne Independent Non-Executive Director Mr. Lim Lee Meng Independent Non-Executive Director SHARE REGISTRAR Boardroom Corporate & Advisory Services Pte. Ltd. 3 Church Street #08-01 Samsung Hub Singapore Tel : (65) Fax : (65) COMPANY SECRETARIES Hazel Chia Luang Chew Juliana Tan Beng Hwee AUDIT COMMITTEE Mr. Lim Lee Meng (Chairman) Mr. Chiu Jin Yi, Cheyne (Member) Mr. Chen Wan Shou, Arthur (Member) NOMINATING COMMITTEE Mr. Chiu Jin Yi, Cheyne (Chairman) Mr. Lim Lee Meng (Member) Mr. Chen Wan Shou, Arthur (Member) REMUNERATION COMMITTEE Mr. Chiu Jin Yi, Cheyne (Chairman) Mr. Lim Lee Meng (Member) Mr. Chen Wan Shou, Arthur (Member) AUDITORS Nexia TS Public Accounting Corporation Public Accountants and Certified Public Accountants 5 Shenton Way #23-03 UIC Building Singapore Tel : (65) Fax : (65) Kristin YS Kim Director-in-charge (Appointed since financial year ended 31 December 2008) REGISTERED OFFICE 80 Marine Parade Road #16-06, Parkway Parade Singapore Tel : (65) Fax : (65) BUSINESS ADDRESS 80 Marine Parade Road #16-08 Parkway Parade Singapore Tel : (65) Fax : (65) IR Contact Investor Relations Consultant Mr. Michael Tan Tel : (65) michael@spin.com.sg 21

24 Corporate Governance Report The Board of Directors (the Board ) and Management of (the Company ) are committed to high standards of corporate governance by complying with specific reference to the principles and guidelines as set out in the Code of Corporate Governance 2005 ( Code ). Corporate Governance refers to the processes by which corporate affairs are directed and managed with the objective of enhancing long-term shareholder s value through improving corporate performance and accountability. Fundamentals of good corporate governance include timely and reliable financial reporting, transparent and efficient management, and respect for stakeholders such as employees, shareholders and customers. The approach of the Company and its group of companies (collectively refer to as the Group ) in 2008 remains unchanged. The Company strives to subscribe to the principles and guidelines as set out in the Code where applicable, feasible and practical to the Group. (A) Board Matters Board s Conduct of its Affairs The Board is collectively responsible for the success of the Group. The Board works with Management to achieve this and Management remains accountable to the Board. Role of the Board of Directors The Board s primary role is to protect and enhance long-term shareholder s value. It sets the overall strategy for the Group and supervises executive management. To fulfill 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. 22 Matters Requiring Board Approval The directors have identified a number of areas in which the Board has direct responsibility for decision-making. The Board considers and approves the following corporate events and actions including, but not limited to: Approval of quarterly, half-yearly and full-year results announcements; Approval of the annual report and accounts; Declaration of interim and proposal of final dividends; Convening of shareholders meetings; Approval of corporate strategies; and Material acquisitions and disposal of assets. Matters which are specially reserved to the Board for decision are those involving material acquisitions and disposal of assets, corporate or financial restructuring and share issuances, dividends and other returns to shareholders. All other matters are delegated to Board committees whose actions are reported and monitored by the Board. Board Processes The Board meets at least four times a year and as and when deemed necessary. The Company s Articles of Association provide for meetings to be held via a conference telephone, video conferencing or other similar means of communications. To assist in the execution of its responsibilities, the Board has established an Audit Committee ( AC ), a Nominating Committee ( NC ), and a Remuneration Committee ( RC ). These committees function within its clearly defined terms of reference and operating procedures, which are reviewed as and where appropriate. Details of the AC, NC and RC are set out on pages 29, 24 and 26 of this Annual Report respectively.

25 Corporate Governance Report Training of Directors The Group provides extensive background information about its history, mission, and values to its Directors. The directors also have the opportunity to visit the Group s operational facilities and meet with Management to gain a better understanding of its business operations. The Group also has an on-going training budget for its directors to attend industry conferences and seminars whenever necessary. This budget may be utilised by each director subject to approval by the Chairman.Newly appointed directors would also be given training appropriate to the level of their past working experience. During the financial year under review, there were no new appointments of directors. The Company relies on directors to update themselves on new laws, regulations and changing commercial risks. Board Composition and Balance The Board comprises five directors, two of whom are executive directors, two are independent non-executive directors and a non-executive director. The two independent non-executive directors are Mr. Lim Lee Meng and Mr. Chiu Jin Yi, Cheyne. The criterion of independence is based on the definition given in the Code. The Board considers an independent director as one who has no relationship with the Company, its related companies or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director s independent judgment of the conduct of the Group s affairs. With two of the directors deemed to be independent, the Board is able to exercise independent judgment on corporate affairs and provide Management with a diverse and objective perspective on issues. Furthermore, the Board will be able to interact and work with Management through a robust exchange of ideas and views to help shape the Group s strategic direction. The composition of the Board is reviewed regularly by the NC to ensure that the Board has the appropriate mix of expertise and experience, and collectively possess the necessary core competencies for effective functioning and informed decision-making. When a vacancy arises under any circumstances, or where it is considered that the Board would benefit from the services of a new director with particular skills, the NC, in consultation with the Board, determines the selection criteria and selects candidates with the appropriate expertise and experience for the position. The NC had adopted a process for selection and appointment of new directors. This provides the procedure for identification of potential candidates, evaluation of candidates skills, knowledge and experience, assessment of candidates suitability and recommendation for nomination to the Board. The non-executive directors constructively challenge Management and assist in the development of proposals on strategy. 23 The profiles of the directors are set out on page 11 of this Annual Report. Their shareholdings in the Company are also disclosed on page 33 of the Report of the Directors. The Board and NC are of the view that the current size of the Board is appropriate taking into account the scope and nature of operations of the Group. Chairman and Chief Executive Officer ( CEO ) Currently, the roles of the Chairman and CEO are separated to ensure an appropriate balance of power, increased accountability and greater capacity to the Board for independent decision making. There is a clear division of responsibilities between the Chairman and CEO. Mr Huang Shih-An, as Executive Chairman of the Group, manages the business of the Board and in consultation with the Executive Directors, sets Board meetings at appropriate intervals during the year. The Executive Chairman is also responsible for the workings of the Board and ensures the integrity and effectiveness of the governance process of the Board.

26 Corporate Governance Report In addition to the day-to-day running of the Group, the CEO is also responsible for charting and reviewing the Group s corporate directions and strategies, which cover areas of marketing and strategic alliances. All major decisions made by the Executive Chairman and CEO are endorsed by the Board. Their performance and appointments to the Board as appropriate are reviewed periodically by the NC and their remuneration packages are reviewed periodically by the RC. The NC and RC comprise a majority of independent non-executive directors. The Board believes that the independent non-executive directors have demonstrated high commitment in their role as directors and have ensured that there is a good balance of power and authority. As such, the Board believes that there are adequate safeguards in place against an uneven concentration of power and authority in a single individual. Mr Huang Chien Hung, CEO of the Group, is the son of Mr Huang Shih-An, Executive Chairman of the Group. The Board is of the view that as there is adequate representation of independent non-executive directors (more than one-third) on the Board, the appointment of a lead independent director is deemed not necessary. However, the Board will review, from time to time, the need to appoint a lead independent director. Board Membership Nominating Committee ( NC ) The NC comprises three members, namely, Mr. Chiu Jin Yi, Cheyne (Chairman), Mr. Lim Lee Meng and Mr. Chen Wan Shou, Arthur. Mr. Lim Lee Meng is an independent non-executive director and Mr. Chen Wan Shou, Arthur is a non-executive director. The NC is chaired by Mr. Chiu Jin Yi, Cheyne an independent non-executive director not associated with any substantial shareholder. 24 The responsibilities of the NC are to develop and maintain a transparent and formal process for the appointment of new directors, to review and recommend directors retiring by rotation for re-election at annual general meeting as well as to review and evaluate the Board s performance. In addition, the NC also performs the following functions: (a) To make plans for succession, in particular for the Chairman and CEO (b) To determine, on an annual basis, if a director is independent. (c) To decide whether or not a director is able to and has been adequately carrying out his/her duties as a director of the Company, particularly when he/she has multiple board representations. The NC shall recommend to the Board internal guidelines to address the competing time commitments faced by directors who serve on multiple boards. (d) To assess the effectiveness of the Board as a whole and for assessing the effective contribution and commitment of each individual director to the effectiveness of the Board. The results of the performance evaluation will be reviewed by the Chairman of the NC. (e) To make recommendations to the Board for the continuation (or not) of services of any director who has reached the age of seventy (70) years, where appropriate. The NC had reviewed the independence of each director for FY2008 in accordance with the Code s definition of independence and is satisfied that one-third of the Board comprised independent non-executive directors.

27 Corporate Governance Report The directors who are retiring and who, being eligible, will offer themselves for re-election at the forthcoming Annual General Meeting ( AGM ) are named below: Name of director Date of first appointment Date of last re-election Director due for re-election / re-appointment Mr. Huang Shih-An 18 November April 2007 Retiring under Article 89 Mrs. Huang Chuang Shueh-Ou 18 November April Mr. Chiu Jin Yi, Cheyne 12 March April 2008 Retiring under Section 153(6) of the Companies Act, Cap.50 Mr. Lim Lee Meng 12 March April Mr. Chen Wan Shou, Arthur 13 January April 2007 Retiring under Article 89 The directors submit themselves for re-nomination and re-election at regular intervals of at least once in every three years. In accordance with the Company s Articles of Association, each director is required to retire from office at least once every three years by rotation and all newly appointed directors will have to retire at the next AGM following their appointments. The retiring directors are eligible to offer themselves for re-election. In accordance with Section 153(6) of the Companies Act Cap.50, a director over 70 years of age is required to vacate office every year. The director is eligible to offer himself for re-appointment. The NC had recommended the re-election and re-appointment of the following directors respectively who will be retiring at the forthcoming AGM: (i) Mr Huang Shih-An (ii) Mr Chen Wan Shou, Arthur (iii) Mr Chiu Jin Yi, Cheyne The Board has also accepted the NC s recommendation and accordingly, the above-mentioned directors will be offering themselves for re-election and re-appointment respectively. Board Performances The NC has established a process for assessing the effectiveness of the Board as a whole. It considers a set of quantitative and qualitative performance criteria in evaluating the Board s performance. A Board performance evaluation was carried out to assess and evaluate the Board s size, composition and expertise, the Board s access to information, as well as Board accountability and processes. The Board and the NC ensure that directors appointed to the Board possess the experience, knowledge and skills critical to the Group s business, so as to enhance the core competencies of the Board. 25 Directors Attendance at Board and Board Committee Meetings in FY 2008 Name of Directors No. of meetings held Board No. of meetings attended Audit Committee No. of meetings held No. of meetings attended Nominating Committee No. of meetings held No. of meetings attended Remuneration Committee No. of meetings held No. of meetings attended Mr. Huang Shih-An Mrs. Huang Chuang Shueh-Ou Mr. Chen Wan Shou, Arthur Mr. Chiu Jin Yi, Cheyne Mr. Lim Lee Meng

28 Corporate Governance Report Access to Information The directors are from time to time furnished with detailed information concerning the Group to enable them to be fully aware and understand the decisions and actions of Management. They have unrestricted access to the Group s records and information. Detailed Board papers are prepared for each Board meeting and are normally circulated to the directors before the meeting. The Board papers include sufficient information from Management on financial, business and corporate issues to enable the directors to be properly briefed on issues to be considered at Board meetings. Analysts reports on the Group are also forwarded to the directors on an on-going basis as and when received by Management. The directors have independent access to the Company Secretary and senior management of the Group at all times in carrying out their duties. The Company Secretary attends all Board and Board committee meetings and is responsible for ensuring that the established procedures, all the relevant statutes, and regulations that are applicable to the Company are complied with. Each director has the right to seek independent legal and other professional advice concerning any aspect of the Group s operations and undertakings, as required, in order to fulfill their duties and responsibilities as directors. Any expense incurred in this regard will be borne by the Group. (B) REMUNERATION MATTERS 26 Procedures for Developing Remuneration Policies Remuneration Committee ( RC ) The RC comprises three members, namely, Mr. Chiu Jin Yi, Cheyne (Chairman), Mr. Lim Lee Meng and Mr. Chen Wan Shou, Arthur. Both Mr. Chiu Jin Yi, Cheyne (Chairman) and Mr. Lim Lee Meng are independent non-executive directors and Mr. Chen Wan Shou, Arthur is a non-executive director. The RC reviews the framework of remuneration policies and packages for directors, the CEO, senior management of the Group and employees related to directors and controlling shareholders of the Group. The review covers all aspects of remuneration, including directors fees, salaries, allowances, bonuses, performance shares, options and benefits-in-kind. The review of the remuneration packages takes into consideration the industry standards, performance-related elements and the job scopes and levels of responsibility of the individual. The RC s recommendations are submitted for endorsement by the entire Board. The members of the RC have many years of corporate experience and are knowledgeable in the field of executive compensation. However, the RC has access to external professional advice on remuneration and human resource related matters, if required. Europtronic Employees Share Option Scheme (the Share Option Scheme ) The Share Option Scheme, administrated by the RC, covered confirmed employees, associates of substantial shareholders and any director (including non-executive and independent directors) except for those who are the Company s substantial shareholders or any employee who has been selected by RC. Details of the Share Option Scheme are set out on pages 34 and 35 of this Annual Report under the Report of the Directors. No share options were offered and granted by the RC in FY2008.

29 Corporate Governance Report Performance Share Scheme (the Scheme ) The purpose of adopting the Scheme in addition to the existing Share Option Scheme is to give the Group greater flexibility to align the interests of employees, especially key executives, with those of shareholders as well as to reward, retain and motivate employees to achieve superior performance. Under the Scheme, awards represent the right of a Participant to receive fully paid ordinary shares in the Company ( Shares ) free of charge, upon the Participant achieving prescribed performance targets. The selection of a Participant and the number of Shares which are the subject of each award to be granted to a Participant in accordance with the Scheme shall be determined at the absolute discretion of the RC, which shall take into account criteria such as his rank, job performance, years of service and potential for future development, his contribution to the success and development of the Group and the extent of effort required to achieve the performance target within the performance period. Details of the Scheme are set out under page 35 of this Annual Report. No Shares were granted by the RC under the Scheme in FY2008. Level and Mix of Remuneration In setting remuneration packages, the Group takes into account pay and employment conditions within the same industry and in comparable companies, as well as the Group s relative performance and the performance of individual director and the CEO. The independent non-executive and non-executive directors receive directors fees, in accordance with their contributions, taking into account factors such as effort and time spent, responsibilities of the directors and the need to pay competitive fees to attract, retain and motivate the directors. Directors fees are recommended by the Board for approval at the Company s AGM. The remuneration for the executive directors, the CEO and the key senior management comprise a basic salary component and a variable component which is the annual bonus, based on the performance of the Group as a whole and the individual performance. The annual reviews of the compensation of directors are carried out by the RC to ensure that the remuneration of the executive directors, the CEO and senior management commensurate with their performance, giving due regard to the financial and commercial health and business needs of the Group. The performance of the CEO (together with other senior management) is reviewed periodically by the RC and the Board. 27 Disclosure of Remuneration On 12 March 2002, the Company entered into separate service agreements with the executive directors, Mr. Huang Shih-An and Mrs. Huang Chuang Shueh-Ou. The service agreements do not have an expiry date as they were entered prior to the Company s admission to the SGX-ST on 5 April 2002 but may be terminated by either party upon giving not less than six (6) months notice in writing. The service agreements may also be terminated if any of the executive directors commits a breach of the service agreements, such as being convicted of an offence involving fraud or dishonesty or being adjudicated bankrupt. For competitive reasons, the Group is not disclosing each individual director s remuneration. Instead, the bands of remuneration in FY2008 are disclosed in the compensation table below: Remuneration Band No. of directors Salary (%) Profit Sharing (%) Directors fees (%) S$250,000~S$500, Below S$250, Total (%)

30 Corporate Governance Report Remuneration of Employees Related to a Director or the CEO and Top 6 Key Executives As at 31 December 2008, there were 5 employees who are related to a Director or the CEO. These 5 employees were: Mr. Huang Hsuan-Chin (1), Ms. Huang Chung-Huei (2), Ms. Huang Yun Ju (3), Mr. Huang Chien-Hung (4) and Mr. Tan Chee Kong (5) all of whom are executive officers. The basis of determining the remuneration of these related employees is the same as the basis of determining the remuneration of other unrelated employees. For the year under review, the remuneration of each related employee is below S$150,000. Adjustments to the remuneration packages for the related employees are reviewed annually by the RC to ensure that they are in line with the Group s staff remuneration guidelines and commensurate with their job scope and level of responsibility. In the event that a member of the RC is related to the employee under review, that member will abstain from the review accordingly. As at 31 December 2008, the Group s top 6 key executives (who are not directors of the Company) were: Mr. Chen Kun Chi, Mr. Timothy Tan Joo Kwang, Mr. Charis Guo Chun Hua, Ms. Huang Yun Ju (3), Mr. Huang Chien-Hung (4) and Mr. Tan Chee Kong (5) (1) Mr. Huang Hsuan-Chin is a relative of Mr. Huang Shih-An, Executive Chairman, Mrs. Huang Chuang Shueh-Ou, Vice Chairman, and Mr. Huang Chien-Hung, CEO. (2) Ms. Huang Chung-Huei is a relative of Mr. Huang Shih-An, Executive Chairman Mrs. Huang Chuang Shueh-Ou, Vice Chairman, and Mr. Huang Chien-Hung, CEO (3) Ms. Huang Yun Ju is an immediate family member of Mr. Huang Shih-An, Executive Chairman, Mrs. Huang Chuang Shueh-Ou, Vice Chairman, and Mr. Huang Chien-Hung, CEO. 28 (4) Mr. Huang Chien-Hung is the Group s CEO and an immediate family member of Mr. Huang Shih-An, Executive Chairman, and Mrs. Huang Chuang Shueh-Ou, Vice Chairman. (5) Mr. Tan Chee Kong is a relative of Mr. Huang Shih-An, Executive Chairman, Mrs. Huang Chuang Shueh-Ou, Vice Chairman, and Mr. Huang Chien-Hung, CEO. The table below sets out the band of gross remuneration received by the top 6 key executives (who are not directors) of the Group in FY2008: Remuneration band FY2008 FY2007 S$250,000~S$500, Below S$250, (*) * The Group s top 5 key executives (who are not directors of the Company) in FY2007 were: Mr.Khoo Eng Hock Peter, Mr. Wu Hong Liang, Mr. Huang Chien-Hung, Ms. Huang Yun Ju and Mr. Tan Chee Kong. (C) Accountability and Audit Accountability In presenting the quarterly, half-yearly and full-year announcements and annual financial statements to shareholders, the Board aims to provide the shareholders with a detailed analysis, explanation and assessment of the Group s financial position and prospects. In addition, Management provides to the executive directors monthly management accounts, which show the Group s performance, position and prospects.

31 Corporate Governance Report Audit Committee ( AC ) The AC comprises three members, namely Mr. Lim Lee Meng (independent non-executive director), Mr. Chiu Jin Yi, Cheyne (independent non-executive director) and Mr. Chen Wan Shou, Arthur (non-executive director). The AC is chaired by Mr. Lim Lee Meng, an independent non-executive director. The Board is of the view that the AC members have adequate accounting or related financial management expertise and experience to discharge the AC s functions. The AC meets at least 4 times a year and as and when deemed necessary to discuss and review with the external auditors and Management, the Group s accounting, auditing and financial reporting matters so as to ensure that an effective control environment is maintained. The AC monitors proposed changes in accounting policies, reviews the internal audit functions and discusses the accounting implications of major transactions. Specifically, the AC: reviews the audit plans (including the nature and scope of the audit before the audit commences) and evaluates their overall effectiveness through regular meetings with the internal and external auditors; reviews and recommends to the Board the re-appointment of external auditors; reviews the scope and results of the internal audit procedures including the effectiveness of the internal audit functions; evaluates the adequacy of the internal control systems of the Group by reviewing management letter from the internal and external auditors, and the management s responses and actions to correct any deficiencies; evaluates the adherence to the Group s administrative, operating and internal accounting controls; reviews the quarterly, half-yearly and full year announcement and annual financial statements to shareholders before submission to the Board for adoption; reviews interested person transactions in accordance with the requirements of the Listing Manual of the SGX-ST to ensure that they are on normal commercial terms and not prejudicial to the interests of the Company and its minority shareholders; reviews all non-audit service provided by the external auditors to determine if the provision of such service would affect the independence of the external auditors; and 29 considers, if any, matters as requested by the Board. The AC is authorised to investigate any matter within its terms of reference and has full access to Management and resources, which are necessary to enable it to discharge its functions properly. The Company has in place a whistle-blowing programme where employees may, in confidence, report possible improprieties which may cause financial loss or non financial loss of the Company. The objective is to ensure that arrangements are in place for the independent investigations of such concerns and for appropriate follow-up action. Annually, the AC meets with the external auditors separately, without the presence of Management. This is to review the adequacy of audit arrangements, with particular emphasis on the observations of the auditors, the scope and quality of their audits and the independence and objectivity