HG Metal Manufacturing Limited 30 Jalan Buroh Buroh Singapore Tel: Fax:

Transcription

1 H G M E TA L M A N U FA C T U R I N G L I M I T E D A N N U A L R E P O R T HG Metal Manufacturing Limited 30 Jalan Buroh Buroh Singapore Tel: Fax: sales@hgmetal.com HG METAL MANUFACTURING LIMITED Annual Report 2010

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3 Contents 2 Chairman s Statement 6 Group s Managing Director s Message 8 Board Of Directors 10 Key Executives 11 Operations Review 13 Financial Highlights 14 Corporate Information 15 Corporate Governance 31 Financial Contents

4 Chairman s Statement DEAR SHAREHOLDERS FY2010 proved to be another challenging year for the Group. We began the year in the troughs of the economic meltdown, which adversely impacted the overall commodity market. This resulted in much uncertainty in demand and volatility in steel prices. Revenue dropped from S$581.8 million in FY2009 to S$203.1 million in FY2010, as the Group experienced lower sales volumes and ended consolidation of the operations of BRC Asia Limited ( BRC ). Over the course of the year, the Group has reduced its shareholding in BRC from 43.67% to 23.94%. This allows the Group to continue to benefi t from BRC s exposure to the public infrastructure and residential sector. We are pleased to have received shareholder approval at an Extraordinary General Meeting held on 10 November 2010 to issue 163,850,000 new shares at S$0.095 each to Oriental Castle Sdn Bhd ( OCS ). However, the gradual receding of the economic crisis has led to a cycle of restocking and capacity expansion amongst the industry in many of the nations across the region. Prices of steel products have also followed the increasingly positive sentiment to recover from 2Q2009 lows to reach relatively stable levels from the second half of In line with the price improvements and gains from the reduction of its holdings in BRC, net profi t for the Group rebounded from a loss of S$58.8 million in FY2009 to a profi t of S$0.3 million in FY2010. This was achieved despite a conservative approach by the Group to further write down S$11.2 million worth of slow-moving inventories and S$1.7 million worth of inventories to net realisable value. This latest development represents the fi nal write down for inventories purchased during the peak of the steel cycle and the Group is now replenishing its stocks at current market levels. A NEW LOOK HG METAL Efforts have also been made by the management to bring in strategic investors who can add value to our operations. To that end, we are pleased to have received shareholder approval at an Extraordinary 2 HG Metal Manufacturing Limited

5 General Meeting held on 10 November 2010 to issue 163,850,000 new shares at S$0.095 each to Oriental Castle Sdn Bhd ( OCS ). OCS also has a call option to subscribe for 153,000,000 new shares for S$0.095 each in HG Metal, which could potentially enlarge its shareholding to 29.0% assuming the exercise of the Call Option. The entry of OCS as HG Metal s largest shareholder adds greater weight to the Group s future strategic moves and opens many new business opportunities. OCS was established in 1998 and is specializing in the foundation solutions business. It has since built up a strong market foothold throughout ASEAN and Greater China. Boasting a workforce of over 300 people, it has established itself as a one of the region s major players in the foundation projects business with specialized one-stop services, products and commercially fl exible business schemes. This know-how compliments the Group s strengths in commodity steel products. The addition of OCS and the write down of our slow moving inventories, has laid the basis for HG Metal to start FY2011 on a more solid footing. The addition of OCS and the write down of our slow moving inventories, has laid the basis for HG Metal to start FY2011 on a more solid footing. While the Group will continue to adopt a prudent and conservative approach towards management of its inventory, we remain cautiously optimistic that overall steel demand in Asia will remain stable or increase during Given this scenario, we might finally be approaching the proverbial light at the end of the tunnel as we enter the new year. We would like to take this opportunity to thank our management and staff for their hard work, dedication and loyalty to the Group. In addition, we would also like to thank all our customers, bankers, business associates, suppliers and shareholders for their continuing support and belief in our business. MR. YAP XI MING Non-Executive Chairman ANNUAL REPORT

6 Chairman s Statement 亲爱的股东, 2010 财政年度对于集团是一个极富挑战性的年度, 我们从年初就处于经济熔化的低谷中, 当时的经济情况对于整体的商品市场有诸多不利影响, 从而导致需求量非常不明确, 而且钢铁价格反复无常 营业收入从 2009 财政年度的五亿八千一百八十万新元跌至 2010 财政年度的两亿零三百一十万新元 这是由于集团经历较低的销售量, 并且结束了巩固 BRC 亚洲有限公司 ( BRC ) 的运作 在这一年以来, 集团减少了在 BRC 的股份持有, 从 43.67% 降低到 23.94% 这允许集团能够继续获益于 BRC 在公共基础设施和住宅领域的曝光 我们非常高兴的得到股东批准, 在 2010 年 11 月 10 日举行的特别大会, 以每股 新元发布 163,850,000 的新股份于 ORIENTAL CASTLE SDN BHD( OCS ) OCS 也有一个购买选择权, 以每股 新元认购在福源金属的 153,000,000 新股份 然而, 经济危机逐渐缓和, 促使许多区域国家的工业进入再储存和扩展产量的周期, 钢铁产品的价格也沿着日趋正面的情绪, 从 2009 财政年度第二季的低价恢复至 2010 财政年度下半年相对稳定的水平 由于价格的改进以及缩减在 BRC 的持有权所得的收益, 集团的净盈利从 2009 财政年度的五千八百八十万新元的损失回弹至 2010 财政年度的三十万新元的盈利, 能够获取这业绩是由于集团采取保守措施, 进一步写下价值一千一百二十万新元的慢动库存, 最近的动向是最后一次写下在钢铁周期顶峰期间购买的库存 集团正以现时市场价格重新补充存货 管理层也努力的带进可以为我们的运作增值的投资者 我们非常高兴的得到股东批准, 在 2010 年 11 月 10 日举行的特别大 4 HG Metal Manufacturing Limited

7 会, 以每股 新元发布 163,850,000 的新股份于 ORIENTAL CASTLE SDN BHD( OCS ) OCS 也有一个购买选择权, 以每股 新元认购在福源金属的 153,000,000 新股份 如果动用这购买选择权, 其股份持有将扩大到 29.0% OCS 的加入, 成为福源金属最大的股东, 将助力于集团未来的战略措举, 并且开启许多新商业机会 OCS 在 1998 年成立, 是专营基础解决方案的商业, 自此,OCS 在东南亚国家和中国建立了强力的市场立足点, 拥有超过 300 人的劳工,OCS 已成为区域内其中一个在基础项目商业方面能够提供产品, 一站式服务, 及灵活商业计划的大公司之一, 这专门技能将加强集团在钢产品方面的强势 OCS 的加入以及写下的慢动库存, 为福源金属奠定了更稳定的地位 进入 2011 年财政年度, 集团对于其库存的管理将继续采取慎密和保守的态度 而对于亚洲总体钢铁需求, 在 2011 年稳定或上升的预测下, 我们仍然是谨慎地保持乐观 以这个情况设想, 我们很可能在进入新的一年中能够看到黎明之前的曙光 OCS 的加入以及最后写下的慢动库存, 为福源金属奠定了更稳定的地位进入 2011 财政年度 我们希望借此机会感谢我们的管理层和职员们的辛苦工作, 以及对集团的贡献和忠诚 并由衷地感谢我们所有的客户 银行家 商务伙伴 供应商和股东对于我们的持续地支持与信赖 MR. YAP XI MING 非执行董事长 ANNUAL REPORT

8 Group s Managing Director s Message DEAR SHAREHOLDERS 2010 marked a year of volatility and challenges for commodity players across the globe. As one of the largest steel stockists in Singapore and South East Asia, HG Metal was no exception to this trend. We also intend to build upon our reputation as a one-stop supermarket for steel products by extending our reach into the non-standard product space. Our revenue from trading activities decreased to S$132.1 million in FY2010, due to lower sales volumes. Our manufacturing arm also saw a decline in sales to S$71.0 million, as we only consolidated 2 months of revenues from BRC Asia Ltd, in which we reduced our stake in 1QFY2010. While total revenue declined to S$203.1 million in FY2010, we saw an increase in our gross profi t to S$23.7 million in FY2010, from S$15.5 million, in FY2009. This was primarily due to a return to profi tability for the trading business, after selling goods at a loss in FY2009. All in, the Group recorded a profi t after tax of S$0.3 million in FY2010, compared to a loss of S$58.8 million in FY2009. We have also streamlined our balance sheet by writing down S$11.2 million worth of slow-moving inventories and S$1.7 million worth of inventories to net realisable value that were mainly purchased before the crisis. Gross gearing dropped to 0.31 times as at 30 September 2010, from 1.26 times as at 30 September This paves the way for the Group to embark on our latest strategic direction with our new substantial shareholder Oriental Castle Sdn Bhd ( OCS ). THREE PRONGED APPROACH TO GROWTH Our current business model leaves us vulnerable to market volatility and intense steel price swings. This situation is expected to exacerbate as mining companies and major steel mills shift from yearly to 6 HG Metal Manufacturing Limited

9 quarterly modes of iron ore price settlement. It is against this changing competitive backdrop that we embark on a diversification strategy to engage new niche market businesses. In the coming few months, we plan to focus on getting closer to our customers, expand our product range as well as our manufacturing capabilities, and extend our geographic reach. We aim to proactively engage our customers in the construction, civil engineering, marine engineering, energy, oil and gas, as well as offshore industries throughout ASEAN. The high technical specifi cations for these types of industries require a higher degree of customer service and call for more sophisticated logistics to allow packaged solutions and just in time deliveries. By providing such value-added services, we aim to compete on the basis of reliability, availability and product quality. We also intend to build upon our reputation as a onestop supermarket for steel products by extending our reach into the non-standard product space. Through the continuous refi ning of our inventory management process, we will increasingly add difficult-to-attain, higher grade products to our portfolio of more than 3,000 different kinds of steel products. This move will enhance the marketing capabilities of our sales teams, as they seek to meet the special needs for a variety of industries. While seeking to enhance our product offerings to customers, we will aim at improving and diversifying our manufacturing capabilities at the same time. By focusing on these three areas for business growth, along with our current commodity business, we hope to establish ourselves as a regional market player with a well defi ned business model. We believe that the management experience of OCS, with 15 overseas offi ces and vertically integrated operations, places us in good stead as we reach for this goal. APPRECIATION Finally, I would very sincerely like to express my appreciation to our shareholders, customers and business associates for their trust in us and their unwavering support. In addition, I would like to thank the entire management and staff of HG Metal for their loyalty, tireless efforts and faith in the Company and to stand united in the face of a challenging and diffi cult year. We strongly believe that together we can take HG Metal to new heights and translate our vision and aspiration into reality. MR. GOH KIAN SIN Managing Director Regarding geographic expansion, we recognize the inherent advantage of being situated at a natural logistics hub boasting one of the busiest ports in the world. Singapore is already an established steel platform in South East Asia attracting customers who cannot cover their steel requirements in their own domestic market. This situation presents an attractive opportunity to capture the region s impressive growth potential. In doing so, we hope to lessen our reliance on the Singapore market, which accounted for 70.7% of FY2010 sales. ANNUAL REPORT

10 Board Of Directors MR. YAP XI MING MR. GOH KIAN SIN MR. TAN CHAN TOO MR. CHNG HEE KOK MR. YAP XI MING Non-Executive Chairman Mr. Yap Xi Ming, was appointed to the Board in April Mr. Yap is the Managing Director of Chye Hin Hardware Pte Ltd, which is a stockist, importer & exporter for structurals and mild steel products. He is a businessman with more than 25 years of experience in the steel industry. Mr Yap is a member of the Remuneration Committee and Nominating Committee. MR. GOH KIAN SIN Managing Director After serving for 10 years with a Bursa Malaysia listed company involved in the steel industry in Malaysia at senior management level, Mr. Goh set up his own group of companies Oriental Castle Sdn. Bhd in His companies activities include foundation solutions materials, steel fibers, roofing products and car business. Mr Goh is a member of the Nominating Committee. MR. TAN CHAN TOO Executive Director Mr. Tan Chan Too, is one of the three founders of the Group. He has more than 35 years of experience in the steel industry and is actively leading the commodity trading activities business of the Group. MR. CHNG HEE KOK Executive Director Mr. Chng was appointed as an Executive Director and Chief Executive Offi cer on 4 Jan He relinquished the latter appointment on 2 Dec He was a Member of Parliament from 1984 to 2001 and served on statutory boards like Public Utilities Board and Sentosa Development Corporation. His past chief executive appointments of public listed companies include that of Yeo Hiap Seng Ltd, Scotts Holdings Ltd and Hartawan Holdings Ltd. Mr Chng holds a First Class Honours B. Eng from the University of Singapore and an MBA from the National University of Singapore. He also serves on the Boards of a number of public listed companies such as Pacifi c Century Regional Devt Ltd, Samudera Shipping Line Ltd, Full Apex Holdings Ltd and Peoples Food Holdings Ltd. MR. WONG KEAN SHYONG, KENN Non-Executive Director Mr. Wong has extensive commercial experience in the international steel trading industry. Between 1989 and 2002 he worked for the Marubeni Group, serving in the group s offi ces in Japan, Singapore and Hong Kong, to join VSC Holdings in 2002, lastly holding the position of President - Construction Material Group in Mr. Wong currently holds the position of Chief Marketing Offi cer heading Oriental Sheet Piling China s Steel Foundation Business as well as Oil and Gas and Civil Construction Division. 8 HG Metal Manufacturing Limited

11 MR. WONG KEAN SHYONG, KENN MR. GUI KIM GUI KIM GAN DR. TAN ENG LIANG MR. LING CHUN YEE, ROY MR. GUI KIM GUI KIM GAN Independent Director Mr. Gui Kim Gui Kim Gan, Independent Director, is practicing as a director of a public accounting corporation. Mr. Gui currently also acts as Independent Director of three other listed companies. Mr Gui has more than 30 years of experience in accounting, audit and tax. He graduated from the then Nanyang University with a Bachelor of Commerce in He is a Fellow of the Institute of Certified Public Accountants of Singapore and a member of the Singapore Institute of Directors. Mr Gui is the Chairman of the Remuneration Committee, and a member of the Audit Committee and Nominating Committee. DR. TAN ENG LIANG Independent Director Dr. Tan was appointed to the Board on 29 January He sits on the Boards of many companies, including a few public listed companies and has a wealth of experience. He was a Member of Parliament (1972 to 1980), the Senior Minister of State for National Development (1975 to 1978) and Senior Minister of State for Finance (1978 to 1979). He also served as the Chairman of the Urban Development Authority and the Singapore Sports Council. Dr. Tan has a Doctorate from Oxford University, England. Dr Tan has been awarded the Public Service Star (BBM), Public Service Star (BAR) and the Meritorious Service Medal by the Singapore Government. He is also a director of the following public listed corporations, namely, SunMoon Food Company Limited, Tung Lok Restaurants (2000) Limited, Pokka Corporation (Singapore) Limited, United Engineers Limited, Progen Holdings Limited, Jackspeed Corporation Limited and Hartawan Holdings Limited. Dr. Tan is the Chairman of the Audit Committee and member of the Remuneration Committee and Nominating Committee. MR. LING CHUN YEE, ROY Independent Director Mr. Roy Ling was appointed to the Board in Jan Mr Ling is currently the Managing Director of RL Capital Management, a boutique hedge fund focused on Asia investments. Prior to working for RL Capital, Mr Ling was a Vice President with JPMorgan s Asia real estate investment banking team based out of Singapore. He was responsible for the origination and execution of investment banking mandates for regional clients. Prior to working for JPMorgan, Mr Ling worked for Lehman Brothers, Goldman Sachs and Salomon Smith Barney, performing a broad range of corporate finance, equity research and real estate fi nancings. Mr Ling is a Chartered Financial Analyst and was formerly on the Board of Directors of the CFA Society of Japan. Mr Ling graduated from INSEAD with a Global Executive MBA and from the National University of Singapore with a Bachelor of Business Administration with Honors. Mr Ling is the Chairman of the Nominating Committee and member of the Audit Committee and Remuneration Committee. ANNUAL REPORT

12 Key Executives DR. PATRICK SEIL Chief Executive Offi cer The Board appointed Dr. Patrick Seil to the position of CEO in December He is responsible for the overall strategy and business direction of the Group. Dr. Patrick Seil holds a Doctorate in Natural Sciences from the Institute of Organic and Pharmaceutical Chemistry of the University of Innsbruck, Austria. He is also a fellow of the University of Tokyo, Japan. 2 5 He served for a total of 17 years at ARBED-Arcelor- ArcelorMittal in various positions in Luxembourg, Dubai and Singapore, lastly heading all downstream activities in Asia as Managing Director of ArcelorMittal Singapore. In 2008 he joined the Oriental Castle Group as CEO of Oriental Steel Pipe Sdn Bhd in Klang, Malaysia. MS. FOONG LEE HENG, JASMINE Chief Financial Offi cer Ms. Foong joined the Company in She is responsible for all financial, treasury, accounting function and corporate advisory matters of the Group. She has more than 15 years experience in audit and accounting. She is a fellow member of the Association of Chartered Certified Accountants, UK and a member of the Institute of Certified Public Accountants of Singapore. MS. TAN YEE LEE, ELISE Head of Sales Ms. Tan Yee Lee, Elise joined the Company in 2007 to lead the Sales Team. Her key responsibilities include sales, marketing and procurement of Company s products, strategizing the Company s market position, developing new market opportunities, formulating sales policies and procedures to improve effi ciency and providing better customer service. Ms. Elise Tan graduated from NUS (B.Sc, Information Technology in Business focus) and joined the group s subsidiary Oriental Metals Pte Ltd in 2005, assisting sales and marketing for the Company. Prior to joining the Group, she has held various management positions in government-related organizations. From Left: 1) Ms. Tan Yee Wen, 2) Dr. Patrick Seil, 3) Mr. Kelvin Ko, 4) Ms. Tan Yee Lee, Elise, 5) Ms. Foong Lee Heng, Jasmine MS. TAN YEE WEN Credit Controller Ms. Tan Yee Wen is responsible to access credit risk of customer and risk exposure of the Company so as to minimize the occurrence of bad debts and ensure customer s payment period is within payment terms and limit. She also assists the Executive Director in negotiating and monitoring the purchase and sales contracts. Ms. Tan graduated from NUS (B.Comp, Information Communications Management) and started her career in an established international steel trading house and has accumulated her experiences in the international trading fi eld. MR. KELVIN KO IT Manager Mr. Kelvin Ko joined the Group in 2008 and manages the Information Technology matters for HG Metal and its subsidiary, Oriental Metals Pte Ltd. With Mr. Ko s vast IT experience for 8 years and exposure from prior services with Multinational Corporation, he contributes positively to improve on the Group s operational efficiency through technology, including effective management to develop effi cient business network, systems and full support to the end users. He is also equipped with good knowledge of new IT developments in the required fields. Mr. Ko is a professionally certified network Engineer and qualifi ed SAP Administrator. 10 HG Metal Manufacturing Limited

13 Operations Review HG Metal managed to deliver a much improved performance for the year ended 30 September 2010 ( FY2010 ) in spite of the challenging business environment. Despite the lower sales, a recovery in steel prices and better inventory management led to a 53.3% surge in gross profit to S$23.7 million in FY2010. This translated to an improvement of gross profit margin from 2.7% in FY2009 to 11.7% in FY2010. The Group s revenue declined by 65.1% from S$581.8 million in FY2009 to S$203.1 million in FY2010, due to lower contributions from its trading and manufacturing business segments. Revenue from the trading segment decreased from S$274.1 million to S$132.1 million, as the Group witnessed weaker business conditions. Sales from the manufacturing arm fell from S$307.7 million to S$71.0 million, mainly due to the absence of revenue stream after the disposal of part of the Group s holdings of BRC Asia Limited s ( BRC ) shares in 1QFY2010. Despite the lower sales, a recovery in steel prices and better inventory management led to a 53.3% surge in gross profi t to S$23.7 million in FY2010. This translated to an improvement of gross profi t margin from 2.7% in FY2009 to 11.7% in FY2010. As a result of the Group s implementation of cost cutting measures in a slow business environment, distribution expenses fell by 49.9% to S$1.6 million and ANNUAL REPORT

14 Operations Review administrative expenses reduced by 43.3%to S$9.5 million. Finance expenses went down by 40.8% to S$6.9 million due to lower bank borrowings. Other operating income jumped from S$4.4 million in FY2009 to S$8.3 million in FY2010, primarily due to a S$6.4 million gain from the disposal of BRC s shares. Other operating expenses halved to S$18.9 million in FY2010 from S$45.6 million in FY2009. The reduction in expenses were mainly due to lower inventories writedown and foreign exchange losses. Summing up the above, the Group turned in a net profit after tax of S$0.3 million in FY2010 from a net loss after tax of S$58.8 million in FY2009. The Group s inventories went down from S$140.5 million as at 30 Sep 2009 to S$62.5 million as at 30 Sep This was due to lower inventory purchases. Trade and other receivables decreased by 64.3% to S$30.2 million while trade and other payables fell by 68.3% to S$31.5 million. Both declines were in line with the drop in revenue. The Group ended FY2010 with cash and short-term deposit of S$5.1 million (FY2009: S$16.4 million) and borrowings of S$30.4 million (FY2009: S$93.4 million), which contributed to a lower gearing ratio of 0.31 times (FY2009: 1.26 times). The Group s operating cash fl ow plunged to S$11.6 million in FY2010 from S$173.6 million in FY2009, mainly due to lower inventories in FY2010. Investing cash infl ow amounted to S$12.0 million in FY2010, as compared to an investing cash outfl ow of S$35.0 million in FY2009, primarily due to the divestment of BRC s stake in FY2010, proceeds from sale of properties located at Nusajaya, Johor, and absence of BRC-related acquisition expenses in FY2009. Financing cash flow came down to S$35.0 million from S$172.3 million because of reduced reliance on bank borrowings in FY2010. The Group ended FY2010 with cash and short-term deposit of S$5.1 million (FY2009: S$16.4 million) and borrowings of S$30.4 million (FY2009: S$93.4 million), which contributed to a lower gearing ratio of 0.31 times (FY2009: 1.26 times). 12 HG Metal Manufacturing Limited

15 Financial Highlights Turnover by Region (%) Turnover by Products (%) OTHERS 2.8% MALAYSIA 18.1% INDONESIA 8.4% SINGAPORE 70.7% PIPES 11.7% BEAMS 7.3% OTHERS 10.1% BARS 17.0% SHIP PLATES / STEEL PLATES 34.2% WIRE MESH / CUT AND BEND 19.7% SINGAPORE MALAYSIA INDONESIA SHIP PLATES / STEEL PLATES WIRE MESH / CUT AND BEND BARS OTHERS BEAMS PIPES OTHERS Earnings S$ (million) Turnover S$ (million) Shareholders Fund S$ (million) (58.8) ANNUAL REPORT

16 Corporate Information BOARD OF DIRECTORS MR. YAP XI MING Non-Executive Chairman MR. GOH KIAN SIN Managing Director MR. TAN CHAN TOO Executive Director MR. CHNG HEE KOK Executive Director MR. WONG KEAN SHYONG, KENN Non-Executive Director MR. GUI KIM GUI KIM GAN Independent Director DR. TAN ENG LIANG Independent Director MR. LING CHUN YEE, ROY Independent Director SECRETARY FOONG LEE HENG, JASMINE REGISTERED OFFICE 30 JALAN BUROH SINGAPORE tel: (65) fax: (65) SHARE REGISTRAR M&C SERVICES PRIVATE LIMITED 138 Robinson Road #17-00 The Corporate Offi ce Singapore AUDITORS ERNST & YOUNG LLP Public Accountants and Certifi ed Public Accountants Singapore Partner-in-charge: Max Loh Khum Whai (Appointed in fi nancial year ended 30 September 2008) PRINCIPAL BANKERS OVERSEA-CHINESE BANKING CORPORATION LIMITED UNITED OVERSEAS BANK LIMITED 14 HG Metal Manufacturing Limited

17 Corporate Governance CORPORATE GOVERNANCE STATEMENT HG Metal Manufacturing Limited (the Company ) is committed to complying with the Code of Corporate Governance 2005 ( Code ) so as to ensure greater transparency and to safeguard the interests of shareholders. This statement describes the Company s corporate governance practices and activities with specifi c reference to the Code established by the Singapore Corporate Governance Committee and relevant sections of the Listing Manual issued by the SGX-ST. 1 BOARD MATTERS Principle 1: Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the success of the company. The Board works with Management to achieve this and the Management remains accountable to the Board. 1.1 Role of the Board The Board of Directors (the Board ) comprises 3 Executive Directors and 5 Non-Executive Directors. 3 of the 5 Non-Executive Directors are Independent Directors. The Board s primary role is to protect and enhance long-term shareholder value. To fulfi ll this, apart from its statutory responsibilities, the Board principal functions include the following: (a) (b) (c) (d) (e) (f) (g) (h) approve the Group s corporate and strategic directions; establish goals for management and monitoring the achievement of these goals; ensure management leadership of high quality, effectiveness and integrity; approve annual budgets, investment and divestment proposals; appointment of Board Directors and key managerial personnel; ensuring an effective risk management framework is in place; review fi nancial performance and implement fi nancial policies which incorporate risk management, internal controls and reporting compliance; and assume responsibilities for corporate governance. 1.2 Board Processes To assist the Board in the discharge of its oversight function, certain functions have been delegated to various Board Committees, namely, the Audit Committee ( AC ), Nominating Committee ( NC ) and the Remuneration Committee ( RC ), each of which has its own written terms of reference. The minutes of the meeting of these committees are circulated among the Board. Formal Board meetings will be held at least once every quarter to oversee the business affairs of the Group and approve any fi nancial or business strategies or objectives. Where necessary, additional Board meetings are held to deliberate on urgent substantive matters. The Board also approves transactions through circular resolutions which are circulated to the Board together with all relevant information relating to the proposed transaction. The agenda for meetings is prepared in consultation with the Chairman and Chief Executive Offi cer. The Agenda and submissions are circulated in advance of the scheduled meetings. ANNUAL REPORT

18 Corporate Governance 1.3 Directors meeting held in Financial Year 2010 The attendance of the directors at meetings for the financial year ended 30 September 2010 are as follows: Board of Directors Audit Committee Remuneration Committee Nominating Committee Held Attend Held Attend Held Attend Held Attend Yap Xi Ming (1) Chng Hee Kok (2) Tan Chan Too Gui Kim Gui Kim Gan Dr Tan Eng Liang (3) Roy Ling Chung Yee (4) Poon Hon Thang, Samuel (5) Wee Piew (6) Lee Leng Loke (7) Sia Ling Sing (8) (1) Appointed on 26 April 2010 (2) Appointed on 4 January 2010 (3) Appointed on 29 January 2010 (4) Appointed on 4 January 2010 (5) Resigned on 30 December 2009 (6) Resigned on 4 January 2010 (7) Resigned on 4 January 2010 (8) Resigned on 1 April 2010 The directors were appointed based on their experience, stature and potential to contribute to the proper guidance of the Group and its businesses. As such, we believe that each individual director s contributions can be refl ected in ways other than the reporting of attendances at Board meetings and/ or Board committee meetings. 16 HG Metal Manufacturing Limited

19 Corporate Governance 1.4 Matters Requiring Board Approval The directors have identifi ed a few areas for which the Board has direct responsibility for decision making such as the following: approval of the quarterly results announcements; approval of the annual report and accounts; declaration of interim dividends and proposal of fi nal dividends; convening of shareholders meetings; approval of corporate strategy; authorisation of major transactions; approval of Board changes and appointments on Board committees; increase in investment in businesses and subsidiaries; divestment in any of the Group companies; and commitments to term loans and lines of credit from banks and financial institutions by the Company. While matters relating in particular to the Company s objectives, strategies and policies require the Board s direction and approval, Management is responsible for the day to day operation and administration of the Company in accordance with the objectives, strategies and policies set by the Board. 1.5 Training of Directors Our directors are provided with extensive background information about our Group s history, mission, values and business operations. Changes to regulations and accounting standards are monitored closely by management. To keep pace with such regulatory changes, the Company provides opportunities for ongoing education on Board processes and best practices as well as updates on relevant new laws and regulations. Directors also have the opportunity to visit the Group s operational facilities and meet with management to gain a better understanding of the business operations. The Company has set up a more formal procedure for the issue of the appointment letter setting out the directors duties and obligations. Newly appointed directors shall also be briefed on the business and organisational structure of the Group and its strategic directions. ANNUAL REPORT

20 Corporate Governance 1.6 Board Composition and Balance Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs independently, in particular, from Management. No individual or small group of individuals should be allowed to dominate the Board s decision making. All directors exercise independent judgements and make decisions objectively in the best interest of the Company. The assessment criteria in the Chairman s assessment of directors include intensity of participation at meetings, quality of interventions and special contribution. The Board comprises members with diverse expertise and experience in the steel industry, fi nancial and business. As of the date of this report, the Board comprises the following directors: EXECUTIVE DIRECTORS Mr Goh Kian Sin (Managing Director) - Appointed on 15 November 2010 Mr Tan Chan Too Mr Chng Hee Kok NON-EXECUTIVE AND NON-INDEPENDENT DIRECTOR Mr Yap Xi Ming (Non-Executive Chairman) Mr Kenn Wong Kean Shyong Appointed on 15 November 2010 INDEPENDENT NON-EXECUTIVE DIRECTORS Dr Tan Eng Liang Mr Gui Kim Gui Kim Gan Mr Roy Ling Chung Yee The profi les of the Board are set out in pages 8 and 9 of the Annual Report. The composition of the Board is determined in accordance with the following principles: the Board should comprise 8 to 10 directors. This number may be increased where it is felt that additional expertise is required in specifi c areas, or when an outstanding candidate is identifi ed; to form a strong independent element on the Board, it should comprise at least one-third of nonexecutive independent directors; the Board should have enough directors to serve on various committees of the Board without overburdening the directors or making it diffi cult for them to fully discharge their responsibilities; the Board should comprise directors with a broad range of competencies and expertise both nationally and internationally; and directors appointed by the Board are subject to election by shareholders at the following Annual General Meeting ( AGM ) and thereafter, directors are subject to re-election according to the provisions in the Articles of Association. Article 89 of the Articles of Association of the Company states that one third of the directors shall retire from offi ce by rotation with the exception of the director holding offi ce as Managing Director. 18 HG Metal Manufacturing Limited

21 Corporate Governance The Board regularly examines its size and, with a view to determining the impact of its number upon effectiveness, decides on what it considers an appropriate size for itself taking into account the scope and nature of the Company s operations. The composition of the Board is reviewed on an annual basis by the NC to ensure that the Board has the appropriate mix of expertise and experience to enable management to benefi t from a diverse perspective of issues that are brought before the Board. The NC is of the view that the Board comprises directors capable of exercising objective judgment on the corporate affairs of the Company independently of management and that no individual or small group of individuals dominate the Board s decision-making process. When a vacancy exists, through whatever cause, or where it is considered that the Board would benefi t from the services of a new director with particular skills and knowledge, the NC, in consultation with the Board, determines the selection criteria for the position based on the skills and knowledge deemed necessary for the Board to best carry out its responsibilities. Candidates may be suggested by directors or management or sourced from external sources. The NC will interview the candidates and assess them based on objective criteria approved by the Board such as integrity, independent mindedness, possession of the relevant skills required or skills needed to complement the existing Board members, ability to commit the time and effort to carry out his responsibilities, good decision making track record, relevant experience and fi nancial literacy. The NC will make a recommendation to the Board on the appointment. The Board then appoints the most suitable candidate who must stand for election at the next AGM of shareholders. Particulars of interests of directors who held offi ce at the end of the fi nancial year in shares and share options in the Company and in related corporations (other than wholly-owned subsidiaries) are set out in the Directors Report. 1.7 Independent Members of the Board of Directors The Board has 3 independent directors, representing at least one-third of the Board: Dr Tan Eng Liang, Mr Gui Kim Gui Kim Gan and Mr Roy Ling Chung Yee. The criteria for independence are based on the defi nition given in the Code, which considers an independent director as one who has no relationship with the Company, its related companies or its offi cers that could interfere, or be reasonably perceived to interfere, with the exercise of the director s independent business judgement with a view to the best interest of the Company. The independence of each director is reviewed annually by the NC. 1.8 Chairman and Chief Executive Officer Principle 3: There should be a clear division of responsibilities at the top of the company - the working of the Board and the executive responsibility of the company s business - which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power. The Company has a separate Non-Executive Chairman and a Chief Executive Offi cer, which ensures that there is a balance of power and authority, increased accountability and greater capacity of the Board for independent decision-making at the top of the Company. As at the date of this report, Mr Yap Xi Ming holds the post of Non-Executive Chairman, Mr Goh Kian Sin holds the post of Managing Director and Dr Patrick Seil holds the post of Chief Executive Offi cer. ANNUAL REPORT

22 Corporate Governance The Non-Executive Chairman ensures that board meetings are held when necessary and sets the board meeting agenda (with the assistance of the company secretary and in consultation with the Managing Director and the Chief Executive Offi cer). The Chairman ensures that the board members are provided with complete, adequate and timely information. The Chairman ensures that procedures are introduced to comply with the Code and ensures effective communication within the board and with the shareholders. The Board has delegated the daily operations of the Group to the Managing Director and the Chief Executive Offi cer. The Managing Director and the Chief Executive Offi cer leads the management team and executes the strategic plans in alignment with the strategic decisions and goals set out by the Board and ensures that the directors are kept updated and informed of the Group s businesses. 1.9 Board Membership Principle 4: There should be a formal and transparent process for the appointment of new directors to the Board. The Board has delegated to the NC the functions of developing and maintaining a transparent and formal process for the appointment of new directors, making recommendations for directors who are due for retirement by rotation to seek re-election at general meeting and determining the independent status of each director. As at the date of this report, the NC comprises the following members, the majority of whom (including the Chairman) are independent:- Mr Roy Ling Chung Yee (Chairman and Independent Director), Dr Tan Eng Liang (Independent Director) Mr Gui Kim Gui Kim Gan (Independent Director) Mr Yap Xi Ming (Non-Executive Chairman and Non-Executive Director) Mr Goh Kian Sin (Managing Director and Executive Director) The NC is regulated by its terms of reference and its key functions include:- make recommendations to the Board on new appointments to the Board; determine orientation programs for new directors and recommend opportunities for the continuing training of the directors; make recommendations to the Board on the re-nomination of retiring directors standing for reelection at the Company s AGM, having regard to the directors contribution and performance (e.g. attendance, preparedness, participation and candour); ensure that all directors submit themselves for re-nomination and re-election at regular intervals and at least every three years; determine annually whether or not a director is independent; review the size and composition of the Board with the objective of achieving a balanced Board in terms of the mix of experience and expertise; 20 HG Metal Manufacturing Limited

23 Corporate Governance review the appointment of immediate family members (spouse, child, adopted child, step-child, sibling and parent) of any of the Company s directors or substantial shareholders to managerial positions in the Company; determine whether a director who has multiple board representations is able to and has been adequately carrying out his duties as director of the Company; report to the board on its activities and proposals; and carry out such other duties as may be agreed to by the NC and the Board. The NC meets at least once a year. The Company s Articles of Association provide that, at each AGM, 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 less than one-third) shall retire from offi ce by rotation. A retiring director is eligible for reelection by the shareholders of the Company at the AGM, and prior to nominating a retiring director for re-election, the NC will evaluate the director s contribution and performance taking into consideration factors such as attendance, preparedness, participation and candour Board Performance Principle 5: There should be a formal assessment of the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board. We believe that Board performance is ultimately refl ected in the performance of the Group and the Company. The Board should ensure compliance with applicable laws and Board members should act in good faith, with due diligence and care in the best interests of the Group and the shareholders. In addition to these fi duciary duties, the Board is charged with two key responsibilities of setting strategic direction and ensuring that the Group is ably led. The Board, through the delegation of its authority to the NC, will review the Board s composition annually to ensure that the Board has the appropriate mix of expertise and experience to lead the Group. 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 effectives, 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 FY2010, 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. ANNUAL REPORT

24 Corporate Governance 1.11 Access to Information Principle 6: In order to fulfil their responsibilities, Board members should be provided with complete, adequate and timely information prior to Board meetings and on an on-going basis. Directors receive a regular supply of information from management about the Group so that they are equipped to play as full a part as possible in Board meetings. Detailed Board papers are circulated to all directors prior to the scheduled meetings so that members may better understand the issues beforehand, allowing for more time at such meetings for questions that members may have. The Board papers provided include background or explanatory information relating to matters to be brought before the Board. A presentation is made to the Directors at the Board meeting on budgets, forecasts and variances from the budget disclosed. All directors have separate and independent access to the advice and services of the company secretary. The company secretary attends the Board and Board Committee meetings and assists the Chairman of the Board and Board Committee meetings in ensuring that the relevant procedures are followed and that applicable rules and regulations are complied with as well as ensuring good information fl ow within the Board and its committees, between senior management and the non-executive directors, facilitating orientation and assisting with professional development as required. The appointment and removal of the company secretary is a matter which is approved by the Board. The Board also has separate and independent access to the Company s senior management. Each director has the right, at the Company s expense, to seek independent legal and other professional advice concerning any aspect of the Group s operations or undertakings in order to fulfi ll their duties and responsibilities as directors. 2 REMUNERATION MATTERS 2.1 Procedure for developing Remuneration Policies Principle 7: There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration. The Group s remuneration policy is to provide compensation packages at market rates which reward successful performance and attract, retain and motivate directors and key management executives. The RC comprises solely of non-executive directors, the majority of whom, including the Chairman, is independent. At the date of this report, the RC comprises the following members:- Mr Gui Kim Gui Kim Gan (Chairman, and Independent Director), Dr Tan Eng Liang (Independent Director), Mr Roy Ling Chung Yee (Independent Director) Mr Yap Xi Ming (Non-Executive Chairman). 22 HG Metal Manufacturing Limited

25 Corporate Governance The RC meets at least once each year and at other times as required. The RC is responsible for recommending to the Board a framework of remuneration for the directors and senior management which is submitted to the whole Board for endorsement. The RC reviews and approves recommendations on remuneration policies and packages for directors and senior management in the interests of improved corporate performance. The RC s review of remuneration packages takes into consideration the long term interests of the Group and ensures that the interests of the directors align with that of the shareholders. The review covers all aspects of remuneration, including but not limited to directors fees, salaries, allowances, bonuses, options, profi t sharing (where applicable) and benefi ts-in-kind. In setting out the remuneration packages, the RC would take into consideration pay and employment conditions within the industry and in comparable companies. The remuneration packages should take into account the Company s relative performance and the performance of the individual directors / senior management. The RC s recommendations are submitted to the entire Board. Each member of the RC shall abstain from voting on any resolution concerning his own remuneration. The Directors fees to be paid for any one year are submitted for shareholders approval at the AGM. 2.2 Level and Mix of Remuneration Principle 8: The level of remuneration should be appropriate to attract, retain and motivate the directors needed to run the company successfully but companies should avoid paying more than is necessary for this purpose. A significant proportion of executive directors remuneration should be structured so as to link rewards to corporate and individual performance. The remuneration packages of the Managing Director, Chief Executive Offi cer and the executive directors are determined based on the framework recommended by the RC. In doing so, the RC reviews the length of the fi xed appointment period, the notice period for termination and the terms of the compensation package in the event of the termination of any executive directors contracts of service to ensure that the terms of such clauses are not onerous to the Company. The executive directors framework of remuneration includes a fi xed element as well as a variable element in the form of a bonus and a profi t sharing incentive which is linked to the Company s performance. All non-executive Directors are paid a Director s fee, with additional fees for serving as the chairman or member of a Board committee and attendance fees for Board and Board committee meetings. These fees are recommended by the RC and submitted to the Board for endorsement. The remuneration of non-executive directors should be appropriate to the level of contribution, taking into account factors such as effort and time spent, and responsibilities of the directors. Non-executive directors should not be over-compensated to the extent that their independence may be compromised. ANNUAL REPORT

26 Corporate Governance 2.3 Disclosure on Remuneration Principle 9: Each company should provide clear disclosure of its remuneration policy, level and mix of remuneration, and the procedure for setting remuneration in the company s annual report. It should provide disclosure in relation to its remuneration policies to enable investors to understand the link between remuneration paid to directors and key executives, and performance. The remuneration of the Directors from the Company for the fi nancial year ended 30 September 2010 is as follows:- Director Base Salary Bonus Profit Sharing Director Fees Benefits In Kind TOTAL S$250,000 to below S$500,000 Tan Chan Too 79% 6% 15% 100% Chng Hee Kok 75% 9% 16% 100% Below S$250, % Yap Xi Ming 100% 100% Gui Kim Gui Kim Gan 100% 100% Dr Tan Eng Liang 100% 100% Ling Chung Yee, Roy 100% 100% Poon Hon Thang, Samuel 100% 100% Sia Ling Sing 100% 100% Wee Piew 100% 100% Lee Leng Loke 100% 100% 2.4 Remuneration of Employees Related to Directors There is no employee who is related to a Director or the Chief Eexcutive Offi cer whose remuneration exceeds S$150,000 in the Group s employment for fi nancial year ended 30 September Remuneration of Top 5 Key Management Executives KEY EXECUTIVES : Dr Patrick Seil Foong Lee Heng, Jasmine Tan Yee Lee, Elise Tan Yee Wen Kelvin Ko Guan Huat The key executives fall within the remuneration band of below $250,000. The Company adopts a remuneration policy for staff comprising both a fi xed and variable component. The fi xed component is in the form of a base salary and allowances. The variable component is in the form of a variable bonus that is linked to the Company and each individual s performance. 24 HG Metal Manufacturing Limited

27 Corporate Governance 3 ACCOUNTABILITY AND AUDIT Principle 10: The Board should present a balanced and understandable assessment of the company s performance, position and prospects. In presenting the annual fi nancial statements and quarterly announcements to shareholders as well as any price sensitive reports to the public, the Board aims to provide the shareholders with a balanced and understandable assessment of the Company s and the Group s performance, position and prospects. The Board is provided with an analysis of the management accounts at the quarterly Board meetings which presents a balanced and understandable assessment of the Company s performance, position and prospects. 3.1 Audit Committee Principle 11: The Board should establish an Audit Committee with written terms of reference which clearly set out its authority and duties. The AC comprises 3 members, all of whom including the Chairman are non-executive and independent directors. The AC s members are:- Dr Tan Eng Liang (Chairman, and Independent Director), Mr. Gui Kim Gui Kim Gan (Independent Director) Mr Roy Ling Chung Yee (Independent Director). At least 2 members have accounting or related fi nancial management expertise or experience. The AC s main objective is to assist the Board in fulfi lling its fi duciary responsibilities relating to internal controls, overseeing the external audit process, reviewing the fi nancial information to be disclosed to the public and ensuring that arrangements are in place for the independent investigation and follow up of reports by staff of improprieties in fi nancial reporting and other matters. To achieve this, the AC ensures that its members have the appropriate qualifi cations to provide independent, objective and effective oversight. Specifi cally, the AC meets periodically to perform the following functions: (a) (b) (c) (d) (e) (f) (g) (h) review the audit plans of the external and internal auditors; review the external and internal auditors reports; review the co-operation given by the Company s offi cers to the external and internal auditors; review the adequacy of the internal audit function; evaluate the effectiveness of the Group s system of internal controls, including fi nancial, operational and compliance controls, and risk management, by reviewing written reports from internal and external auditors, and management responses and actions to correct any defi ciencies; review the financial statements of the Company and the Group before their submission to the Board; review non-audit services provided by the external auditors to satisfy itself that the nature and extent of such services will not prejudice the independence and objectivity of the external auditors; nominate external auditors for appointment or re-appointment and approve the remuneration and terms of engagement of the external auditor; ANNUAL REPORT

28 Corporate Governance (i) (j) review the Group s compliance with such functions and duties as may be required under the relevant statutes or the Listing Manual issued by SGX-ST, and by such amendments made thereto from time to time; and review interested person transactions (as defi ned in Chapter 9 of the Listing Manual issued by SGX- ST) to ensure that they are on normal commercial terms and arms length basis and not prejudicial to the interests of the Company or its shareholders in any way. Apart from the duties listed above, the AC may commission and review the fi ndings of internal investigations into matters where there is suspected fraud or irregularity, or failure of internal controls or infringement of any Singapore and other applicable law, rule or regulation which has or is likely to have material impact on the Company s or Group s operating results and/or fi nancial position. The AC meets from time to time with the Group s external and internal auditors and the executive management to review accounting, auditing and fi nancial reporting matters so as to provide the necessary checks and balances to ensure that an effective control environment is maintained in the Group. The AC also studies proposed changes in accounting policies, examines the internal audit functions and discusses the accounting implications of major transactions. Furthermore, the AC advises the Board regarding the adequacy of the Group s internal controls and the contents and presentation of its interim and annual reports. Based on the information provided to the AC, nothing has come to the AC s attention that the system of internal controls and risk management is inadequate. The AC is also authorised to investigate any matter within its terms of reference and has full access to and co-operation of the management and full discretion to invite any director or executive offi cer to attend its meetings, and reasonable resources to enable it to discharge its functions properly. The AC meets annually with the internal auditors and the external auditors, without the presence of the Company s management to review the adequacy of audit arrangements, with particular emphasis on the scope and quality of their audits, and the independence and objectivity of the internal and external auditors. The AC, having reviewed all non-audit services provided by the external auditors to the Group, is satisfi ed that the nature and extent of such services would not affect the independence of the external auditors. 3.2 Internal Controls Principle 12: The Board should ensure that the Management maintains a sound system of internal controls to safeguard the shareholders investments and the company s assets. The Board recognises that it is responsible for the overall internal control framework, but accepts that no cost effective internal control system will preclude all errors and irregularities, as the system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. The AC will: satisfy itself that adequate measures are in place to identify and mitigate any material business risks associated with the Group; ensure that a review of the effectiveness of the Group s material internal controls, including fi nancial, operating and compliance controls and risk management, is conducted at least annually. Such review can be carried out by internal auditors/external auditors; 26 HG Metal Manufacturing Limited

29 Corporate Governance ensure that the internal control recommendations made by internal and external auditors have been implemented by the management; and ensure the Board is in a position to comment on the adequacy of the internal controls of the Group. Based on the discussions with the auditors and the management s responses to the auditors recommendations for improvements to the Group s internal controls, the Board is satisfi ed that there are adequate internal controls to safeguard the assets and ensure the integrity of fi nancial statements. 3.3 Whistle-Blowing Policy The Group has adopted a constructive whistle-blowing policy and guideline in order to detect and deter any fraud or deliberate error in the preparation, evaluation, review or audit of any fi nancial statement, fi nancial reports and records of the Company. Demonstrating its pledge to good corporate governance, the Group provides an avenue for employees to bring their complaints responsibly to report any possible improprieties in matters of fi nancial reporting or other matters that they may encounter to the AC or any other committees established by the Audit Committee for such purpose without fear of reprisal. The establishment of the whistle-blowing structure also augments the Group s ability to detect potential fraud, providing another level of comfort and assurance to investors. 3.4 Internal Audit Principle 13: The company should establish an internal audit function that is independent of the activities it audits. The Group has outsourced its internal audit function to Messrs BDO Raffl es Consultants Pte Ltd. The aim of the internal audit function is to promote internal control in the Group and to monitor the performance and effective application of internal audit procedures. It supports the directors in assessing key internal controls through a structured review programme. The internal audit function is expected to meet or exceed the standard set by internationally recognised professional bodies including the Standards for the Professional Practice of Internal Auditing set by The Institute of Internal Auditors. The internal audit function reports functionally to the Chairman of the AC and administratively to the Chief Executive Offi cer. The AC ensures that the internal audit function has adequate resources and has appropriate standing within the Group. The AC, on an annual basis, assesses the effectiveness of the internal auditors by examining: the scope of the internal auditors work; the quality of the reports; the relationship with the external auditors; and the independence of the areas reviewed. The AC has reviewed the annual internal audit plan FY2010 and is satisfi ed that the internal audit functions have been adequately carried out. ANNUAL REPORT

30 Corporate Governance 4 COMMUNICATION WITH OUR SHAREHOLDERS Principle 14: Companies should engage in regular, effective and fair communication with shareholders. Principle 15: Companies should encourage greater shareholder participation at AGMs, and allow shareholders the opportunity to communicate their views on various matters affecting the company. The Company fi rmly believes in high standards of transparent corporate disclosure, pursuant to the SGX- ST s Listing Rules and the Singapore Companies Act, whereby shareholders are informed of all major developments that affect the Group. Information is communicated to our shareholders on a timely basis. Where there is inadvertent disclosure made to a selected group, the Company will make the same disclosure publicly to all others as soon as practicable. Communication is made through: annual reports that are prepared and sent to all shareholders. The Board ensures that the annual report includes all relevant information about the Company and the Group, including future developments and other disclosures required by the Singapore Companies Act and Singapore Financial Reporting Standards; quarterly announcements containing a summary of the fi nancial information and affairs of the Group for that period; notices of and explanatory memoranda for AGMs and Extraordinary General Meetings; press releases on major developments of the Company and the Group; disclosure to the SGX-ST; and the Company s website at at which our shareholders can access information on the Group. Moreover, our shareholders are encouraged to attend the AGM to ensure a high level of accountability and to be updated on the Company s strategies and goals. The Company s Articles allow a shareholder to appoint more than 2 proxies to attend a shareholder s meeting on his behalf. The notice of the AGM is sent to our shareholders, together with explanatory notes, appendices or a circular on items of special business, at least 14 days before the meeting. The Chairmen of the AC, NC and RC are normally present and available to address questions relating to the work of their respective committees at general meetings. Furthermore, the external auditors are present to assist our Board in addressing any relevant queries by our shareholders. Each item of special business included in the notice of the meeting is accompanied, where appropriate, by an explanation for the proposed resolution. Separate resolutions are proposed for substantially separate issues at the meeting. 28 HG Metal Manufacturing Limited

31 Corporate Governance 5 DEALINGS IN SECURITIES In accordance with Rule 1207(18) of the Listing Manual issued by SGX-ST, the Company notifi es all employees that they are prohibited from trading in the Company s shares one month prior to the announcement of the Company s full year results and 14 days before the announcement of the fi rst three quarters of the Company s fi nancial results. The Company has also issued a policy on Insider Trading to all employees which sets out the principles of relevant laws relating to insider trading which are applicable at all times. 6 INTERESTED PERSON TRANSACTIONS The Company is required to comply with the requisite rules under Chapter 9 of the Listing Manual issued by SGX-ST for interested person transactions. To ensure compliance with Chapter 9, the AC meets quarterly to review if the Company will be entering into an interested person transaction in order to ensure that the interested person transactions are carried out on normal commercial terms and will not prejudicial to the interests of the shareholders. Disclosure according to Rule 907 of the SGX-ST Listing Manual in respect of interested person transactions for fi nancial year ended 30 September 2010 is stated in the table below: Name of interested person Lingco Shipbuilding Pte Ltd Super Marine Supplies Pte Ltd Aggregate value of all interested person transactions, conducted under shareholders mandate pursuant to Rule 920 (excluding transactions less than S$100,000) Nil Nil Aggregate value of all interested person transactions, conducted pursuant to Rule 920 (excluding transactions less than S$100,000 and transaction conducted under shareholders mandate) NA NA Chye Hin Hardware Pte Ltd - Sales - Other Charges NA NA 1,256,000 (816,000) 7 MATERIAL CONTRACTS Save as disclosed in the audited fi nancial statements of this Annual Report, there are no material contracts of the Company or its subsidiaries involving the interest of the Managing Director, CEO, directors or controlling shareholder subsisting at the end of the fi nancial year ended 30 September 2010 or have been entered into since the end of the previous fi nancial year. ANNUAL REPORT

32 Corporate Governance 8 RISK MANAGEMENT Management regularly reviews the Group s business and operational activities to identify areas of signifi cant business risks as well as deliberate on appropriate measures to control and mitigate these risks. Management is accountable to the Board for ensuring the effectiveness of risk management and adherence to risk appetite limits. On a day-to-day basis, business units have primary responsibility for risk management. The various business units provide the senior management with a timely assessment of key risk exposures and the associated management responses. These units also recommend risk appetite and control limits. The signifi cant risk management policies are as disclosed in the audited fi nancial statements of this Annual Report. The fi nancial risk management policies are outlined below: Fluctuations in steel prices As a distributor of steel products, the Group purchases a wide range of steel products and maintain substantial inventories to be in a position to fulfi l customers orders within a short lead time. The cost of steel products purchased is the main component of the Group s cost of sales for its steel distribution business. Prices of steel products are subject to international price fl uctuations of steel. Therefore, the Group is vulnerable to any fl uctuations in prices of steel. The Group, with more than 30 years of knowledge and expertise gained in this line of business, is able to make appropriate adjustments to its supplier choice, timing of purchase and shipment, contracting arrangement with its customers to address price fl uctuation risk. Credit risk of its customers The Group extends credit terms ranging from 30 to 120 days to its customers, depending on their credit worthiness. From time to time, in the ordinary course of business, certain customers may default on their payment. Such events may arise due to the inherent risk from its customers business, risk pertaining to the political, economic, social and legal environment of its customers jurisdiction and foreign exchange risk. In the event that the Group s customers default on their payments, the Group would have to make allowances for doubtful debts or incur write-offs, which will have an adverse impact on its profi tability. The Group performs credit check and approval before granting credit to customers and imposes a credit limit and credit term on each customer. All credit accounts are subject to monthly review. In addition, the Group is not dependant on any single customer or any single country. The Group has more than 600 customers. Hence, the Group is not exposed to significant credit risk posed by any single customer. Foreign exchange exposure The purchases of the Group are mainly denominated in US$ and its sales are mainly denominated in S$. As a result, the Group is exposed to fl uctuations in foreign exchange rates. For FY2010, approximately 80% of its total purchases were made in US$, whilst approximately 90% and 10% of its total sales were denominated in S$ and US$ respectively. Hence, the Group may be exposed to any signifi cant fl uctuation of the US$. The Group monitors the US$ exchange rates closely and will enter into forward contracts on case to case basis to reduce its exposure. 30 HG Metal Manufacturing Limited

33 Contents 32 Directors Report 36 Statement by Directors 37 Independent Auditors Report 39 Consolidated Statement of Comprehensive Income 40 Balance Sheets 41 Statements of Changes in Equity 44 Consolidated Cash Flow Statement 46 Notes to the Financial Statements 113 Shareholdings Statistics 115 Notice of Annual General Meeting Proxy Form ANNUAL REPORT