Spearheading the Market

Transcription

1 Spearheading the Market Annual Report 2007

2 Contents 01 Profile 02 Chairman s Statement 04 Board of Directors 06 Financial Highlights 07 Corporate Information 09 Directors Report 14 Statement By Directors 15 Independent Auditors Report 16 Corporate Governance Report 21 Balance Sheets 22 Consolidated Income Statement 23 Consolidated Statement of Changes In Equity 25 Consolidated Cash Flow Statement 26 Notes to the Financial Statements 60 Statistics of Shareholdings 61 Notice of Annual General Meeting Proxy Form

3 BROADWAY INDUSTRIAL GROUP LIMITED / Annual Report 2007 Profile Broadway Industrial Group Limited is one of the leading manufacturers of expandable foam plastics for packaging, insulation and other applications and precision-machined components in Asia. The Group s leading position is achieved through its emphasis on quality, reliability and technical advancement. The Group s main manufacturing facilities are located in the eastern and southern parts of China. These regions have the necessary infrastructure for the Group to establish cost competitive production facilities. At the same time, the Group is strategically located to capitalize on the rapidly growing markets in China. The Group also has manufacturing operations in Thailand and USA. The commitment to a high level of quality products and reliable services has enabled the Group to support many multinational customers mainly in the consumer electronics, household appliances, telecommunication and IT industries. Spearheading the Market 01

4 Chairman s Statement Spearheading the Technology World Keeping up with the evolving business environment, we stay ahead of the market with our cutting-edge technology. Broadway Industrial Group has had an eventful year in Both revenue and profits had continued to grow. The Group s revenue of $606.1 million for FY2007 grew by 15.1% or $79.5 million compared to that of $526.6 million in FY2006. Profit before income tax and minority interests increased from $37.4 million in FY2006 to $41.2 million in FY2007 and profit attributable to shareholders increased from $20.7 million in FY2006 to $27.6 million in FY2007. The Group has improved its performance with higher turnover and profits in the second half of FY2007 for both foam plastics and components businesses as compared to the first half of the year. Sales revenue increased from $269.6 million in the first half of FY2007 to $336.5 million in the second half of the year. The Group also achieved an operating profit after tax of $22.5 million in the second half of FY2007 vis-à-vis $14.1 million in the first half of FY2007. Our foam plastics business continued to improve with increased orders from existing customers and demand from new customers. Revenue for the foam plastics business increased by 43.9% from $60.0 million in the previous year to $86.4 million in FY2007. In line with the increased turnover, the results from operating activities attributable to the foam plastics business also increased from $6.6 million to $9.1 million, representing an increase of 39.4%. Despite continuing price pressure from customers, higher costs and weakening of United States dollar, our components business continued to grow. Revenue for the components business grew by 11.4% to $519.8 million in FY2007 as compared to $466.6 million in FY2006. Correspondingly, results from operating activities attributable to the components business increased from $33.3 million in FY2006 to $37.2 million in FY2007 representing an increase of 11.4%. LOOKING FORWARD With the acquisition of the minority shares in the components business in FY2007, the results of the components division will be fully consolidated with the results of the Group. Consequently, profit attributable to the shareholders of the Company will increase substantially. The construction of the new factory in Longgang, Shenzhen to house the component precision machining operations is also progressing well. With 02 Spearheading the Market

5 BROADWAY INDUSTRIAL GROUP LIMITED / Annual Report 2007 the completion of the factory and the relocation of the machining operations in the second quarter of FY2008, productivity for the components operations should further improve. Notwithstanding the above, with the continued strong support from our customers, the Group expects to improve its turnover and profitability for FY2008. During the year, the Group has also substantially increased its production capacity for the precision machining operations for non hard disk drive business. Thus we expect further growth and improved performance from the non hard disk drive operations in the coming year. To support the increase in orders from existing and new customers, the Group has also added new production capabilities in Taichang, China and Ningbo, China for the foam plastics business. ACKNOWLEDGEMENT On behalf of the Board of Directors, I would like to extend our sincere appreciation to all our shareholders, customers and business associates for their continued support to the Broadway Industrial Group. The Directors and I would also like to acknowledge the contributions from the staff teams and thank them for their loyalty, commitment and support during the year. Nevertheless, the uncertainty in business outlook due to the recession in the United States, the weakening of the United States dollar and the strengthening of the Chinese Renminbi will pose much challenge to the Group in FY2008. WONG SHEUNG SZE Executive Chairman Broadway Industrial Group Limited The Group will also strengthen its efforts to incorporate more automation to improve productivity in FY2008 to offset against the increase in labour cost in China. The standardization of tax policy in China will also result in loss of some tax advantages that the foam plastics operations currently enjoy. Singapore 31 March 2008 Spearheading the Market 03

6 Board of Directors MR. WONG SHEUNG SZE 58, is the Executive Chairman of the Company and has been with the Group since He has been involved in the day-to-day operations of the Group since and is responsible for formulating business expansion plans for the Broadway Industrial Group. Currently, he oversees the general management of the Group and is involved in the overall business development and strategic planning. Mr. Wong was last re-elected on 27 April MR. LEE CHOW SOON 68, is an independent Director of the Company. He holds a Degree in Law from the University of London and an Honours Degree in Law from the University of Singapore. He has been practising as an Advocate and Solicitor and is currently a senior partner of Messrs Tan, Lee and Partners, a firm of advocates and solicitors. Mr. Lee was last reelected on 28 April MR. HUANG YUAN CHIANG 48, is an independent Director of the Company. He is a lawyer by training. He has degrees in Economics and Law. After an initial career in law, he switched to investment banking in the mid-eighties. Mr. Huang sits on the boards of other listed companies in Singapore, Malaysia and elsewhere. Mr. Huang was last re-elected as a director of the Combpany on 28 April Spearheading the Market

7 BROADWAY INDUSTRIAL GROUP LIMITED / Annual Report 2007 MR. PHILIP HENRY DEFORD 55, is an independent Director of the Company. He graduated from Colby College with a Bachelor of Arts and also has an MBA from New York University. He has an extensive career in banking and corporate finance in Asia with a number of major financial institutions. He was last appointed Managing Director of Dresdner, Kleinwort, Wasserstein. He is currently a financial consultant. He is also Chairman of the Singapore American Community Action Council. Mr. DeFord was last re-elected as a director of the Company on 28 April MR. RICHARD EU YEE MING 60, an Independent Director of the Company, is the Group CEO of Eu Yan Sang International Ltd, a company listed on the SGX. He graduated with a law degree from London University. Mr. Eu is also Chairman of the Singapore Institute of Management and sits on the boards of various arts and charity organizations. Mr Eu was last re-elected on 28 April MR. LEE PO LEE KHONG KEE 56, is an Executive Director of the Company. He was a Colombo Plan Scholar and graduated from the University of Auckland, New Zealand with an Honours Degree in Mechanical Engineering. He also holds a Master Degree in Industrial Engineering and a Master Degree in Business Administration from the National University of Singapore. He is a registered professional engineer with the Singapore Professional Engineer Board. Mr. Lee joined the Group in 1979 and is currently responsible for the Group s business development in China. He was last re-elected on 28 April MR. NG AH HOY 57, is an Executive Director of the Company. He graduated from the University of Singapore with a Bachelor of Engineering Degree in Mechanical Engineering. Prior to joining the Group, he was working with several multi-national corporations in the management of manufacturing operations. He joined the Group in 1990 as the General Manager of one of the subsidiaries and is currently overseeing the Group s foam plastics operations in China. He was last re-elected on 27 April Spearheading through Leadership With leadership and unity, we overcome challenges and consistently bring the Company forward with innovative strategies. Spearheading the Market 05

8 Financial Highlights Turnover S$ , , ,130 Profit before income tax and minority interests S$ ,459 37,407 41,188 Basic earnings per share (EPS) Cents Return on Equity (ROE)* 39.19% 32.10% 24.66% * Based on average shareholders equity TURNOVER PROFIT BEFORE TAX AND MINORITY INTERESTS 481, , ,130 36,459 37,407 41, BASIC EARNINGS PER SHARE RETURN ON EQUITY (ROE)* % % 24.66% Spearheading the Market

9 BROADWAY INDUSTRIAL GROUP LIMITED / Annual Report 2007 Corporate Information BOARD OF DIRECTORS Wong Sheung Sze (Executive Chairman) Lee Chow Soon Huang Yuan Chiang Philip Henry DeFord Richard Eu Yee Ming Lee Po Lee Khong Kee Ng Ah Hoy AUDIT COMMITTEE Lee Chow Soon (Chairman) Huang Yuan Chiang Philip Henry DeFord Richard Eu Yee Ming REMUNERATION COMMITTEE Huang Yuan Chiang (Chairman) Lee Chow Soon Philip Henry DeFord SECRETARY Ng Lai Ying BUSINESS OFFICE 65 Chulia Street #48-03/04 OCBC Centre Singapore Tel: REGISTERED OFFICE 3 Church Street #08-01 Samsung Hub Singapore Tel: SHARE REGISTRARS Boardroom Corporate & Advisory Services Pte Ltd 3 Church Street #08-01 Samsung Hub Singapore Tel: AUDITORS KPMG 16 Raffles Quay #22-00 Hong Leong Building Singapore Tel: Audit Partner-in-charge: Mr Phuoc Tran Appointed since FY2006 Spearheading Growth Through strategic alignment of resources and uncovering of insightful opportunities, we continue to strive for greater and sustainable growth. Spearheading the Market 07

10 09 Directors Report 14 Statement By Directors 15 Independent Auditors Report 16 Corporate Governance Report 21 Balance Sheets 22 Consolidated Income Statement 23 Consolidated Statement of Changes In Equity 25 Consolidated Cash Flow Statement 26 Notes to the Financial Statements 60 Statistics of Shareholdings 61 Notice of Annual General Meeting Proxy Form 8

11 Directors Report Annual Report 2007 / BROADWAY INDUSTRIAL GROUP LIMITED We are pleased to submit this annual report to the members of the Company together with the audited fi nancial statements for the fi nancial year ended 31 December Directors The directors in offi ce at the date of this report are as follows: Wong Sheung Sze Lee Chow Soon Huang Yuan Chiang Philip Henry DeFord Richard Eu Yee Ming Lee Po Lee Khong Kee Ng Ah Hoy Directors interests - Executive Chairman According to the register kept by the Company for the purposes of Section 164 of the Singapore Companies Act, Chapter 50 (the Act), particulars of interests of directors who held offi ce at the end of the fi nancial year (including those held by their spouses and infant children) in shares, debentures, warrants and share options in the Company and in related corporations (other than wholly-owned subsidiaries) are as follows: Name of director and corporation in which interests are held The Company Holdings at beginning of the year Holdings at end of the year Wong Sheung Sze - ordinary shares - interests held 586,845 47,815,290 - deemed interests 27,115,000 27,115,000 Lee Po Lee Khong Kee - ordinary shares - interests held 511, ,954 - deemed interests 70,000 70,000 - options to subscribe for ordinary shares at: - $0.23 between 21/07/2005 and 21/07/ ,000 - $0.45 between 17/01/2006 and 17/01/ , ,000 - $0.60 between 08/03/2008 and 08/03/ ,000 Ng Ah Hoy - ordinary shares - interests held 170,000 - deemed interests 60,000 60,000 - options to subscribe for ordinary shares at: - $0.23 between 21/07/2005 and 21/07/ ,000 - $0.45 between 17/01/2006 and 17/01/ ,000 - $0.60 between 08/03/2008 and 08/03/ ,000 Lee Chow Soon - options to subscribe for ordinary shares at: - $0.45 between 17/01/2006 and 17/01/ , ,000 - $0.58 between 17/03/2007 and 17/03/ ,000 50,000 - $0.60 between 08/03/2008 and 08/03/ ,000 9

12 Directors Report Annual Report 2007 / BROADWAY INDUSTRIAL GROUP LIMITED Name of director and corporation in which interests are held Holdings at beginning of the year Holdings at end of the year The Company Huang Yuan Chiang - options to subscribe for ordinary shares at: - $0.45 between 17/01/2006 and 17/01/ , ,000 - $0.58 between 17/03/2007 and 17/03/ ,000 50,000 - $0.60 between 08/03/2008 and 08/03/ ,000 Philip Henry DeFord - options to subscribe for ordinary shares at: - $0.45 between 17/01/2006 and 17/01/ , ,000 - $0.58 between 17/03/2007 and 17/03/ ,000 50,000 - $0.60 between 08/03/2008 and 08/03/ ,000 Richard Eu Yee Ming - options to subscribe for ordinary shares at: - $0.58 between 17/03/2007 and 17/03/ ,000 15,000 - $0.60 between 08/03/2008 and 08/03/ ,000 Compart Asia Pte Ltd Wong Sheung Sze - ordinary shares - interests held 2,322,653 By virtue of Section 7 of the Act, Wong Sheung Sze is deemed to have interests in the other subsidiaries of Broadway Industrial Group Limited, at the beginning and at the end of the fi nancial year. Except as disclosed in this report, no director who held offi ce at the end of the fi nancial year had interests in shares, debentures, warrants or share options of the Company, or of related corporations, either at the beginning or at the end of the fi nancial year. There were no changes in any of the above mentioned interests in the Company between the end of the fi nancial year and 21 January Except as disclosed under the Share Options section of this report, neither at the end of, nor at any time during the fi nancial year, was the Company a party to any arrangement whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefi ts by means of the acquisition of shares in or debentures of the Company or any other body corporate. Since the end of the last fi nancial year, no director has received or become entitled to receive, a benefi t by reason of a contract made by the Company or a related corporation with the director, or with a fi rm of which he is a member, or with a company in which he has a substantial fi nancial interest, except as follows: i) The executive directors have employment relationships with the Group, and have received remuneration in that capacity, as disclosed in this report and in note 28 to the fi nancial statements; and ii) Broadway Industrial Group Limited and Wong Sheung Sze entered into a sale and purchase agreement, whereby Broadway Industrial Group Limited acquired 18% equity interest in Compart Asia Pte Ltd from Wong Sheung Sze. 10

13 Directors Report However, Wong Sheung Sze and the executive directors have neither received nor become entitled to receive a benefi t, other than those that are ordinarily entitled to as a shareholder and/or employee. Share options The BIGL Share Option Scheme 2001 (the Scheme) of the Company was approved and adopted by its members at an Extraordinary General Meeting held on 8 November The Scheme is administered by the Company s Remuneration Committee, comprising three directors, Huang Yuan Chiang, Lee Chow Soon and Philip Henry DeFord. Other information regarding the Scheme is set out below: The options can be exercised 1 year after the grant for market price options. A further vesting period for the exercise of the options may be set. All options are settled by physical delivery of shares. The options granted expire after 5 years for non-executive directors and 10 years for employees of the Company. At the end of the fi nancial year, details of the options granted under the Scheme on the unissued ordinary shares of the Company, are as follows: Date of grant of options Exercise price per share Options outstanding at 1 January 2007 Options granted Options exercised Options forfeited Options outstanding at 31 December 2007 Number of option holders at 31 December 2007 Exercise period $ 21/07/ ,150,000 (1,150,000) 17/01/ ,000 (210,000) 140, /01/ , , /03/ , , /03/ ,000 (50,000) 278, /03/ , , /07/2005 to 21/07/ /01/2006 to 17/01/ /01/2006 to 17/01/ /03/2007 to 17/03/ /03/2008 to 08/03/ /03/2008 to 08/03/2012 1,965, ,000 (1,360,000) (50,000) 1,083,000 11

14 Directors Report Annual Report 2007 / BROADWAY INDUSTRIAL GROUP LIMITED Except as disclosed above, there were no unissued shares of the Company or its subsidiaries under options granted by the Company or its subsidiaries as at the end of the fi nancial year. Details of options granted to directors and employee of the Company under the Scheme are as follows: Name of director Options granted for financial year ended 31 December 2007 Aggregate options granted since commencement of Scheme to 31 December 2007 Aggregate options exercised since commencement of Scheme to 31 December 2007 Aggregate options outstanding as at 31 December 2007 Lee Chow Soon 50, , ,000 Huang Yuan Chiang 50, , ,000 Philip Henry DeFord 50, , ,000 Richard Eu Yee Ming 50,000 65,000 65,000 Lee Po Lee Khong Kee 75, ,000 (500,000) 175,000 Ng Ah Hoy 75, ,000 (650,000) 75,000 Name of employee Casey Wong Kwai Ching 30, ,000 (100,000) 70,000 Since the commencement of the Scheme, except for the above directors and employee, no options have been granted to the controlling shareholders of the Company or their associates and no participant under the Scheme has been granted 5% or more of the total options available under the Scheme. Since the commencement of the Scheme, no options have been granted to employees of the holding company or its related companies under the Scheme, except for six employees of the holding company, of which two employees are also the directors of the Company, who were granted options to subscribe for a total of 1,828,000 ordinary shares in the Company. The options granted by the Company do not entitle the holders of the options, by virtue of such holding, to any rights to participate in any share issue of any other company. Audit Committee The members of the Audit Committee during the year and at the date of this report are: Lee Chow Soon (Chairman), non-executive director Huang Yuan Chiang, non-executive director Philip Henry DeFord, non-executive director Richard Eu Yee Ming, non-executive director The Audit Committee performs the functions specifi ed in Section 201B of the Act, the SGX Listing Manual and the Code of Corporate Governance. The Audit Committee has held 2 meetings since the last directors report. In performing its functions, the Audit Committee met with the Company s external auditors and internal auditors to discuss the scope of their work, the results of their examination and evaluation of the Company s internal accounting control system. The Audit Committee also reviewed the following: assistance provided by the Company s offi cers to the internal auditors and external auditors; half-yearly fi nancial information and annual fi nancial statements of the Group and the Company prior to their submission to the directors of the Company for adoption; and interested person transactions (as defi ned in Chapter 9 of the SGX Listing Manual). 12

15 Directors Report Annual Report 2007 / BROADWAY INDUSTRIAL GROUP LIMITED The Audit Committee has full access to management and is given the resources required for it to discharge its functions. It has full authority and the discretion to invite any director or executive offi cer to attend its meetings. The Audit Committee also recommends the appointment of the external auditors and reviews the level of audit and non-audit fees. The Audit Committee is satisfi ed with the independence and objectivity of the external auditors and has recommended to the Board of Directors that the external auditors, KPMG, be nominated for re-appointment as auditors at the forthcoming Annual General Meeting of the Company. Auditors The auditors, KPMG, have indicated their willingness to accept re-appointment. On behalf of the Board of Directors Wong Sheung Sze Director Lee Po Lee Khong Kee Director 31 March

16 Statement By Directors In our opinion: (a) (b) the fi nancial statements set out on pages 21 to 59 are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2007 and the results, changes in equity and cash fl ows of the Group for the year ended on that date in accordance with the provisions of the Singapore Companies Act, Chapter 50 and Singapore Financial Reporting Standards; and at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due. The Board of Directors has, on the date of this statement, authorised these fi nancial statements for issue. On behalf of the Board of Directors Wong Sheung Sze Director Lee Po Lee Khong Kee Director 31 March

17 Independent Auditors Report To the Members of the Company We have audited the fi nancial statements of Broadway Industrial Group Limited (the Company) and its subsidiaries (the Group), which comprise the balance sheets of the Group and the Company as at 31 December 2007, the income statement, statement of changes in equity and cash fl ow statement of the Group for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes, as set out on pages 21 to 59. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these fi nancial statements in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the Act ) and Singapore Financial Reporting Standards. This responsibility includes: (a) (b) (c) devising and maintaining a system of internal accounting controls suffi cient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair income statements and balance sheets and to maintain accountability of assets; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors responsibility Our responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the fi nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the fi nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion. Opinion In our opinion: (a) the consolidated fi nancial statements of the Group and the balance sheet of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2007 and the results, changes in equity and cash fl ows of the Group for the year ended on that date; and (b) the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act. KPMG Certified Public Accountants Singapore 31 March

18 Corporate Governance Report Broadway Industrial Group Limited (the Company) continues to uphold a high standard of Corporate Governance within the Group and confi rms compliance with the Code of Corporate Governance. This report outlines the Group s corporate governance processes and activities for the fi nancial year ended 31 December Board of Directors The Board supervises the management of the business and affairs of the Group. Key functions of the Board include the setting of the Group s strategic plans, key operational initiatives, major investments and funding decisions. The Board also identifi es principal risks of the Group s business, ensures the implementation of appropriate systems to manage these risks and reviews the fi nancial performance of the Group. The Board comprises seven directors, four of whom are independent. They have extensive corporate experience and are respected members of the business community. The composition of the Board and Board Committees are tabled as follows: Audit Remuneration Name of director Status* Board committee committee Executive Wong Sheung Sze N Chairman Lee Po Lee Khong Kee N Member Ng Ah Hoy N Member Non-executive Lee Chow Soon I Member Chairman Member Huang Yuan Chiang I Member Member Chairman Philip Henry DeFord I Member Member Member Richard Eu Yee Ming I Member Member *N : Non-independent I : Independent The Board meets at least four times a year. Ad hoc meetings are convened if there are matters requiring the Board s decision at the relevant times. Board approval is specifi cally sought for major fi nancial and investment proposals. In the course of the year under review, the number of meetings held and attended by each member of the Board is disclosed at the end of this report. All directors have separate and independent access to the Company s senior management and the Company Secretary. The Company Secretary attends Board and Board Committee meetings and is responsible for ensuring that Board procedures are followed. Audit Committee The Audit Committee (AC) comprises the independent directors: Lee Chow Soon Huang Yuan Chiang Philip Henry DeFord Richard Eu Yee Ming (Chairman) The AC members have many years of experience in senior management positions in the fi nancial and industrial sectors. In the opinion of the Board, they have suffi cient fi nancial management expertise and experience to fulfi ll their roles. 16

19 Corporate Governance Report Audit Committee (cont d) The AC meets at least twice a year. Ad hoc meetings are convened when circumstances require. The attendances at AC meetings are disclosed at the end of this report. The AC performs the following key functions: (a) (b) (c) (d) (e) (f) (g) recommends the nomination or re-nomination of the independent auditors and approves the compensation for the auditing services; reviews the plan, scope and fi ndings of the independent auditors; reviews all non-audit services provided by the auditors and confi rms that these non-audit services would not affect the independence of the auditors; reviews the quarterly, half-year and full year results announcements and fi nancial statements of the Company and the consolidated fi nancial statements of the Group before submission to the Board for approval for the release of the results announcements to the SGX-ST; evaluates, with the other committees, management and the independent auditors, signifi cant risks or exposures that exist and assess the steps management has taken to minimise such risk to the Group; recommends the appointment of internal auditors and reviews the plan, scope and fi ndings of the internal audit; reviews with the management annually: i. Signifi cant internal audit observations during the year and management s responses; ii. iii. The effectiveness of the Group s internal controls over management, business and technology systems and practices; and Any changes required in the planned scope of the audit plan and diffi culties encountered in the course of their audits; (h) (i) (j) (k) reviews fi nancial and regulatory matters that may have a material impact on the fi nancial statements, related exchange compliance policies and programmes and reports received from regulators; reports actions and minutes of the AC to the Board of Directors with such recommendations as the AC considers appropriate; reviews interested person transactions to ensure that the established review procedures to monitor interested party transactions have been complied with; and reviews arrangements by which staff of the Company may in confi dence raise concerns about possible improprieties in matters of fi nancial reporting or other matters. Remuneration Committee The Remuneration Committee (RC) comprises the following independent directors: Huang Yuan Chiang Lee Chow Soon Philip Henry DeFord (Chairman) 17

20 Corporate Governance Report Remuneration Committee (cont d) The RC s function is in attracting, retaining and rewarding well-qualifi ed persons to serve the Group by pegging remuneration and benefi ts at competitive market rates. Directors fees and the base salaries of staff are reviewed to ensure they are at suffi ciently competitive levels. A compensation system is in place to reward staff based on their merit and performance through annual merit service increments and profi t sharing. The Company s share option scheme for directors, senior management and executives serves as a long-term incentive plan. The RC has access to expert and independent professional advice in the fi eld of executive compensation where required, at the Company s expense. No director fi xes his own remuneration. Directors fees are paid only after approval by shareholders at the Company s Annual General Meeting. Disclosure on remuneration of directors Directors Remuneration band Directors profit Consultancy Benefits- Share and name of director Salary Bonus fees sharing services in-kind option (a) % % % % % % % S$2,500,000 to S$2,749,999 Wong Sheung Sze S$500,000 to S$749,999 Ng Ah Hoy S$250,000 to S$499,999 Lee Khong Kee S$0 to S$249,999 Lee Chow Soon Huang Yuan Chiang Philip Henry DeFord Richard Eu Yee Ming (a) Refer to options granted under the BIGL Share Option Scheme 2001 to directors during the fi nancial year. The fair value of stock options granted is estimated using Trinomial Option Pricing model. The details of the BIGL Share Option Scheme 2001 were provided in the directors report for the fi nancial year ended 31 December Disclosure on remuneration of the top five key executives (who are not directors) Information on executive remuneration is sensitive and can be useful to our competitors. For competitive reasons, the Board is of the view that such disclosure will not benefi t the Company. There is no employee who is related to a Director. Nominating Committee With a small number of Board members, the Board is of the view that it was not necessary to have a Nominating Committee to undertake the function of this committee. The Board assumes this function. Internal Controls The Board believes that, in the absence of any evidence to the contrary, the system of internal controls maintained by the Group s management and that was in place throughout the year and up to and as of the date of this report, is adequate to meet the needs of the Group in its current business environment. 18

21 Corporate Governance Report Internal Controls (cont d) The system of internal controls provide reasonable, but not absolute, assurance that the Group will not be adversely affected by any event that could be reasonably foreseen as it strives to achieve its business objectives. However, the Board notes that no system of internal control could provide absolute assurance in this regard, or absolute assurance against the occurrence of material errors, poor judgment in decision-making, human error, losses, fraud or other irregularities. Any material internal control matters noted by the external auditors in the course of their statutory audit have been discussed with the AC. Internal Audit The Group outsourced its internal audit function to an independent third party accounting fi rm (IA). The IA is not related to the external auditors and reports directly to the AC. The AC reviews and approves the IA s internal audit plan, reviews with the IA and reports to the Board the fi ndings and results of internal audit work. Risk Management Policies and Processes The main risks arising from the Group s fi nancial operations are liquidity risk, foreign currency risk, credit risk and interest rate risk. The Board reviews and agrees on policies for managing each of these risks. In the management of liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the directors to fi nance the Group s operations and mitigate the effects of fl uctuations in cash fl ow. The Group s major currency exposures are in United States Dollar, Thailand Baht and Chinese Renminbi. The Group uses a combination of natural hedges of matching assets and liabilities to manage its exposure to fl uctuating foreign currency values. As for credit risk, the Group places its cash and cash equivalents with creditworthy institutions. The Group performs ongoing credit evaluation of its customers fi nancial conditions. Communication with Shareholders The Board is mindful of the obligation to provide timely and fair disclosure of material information to the Company s shareholders and does not practise selective disclosure. Results and information on the Company s new initiatives are released through SGXNET. Price sensitive information is publicly released and results and annual reports are announced or issued within the mandatory period. All shareholders of the Company receive the annual report and notice of Annual General Meeting. At the Annual General Meetings, shareholders are given opportunities to voice their views and ask directors or management questions regarding the Company. Securities Transactions The Company has clear policies on trading of its shares by directors and employees. The Company has devised and adopted its own internal Code of Best Practices on Securities Transactions ( the Code ) which is modeled after the Best Practices Guide issued by the SGX-ST with some modifi cations. The Code provides guidance to the directors and key employees of the Group with regard to dealing in the Company s securities. It emphasizes that the law on insider dealings is applicable at all times notwithstanding certain window periods provided in the Code for them to deal in the securities. The Code also enables the Company to monitor such securities transactions by requiring key employees to report to the Company whenever they deal in the Company s securities. Interested Party Transactions The aggregate value of transactions entered by the Company with Wong Sheung Sze under a shareholders mandate pursuant to Rule 920 of the SGX Listing Manual amounts to $48,465,

22 Corporate Governance Report Material Contracts The Company and Wong Sheung Sze entered into a sale and purchase agreement on 19 July 2007 whereby the Company acquired 18% equity interest in Compart Asia Pte Ltd from Wong Sheung Sze. Save as disclosed above and in the Related Parties on page 58 of the report, there were no other material contracts of the Company or its subsidiaries involving the interests of directors or controlling shareholders. Directors Attendances at Board, Audit and Remuneration Committee Meetings Meetings of: Board Audit Remuneration Total held in FY ended 31 December Wong Sheung Sze 6 N.A. N.A. Lee Chow Soon Huang Yuan Chiang Philip Henry DeFord Richard Eu Yee Ming 6 2 N.A. Lee Po Lee Khong Kee 6 N.A. N.A. Ng Ah Hoy 5 N.A. N.A. 31 March

23 Balance Sheets As at 31 December 2007 Annual Report 2007 / BROADWAY INDUSTRIAL GROUP LIMITED Group Company Note $ 000 $ 000 $ 000 $ 000 Non-current assets Property, plant and equipment 3 125, ,016 1, Goodwill 4 70,953 Subsidiaries 5 138,694 18,902 Associates Loans to subsidiaries 7 3,049 3,289 Other investments Deferred tax assets 9 1,678 1, , , ,092 23,211 Current assets Inventories 10 54,857 41,906 Trade and other receivables , ,438 4,308 2,295 Cash and cash equivalents 12 27,276 27, , ,197 4,734 2,747 Total assets 437, , ,826 25,958 Equity attributable to equity holders of the Company Share capital ,002 42, ,002 42,943 Reserves 14 (3,190) 1, Accumulated profi ts/(losses) 52,803 27,606 (21,060) (23,482) 151,615 72,355 81,214 19,801 Minority interests 1,896 43,598 Total equity 153, ,953 81,214 19,801 Non-current liabilities Financial liabilities 16 83,448 11,179 57,412 2,512 Deferred tax liabilities Current liabilities 83,787 11,554 57,412 2,512 Trade and other payables , ,428 1,093 1,018 Financial liabilities 16 48,494 34,146 8,641 2,220 Current tax payable 11,407 9, , ,682 10,200 3,645 Total liabilities 284, ,236 67,612 6,157 Total equity and liabilities 437, , ,826 25,958 The accompanying notes form an integral part of these fi nancial statements. 21

24 Consolidated Income Statement Year ended 31 December 2007 Note $ 000 $ 000 Revenue , ,633 Cost of sales (539,789) (469,865) Gross profit 66,341 56,768 Other income 3,005 3,455 Distribution expenses (6,364) (7,855) Administrative expenses (7,984) (7,587) Sales and marketing expenses (9,904) (6,091) Results from operating activities 45,094 38,690 Finance income Finance expenses (4,253) (1,606) Net finance expenses 19 (3,935) (1,371) Share of profi t of associates, net of tax Profit before income tax 20 41,188 37,407 Income tax expense 21 (4,584) (3,342) Profit for the year 36,604 34,065 Attributable to: Equity holders of the Company 27,621 20,715 Minority interests 8,983 13,350 Profit for the year 36,604 34,065 Earnings per share Basic earnings per share (cents) Diluted earnings per share (cents) The accompanying notes form an integral part of these fi nancial statements. 22

25 Consolidated Statement of Changes in Equity Year ended 31 December 2007 Foreign currency translation Total attributable to equity holders of the Share Asset Accumulated Share Share Capital option revaluation profits/ Minority Total capital premium reserve reserve reserve reserve (losses) Company interests equity Group $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 At 1 January ,598 13,345 2, ,096 7,601 56,733 35,340 92,073 Translation differences relating to fi nancial statements of foreign subsidiaries (4,424) (4,424) (3,006) (7,430) Net losses recognised directly in equity (4,424) (4,424) (3,006) (7,430) Profi t for the year 20,715 20,715 13,350 34,065 Total recognised income and expenses for the year (4,424) 20,715 16,291 10,344 26,635 Value of employee services received for issue of share options Transfer from share premium account to share capital upon implementation of the Companies (Amendment) Act ,345 (13,345) Final dividend paid of 0.60 cent per share less 20% tax in respect of year 2005 (710) (710) (710) Dividend paid to minority shareholders (2,086) (2,086) At 31 December ,943 2, (2,328) 27,606 72,355 43, ,953 The accompanying notes form an integral part of these fi nancial statements. 23

26 Consolidated Statement of Changes in Equity (Cont d) Year ended 31 December 2007 Foreign currency translation Total attributable to equity holders of the Share Asset Accumulated Share Share Capital option revaluation profits/ Minority Total capital premium reserve reserve reserve reserve (losses) Company interests equity Group $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 At 1 January ,943 2, (2,328) 27,606 72,355 43, ,953 Translation differences relating to fi nancial statements of foreign subsidiaries (4,928) (4,928) (1,363) (6,291) Net losses recognised directly in equity (4,928) (4,928) (1,363) (6,291) Profi t for the year 27,621 27,621 8,983 36,604 Total recognised income and expenses for the year (4,928) 27,621 22,693 7,620 30,313 Issue of new shares 13 58,508 58,508 58,508 Issue of shares under share option scheme (193) Value of employee services received for issue of share options Final dividend paid of 0.60 cent per share less 18% tax in respect of year 2006 (734) (734) (734) Interim dividend paid of 1.00 cent per share less 18% tax in respect of year 2007 (1,690) (1,690) (1,690) Dividend paid to minority shareholders (2,007) (2,007) Acquisitions of minority interests 24 (47,315) (47,315) At 31 December ,002 2, (7,256) 52, ,615 1, ,511 Included in the Group s accumulated profi ts is an amount of $5,790,000 (2006: $4,162,000) relating to statutory surplus reserve. According to the relevant People s Republic of China ( PRC ) regulations, the subsidiaries in the PRC are required to transfer 10% of profi t after taxation, as determined under Generally Accepted Accounting Principles of the PRC, to the statutory surplus reserve until the reserve balance reaches 50% of the company s registered capital. The transfer to this reserve must be made before the distribution of dividends to equity owners. The statutory surplus reserve can be used to make good previous years losses, if any, and may be converted into paid-in capital in proportion to the existing interests of equity owners. The accompanying notes form an integral part of these fi nancial statements. 24

27 Consolidated Cash Flow Statement Year ended 31 December 2007 Note $ 000 $ 000 Operating activities Profi t before income tax 41,188 37,407 Adjustments for: Depreciation 3 30,270 25,334 Gain on disposal of property, plant and equipment 20 (96) (258) Property, plant and equipment written off Goodwill written off Club membership written off 8 Equity-settled share-based payment transactions Interest income 19 (318) (235) Interest expense 19 4,253 1,606 Share of profi t of associates (29) (88) 75,803 63,937 Changes in working capital: Inventories (12,951) (5,107) Trade and other receivables (32,942) (40,133) Trade and other payables 18,107 23,018 Cash generated from operations 48,017 41,715 Income taxes paid (1,773) (1,819) Cash flows from operating activities 46,244 39,896 Investing activities Interest received Purchase of property, plant and equipment (63,770) (62,964) Proceeds from sale of property, plant and equipment 352 4,922 Acquisitions of minority interests 24 (60,131) Acquisition of shares in an associate (103) Cash flows from investing activities (123,334) (57,807) Financing activities Interest paid (4,253) (1,606) Dividends paid to shareholders (2,424) (710) Dividends paid to minority shareholders (2,007) (2,086) Proceeds from borrowings 121, ,232 Repayments of borrowings (32,825) (99,091) Payment of fi nance lease liabilities (87) (2,750) Fixed deposits pledged withdrawn from fi nancial institutions Proceeds from issue of share under share option scheme 358 Cash flows from financing activities 80,242 27,245 Net increase in cash and cash equivalents 3,152 9,334 Cash and cash equivalents at beginning of year 27,633 21,038 Effect of exchange rate fl uctuations (3,514) (2,739) Cash and cash equivalents at end of year 12 27,271 27,633 The accompanying notes form an integral part of these fi nancial statements. 25

28 Notes to the Financial Statements These notes form an integral part of the fi nancial statements. The fi nancial statements were authorised for issue by the Board of Directors on 31 March Domicile and activities Broadway Industrial Group Limited (the Company) is incorporated in the Republic of Singapore and has its registered offi ce at 3 Church Street, #08-01 Samsung Hub, Singapore The Company s principal place of business is 65 Chulia Street, #48-03/04 OCBC Centre, Singapore The principal activity of the Company is that of an investment holding company. The principal activities of signifi cant subsidiaries are those relating to the manufacture of foam plastics and packaging products, expanded polystyrene related products and precision machined components and the subassembly of actuator arms. The consolidated fi nancial statements relate to the Company and its subsidiaries (together referred to as the Group) and the Group s interests in associates. 2 Summary of significant accounting policies 2.1 Basis of preparation The fi nancial statements have been prepared in accordance with Singapore Financial Reporting Standards (FRS). The fi nancial statements have been prepared on the historical cost basis except for leasehold land and buildings and certain fi nancial assets and fi nancial liabilities, which are measured at fair value. The fi nancial statements are presented in Singapore dollars which is the Company s functional currency. Other entities within the Group have United States dollars and Chinese Renminbi as functional currencies. All fi nancial information presented in Singapore dollars has been rounded to the nearest thousand, unless otherwise stated. The preparation of fi nancial statements in conformity with FRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. In particular, information about signifi cant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most signifi cant effect on the amount recognised in the fi nancial statements is included in the following notes: Note 3 estimation of residual values and useful lives of property, plant and equipment Note 4 assumptions of recoverable amounts relating to goodwill impairment Note 21 measurement of provision for income taxes The accounting policies set out below have been applied consistently by the Group. The accounting policies used by the Group have been applied consistently to all periods presented in these fi nancial statements. 26

29 Notes to the Financial Statements 2.2 Consolidation Business combinations Business combinations are accounted for under the purchase method. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The excess of the Group s interest in the net fair value of the identifi able assets, liabilities and contingent liabilities over the cost of acquisition is credited to the income statement in the period of the acquisition. Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities. In assessing control, potential voting rights presently exercisable are taken into account. The fi nancial statements of subsidiaries are included in the consolidated fi nancial statements from the date that control commences until the date that control ceases. The fi nancial statements of subsidiaries have been adjusted where necessary in order for their accounting policies to be aligned with the policies adopted by the Group. Associates Associates are those entities in which the Group has signifi cant infl uence, but not control, over their fi nancial and operating policies. Signifi cant infl uence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. Associates are accounted for using the equity method. The consolidated fi nancial statements include the Group s share of the income, expenses and equity movements of associates, after adjustments to align the accounting policies with those of the Group, from the date that signifi cant infl uence commences until the date that signifi cant infl uence ceases. When the Group s share of losses exceeds its interest in an associate, the carrying amount of that interest (including any long-term investments) is reduced to zero and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the associate. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income or expenses arising from intragroup transactions, are eliminated in preparing the consolidated fi nancial statements. Unrealised gains arising from transactions with associates are eliminated against the investment to the extent of the Group s interest in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Accounting for subsidiaries and associates by the Company Investments in subsidiaries and associates are stated in the Company s balance sheet at cost less accumulated impairment losses. 27