ANNUAL REPORT 2012 ADVANCING OUR GROWTH

Transcription

1 ANNUAL REPORT 2012 ADVANCING OUR GROWTH

2 CONTENTS Company Profile 1 Board Statement 2 Board of Directors 4 Key Management 6 Corporate Information 7 Corporate Structure 8 Financial Contents 9

3 1 EASTGATE TE TECHNOLOGY E OG YL LIMITED Annual u Report 2012 COMPANY PROFILE Eastgate Technology Ltd was incorporated in 1989 and has been listed on the Mainboard of Singapore Exchange Limited since 13 October The Company underwent a corporate restructuring exercise approved by shareholders on 30 July 2009, which saw the company divesting most of its loss-making subsidiaries. The Company returned to profit in 2011 after the acquisition of two major subsidiaries, Sin Hong Hardware Pte Ltd ( Sin Hong ) and GD Tech (H.K.) Private Co., Limited ( GD Tech ). Sin Hong is at the beginning of the manufacturing value chain as a manufacturer of a wide range of fasteners, while GD Tech specialises in the design, precision machining and assembly of precision manufacturing machines and modules. Sin Hong operates as one of the largest stockists, distributors and manufacturers of a wide range of industrial fasteners and is a specialist in standard, non-standard and customised fasteners in Singapore. It serves both the domestic market, as well as major countries in the international market, including United States of America, Europe, Malaysia and Indonesia. GD Tech Group engages in the critical manufacturing of high precision components and complex electromechanical assembly, serving mainly the semiconductor equipment manufacturers, aerospace, medical, and solar manufacturers. GD Tech Group buys raw materials including fasteners, and supplies the end products in parts, modules or machines to its customers.

4 2 EASTGATE TECHNOLOGY LIMITED Annual Report 2012 BOARD STATEMENT THE GROUP IS NOW BETTER POISED TO WEATHER CHALLENGES IN THE UNCERTAIN ECONOMIC CLIMATE OF THE UPCOMING FINANCIAL YEAR, HAVING TAKEN ACTIVE MEASURES TO STRENGTHEN ITS POSITION AND TO PREPARE ITSELF FOR THE EXPECTED VOLATILE MARKET CONDITIONS AHEAD. DEAR EASTGATE SHAREHOLDERS, First of all, I am pleased to announce that our Company had received approval from the Singapore Exchange Securities Trading Limited for our removal from the Watch-List pursuant to Listing Rule 1314 with effect from 20 January We would like to thank all stakeholders for your confidence in our Company all these years IN FOCUS The past year oversaw an uncertain economic climate, in the form of rising material and operating costs, along with a general decline in global trade volume. The Eastgate Group, like many other businesses, was not unaffected by these external developments. Nonetheless, we are pleased to announce that our core businesses remain resilient and profitable. Overall, the Group recorded revenues of $38.9m and gross profits of $9.7m for the year. However, the Group s net profits dipped, due to lower gross profit levels, as well as higher expenses, which include one-time expenses totaling S$1.5m, incurred in the cessation of certain business activities. These expenses arose mainly from unforeseen delays in the novation of a lease of an industrial property to a then-prospective tenant, and comprised costs, which were incurred to reinstate and market the related industrial property to prospective tenants, along with rental and other running expenses for the lease of that industrial property. Unlike in previous years, proceeds from subtenants in FY2012 were not sufficient to offset rental and running expenses of the property as our then-subtenants had vacated in mid-october 2011, in anticipation of the successful novation of the property. As the lease of the industrial property has since been successfully novated to a third party, we do not expect any expenses in this respect in future years. Looking forward, we would like to highlight two key areas of focus that we started in FY2012 to strengthen the Group s position in an uncertain climate, and to position ourselves to profit in spite of the challenges in the economic environment ahead. STRENGTHENING OUR RESILIENCE AND ACHIEVING SUSTAINABLE GROWTH (1) Cessation of Business Activities In FY2012, we identified and ceased several business activities, which were weighing down on the Group s bottom line. These include the closure of certain non-performing subsidiaries and cessation of the Company s rental activities. We are pleased to announce that these actions are expected to save us an estimated S$2.2m of costs per annum going forward.

5 3 EASTGATE TE TECHNOLOGY LIMITED Annual Report 2012 Our Management team will continue to assess our businesses to ensure that our core operations are adequately streamlined, and to further improve our operations to reduce costs. (2) Diversification of sales, industry, and supply base Amidst the slowdown in the global economy, the Group experienced subdued demand from some customer segments. Coupled with rising material and manpower costs, our bottom line was affected in FY2012. To steel our company to weather the volatility in market demand, we are diversifying our customer base by actively tapping into specialized markets where there are higher barriers to entry. We will also be controlling costs to deal with continuing trend of rising operational and manpower costs, while sourcing for a larger pool of suppliers to secure better pricing for our raw materials. We are also on a look out for new investment opportunities that will help in yielding improved returns to the Company. APPRECIATION With our inroads into the two key areas of focus, we are better poised than before to tackle the challenges in the upcoming year. However, we could not have done this without the support of all our stakeholders. To our shareholders, thank you for your continued trust and support in our Company and in our Management team. To my fellow board members, management and staff, thank you for your hard work and dedicated contributions. To our clients and business partners, I am grateful for your unwavering confidence in us and I look forward to many more years of cooperation. On behalf of the Board of Directors of Eastgate Technology Ltd (the Company ) and its subsidiaries (collectively, the Group ), I am pleased to present to you the annual financial statements of the Group for the year ended 31 August 2012.

6 4 EASTGATE TECHNOLOGY LIMITED Annual Report 2012 BOARD OF DIRECTORS BOARD OF DIRECTORS MR TEO CHER CHEONG, PBM, BBM Executive Chairman Mr Teo Cher Cheong, aged 57, joined the Board and was appointed as the Company s Executive Chairman on 15 October Mr Teo Cher Cheong joined Sin Hong in November He was appointed as an executive director of Sin Hong on 2 May 2008, and is currently overseeing the strategic and corporate planning of Sin Hong Group. He was appointed as a director of GD Tech on 28 March 2011, and also sits on the board of two of Sin Hong s subsidiaries. Mr Teo Cher Cheong graduated from the Nanyang University of Singapore in 1979 with a Bachelor of Commerce degree in Accountancy. MR TEO TECK LEONG Managing Director Mr Teo Teck Leong, aged 57, joined the Board on 9 July 2010 and was appointed as the Company s Managing Director on 28 June He is the Chief Executive Officer of the Company s wholly-owned subsidiary, Sin Hong Hardware Pte Ltd ( Sin Hong ) and has been a director of GD Tech (H.K.) Private Co., Limited ( GD Tech ) since 28 March Mr Teo also sits on the board of all of Sin Hong s subsidiaries and one of the subsidiaries of GD Tech, and oversees the businesses of Sin Hong and its subsidiaries ( Sin Hong Group ) and GD Tech and its subsidiaries ( GD Tech Group ). Mr Teo Teck Leong has a wealth of experience in the fastener and hardware business, having managed Sin Hong s local and international sales for 24 years since he joined the firm (known back then as Sin Hong Hardware & Engineering) in He began as a marketing manager in charge of domestic sales, and was later appointed as a director and placed in charge of Sin Hong s international sales to major markets such as United States of America, Europe, Malaysia and Indonesia. In early 2008, Mr Teo Teck Leong was designated as Sin Hong s Chief Executive Officer. During his stint, he capitalised on opportunities in domestic and international trade and established two strategic business units, namely the Original Equipment Manufacturing and Export departments to capture both the local and export markets. He also expanded Sin Hong Group s business activities by clinching product agency and distributorship deals. Prior to his career in Sin Hong, Mr Teo Teck Leong was an accountant with Win Box Company Pte Ltd from 1979 to 1984, maintaining a full set of accounts and preparing financial management reports. Mr Teo Teck Leong graduated from the Nanyang University of Singapore in 1979, with a Bachelor of Commerce degree in Accountancy. MR TEO ENG THIAN Executive Director and Chief Operating officer Mr Teo Eng Thian, aged 43, joined the Board and was appointed as Executive Director of the Company on 15 October Mr Teo Eng Thian has 13 years of experience with Sin Hong, having joined the company in July He was appointed as an executive director of Sin Hong on 8 September 2005, and is currently the Chief Operating Officer of Sin Hong overseeing the manufacturing operation and supply chain for Sin Hong Group. He was appointed as a director of GD Tech on 28 March 2011, and sits on the board of all Sin Hong s subsidiaries and one of the subsidiaries of GD Tech. Mr Teo Eng Thian graduated from the Ngee Ann Polytechnic with a Diploma of Accountancy in 1993.

7 5 EASTGATE TECHNOLOGY LIMITED Annual Report 2012 DR CHAU SIK TING, PBM, BBM Independent Director Dr Chau, aged 72, joined the Board on 8 September He was appointed as the Chairman of the Remuneration Committee and is currently a member of the Audit Committee and Nominating Committee. Dr Chau serves as the Medical Advisor to SembCorp Marine Ltd and as an Accredited Specialist in Occupational Medicine with Singapore s Ministry of Health. He is a Medical Practitioner by profession and has been an Independent Non-Executive Director of China Dairy Group Ltd., since Prior to this, Dr Chau also served as Independent Director of the former Jurong Engineering Ltd from 1997 to 2004, and as Chairman of the School Management Committee in Pei Chun Public School as well as the NTUC Committee on Occupational Safety & Health. Dr Chau also held positions in the Singapore Federation of Clan Associations and the Hainan Hwee Kuan, and was an elected Member of Parliament for Thomson from 1980 to Dr Chau graduated from the University of Singapore with a degree of MBBS (Singapore). He is also a Fellow of the Academy of Medicine Singapore (FAMS) and the Faculty of Occupational Medicine from Royal College of Physicians [FFOM (London)]. MR SAW MENG TEE Independent Director Mr Saw, aged 41, joined the Board on 8 September 2009, and was appointed as the Chairman for Audit Committee and Nominating Committee. He is also a member of the Remuneration Committee. Mr. Saw has extensive experience in the audit and finance industry. He is currently a partner of Saw Meng Tee & Partner PAC, a CPA firm which he established. Mr Saw also sits on the board of several private companies. He has been an Independent Director of Soup Restaurant Group Limited since 23 March 2007 and is currently a member of its Audit Committee and Chairman of Remuneration Committee. Mr Saw holds a Bachelor of Accountancy degree from Nanyang Technological University and is a Certified Public Accountant of Singapore. He is also a Fellow of the Insolvency Practitioners Association of Singapore. MR LEE DAH KHANG Independent Director Mr Lee, aged 41, joined the Board on 3 December 2012, and was appointed as a member of Audit Committee, Nominating Committee and Remuneration Committee. Mr Lee has over 15 years of experience in providing external, internal audit and consultancy services. He is currently a Director of Yang Lee Consulting Pte Ltd ( Yang Lee Consulting ), a management consulting firm which provides professional services on corporate risk advisory, internal audits, financial due diligence, accounting solutions and pre-ipo advisory. He was instrumental in the setup of Yang Lee Consulting which serves a portfolio of public listed companies, multi-national companies, small and medium enterprises. Mr Lee holds a Bachelor of Accountancy degree from Nanyang Technological University and is a Certified Public Accountant of Singapore. He is also a Certified Internal Auditor with the Institute of Internal Auditor and a Practice Management Consultant with the Practising Management Consultants Certification Board.

8 6 EASTGATE TECHNOLOGY LIMITED Annual Report 2012 KEY MANAGEMENT WONG SIEW CHUAN Chief Financial Officer Ms Wong, aged 46, joined the Company as Chief Financial Officer on 1 October Her current duties include financial and management reporting as well as liaising with the Singapore Exchange Securities Trading Limited as the Company s authorized representative. She was the Finance Manager of Magnus Energy Group Ltd., in June 1999 and was re-designated as its Chief Financial Officer on 23 May She was with Magnus Energy Group Ltd for 10 years before joining the Company. Prior to this, she held several positions and has more than 19 years of experience in financial and management reporting, and 9 years of experience in auditing a portfolio of trading, service, manufacturing companies and financial institutions. Ms Wong graduated from the National University of Singapore with a Bachelor of Accountancy degree in 1988 and is a non-practising Fellow Certified Public Accountant Singapore. TEO ENG HWEE Executive Director Mr Teo Eng Hwee, aged 46, was appointed as an executive director of Sin Hong on 2 July 2012 to assist directors of the Company in strategic business development. He has more than 19 years of experiences in managing electronic product development for the consumer and automotive industry. Mr Teo Eng Hwee graduated from National University of Singapore with a Bachelor of Engineering Degree in TEO ENG SHING Executive Director Mr Teo Eng Shing, aged 41, joined Sin Hong in July He was appointed as an executive director of Sin Hong on 15 March 2006, and is currently overseeing the retail business, with more than 13 years of experience in the fasteners business under his belt. Mr Teo Eng Shing graduated from RMIT University Australia with a Degree of Accountancy in VOO KIM SENG Financial Controller Mr Voo, aged 57, joined Sin Hong in December He is currently the Group Financial Controller of Sin Hong. Mr Voo has worked for companies in the manufacturing and trading business including a listed company, Autron Corporation Ltd, in Singapore. Mr Voo graduated from the Nanyang University of Singapore in 1979 with a Bachelor of Commerce degree in Accountancy. He is a non-practising Fellow Certified Public Accountant Singapore. FOO SECK HIN Managing Director Mr Foo, aged 50, was appointed a director of Sin Hong s subsidiary, MST Precision Pte Ltd in June 1999, and was redesignated as its Managing Director on 1 June He oversees the daily operations of MST Precision Pte Ltd. Mr Foo graduated from Singapore Technical Institute with a Certificate of Industrial Technician. NG HOO TENG Managing Director Mr Ng, aged 61, was the Founder and Managing Director of GD Tech. He is GD Tech s legal representative, and sits on the board of GD Tech s subsidiaries. He is responsible for the business performance and overall operations of GD Tech Group. In 1986, he started his own practice to provide consultancy training services to the general manufacturing industry, before joining Norelco Centreline Pte Ltd ( Norelco ) in 1996, as its deputy managing director. Norelco is a subsidiary of UMS Holdings Limited (formerly known as Norelco UMS Holdings Limited), which is a company listed on the Main Board of SGX-ST. He has more than 25 years of experience in this field. Mr Ng graduated from the Institute of Technical Education YE MING WU Non-Executive Director Mr Ye, aged 37, is a non-executive Director of GD Tech. He is responsible for charting GD Tech Group s growth in China. In 2002, he founded General International (H.K.) Co., Ltd that deals with famous brands such as Mazak, BP Castrol and Sandvik. Mr Ye holds a degree in Engineering from Tsinghua University in China.

9 7 EASTGATE TECHNOLOGY LIMITED Annual Report 2012 CORPORATE INFORMATION REGISTRATION NUMBER R REGISTERED OFFICE 3 Kian Teck Crescent Singapore Tel: Fax: REMUNERATION COMMITTEE Dr Chau Sik Ting (Chairman) Teo Teck Leong Saw Meng Tee SECRETARY Wong Siew Chuan DIRECTORS Teo Teck Leong (Managing Director) Teo Cher Cheong (Executive Chairman) (appointed on 15 October 2012) Teo Eng Thian (Executive Chairman) (appointed on 15 October 2012) Dr Chau Sik Ting (Independent Director) Saw Meng Tee (Independent Director) AUDIT COMMITTEE Saw Meng Tee (Chairman) Teo Cher Cheong (Executive Chairman) (appointed on 15 October 2012) Dr Chau Sik Ting NOMINATION COMMITTEE Saw Meng Tee (Chairman) REGISTRAR Boardroom Corporate & Advisory Services Pte Ltd 50 Raffles Place #32-01 Singapore Land Tower Singapore Tel: (65) Fax: (65) AUDITORS BDO LLP Public Accountants and Certified Public Accountants 21 Merchant Road #05-01 Royal Merukh S.E.A. Building Singapore Partner-in-charge: Lew Wan Ming (Appointed since the financial year ended 31 August 2012) BANKERS ANZ Banking Group Limited Malayan Banking Berhad United Overseas Bank Limited Teo Teck Leong Dr Chau Sik Ting

10 8 EASTGATE TECHNOLOGY LIMITED Annual Report 2012 (SINGAPORE) 57.48% 100% 100% GD TECH (H.K.) PRIVATE CO., LIMITED (HONG KONG) MICRON STORAGE LABORATORY PTE LTD (SINGAPORE) SIN HONG HARDWARE PTE LTD (SINGAPORE) 100% GD TECH (DONGGUAN) CO LTD (PRC) 100% MARITRANS CORPORATION PTE LTD (SINGAPORE) 100% GD PRECISION (SHANGHAI) CO., LTD (PRC) 60% MST PRECISION PTE LTD (SINGAPORE) 100% GD TECH (ZHU ZHOU) CO LTD (PRC) 100% HFL (S) PTE. LTD. (SINGAPORE) 100% GD TECH (SHANGHAI) CO., LTD (PRC)

11 FINANCIAL CONTENTS Corporate Governance 10 Report of the Directors 21 Statement by Directors 25 Independent Auditors Report 26 Statements of Financial Position 28 Consolidated Statement of Comprehensive Income 29 Consolidated Statement of Changes in Equity 30 Consolidated Statement of Cash Flows 32 Notes to the Financial Statements 34 Statistics of Shareholdings 90 Notice of Annual General Meeting 92 Proxy Form

12 ANNUAL REPORT 2012 CORPORATE GOVERNANCE REPORT Eastgate Technology Ltd ( Eastgate or the Company ) is committed to ensuring a high standard of corporate governance within the Group to protect the interests of shareholders and to promote investors confidence within the constraints of the Group s operations and size, and supports full compliance of the Code of Corporate Governance 2005 ( Code ). 1. THE BOARD S CONDUCT OF ITS AFFAIRS Principe 1: Effective Board to lead and control the Company Role of the Board of Directors ( Board ) The role of the Board is to oversee the business affairs of and provide strategic direction and corporate governance guidance for the Group. The Board s principal functions include: approving board policies, strategies and financial objectives for the Group; approving the nominations of board members and key managerial personnel; approving budgets, major funding proposals, investment and divestment proposals; reviewing the Group s financial performance; and monitoring the performance of management. The day-to-day management of the Group s businesses and affairs, the development of various business activities and the formulation of corporate strategies have been entrusted to the executive directors. This is to facilitate effective management. Board Processes The Board has delegated specific responsibilities to three committees, namely, the Audit Committee, Nominating Committee and Remuneration Committee to support its role. These committees operate within clearly defined terms of references and operating procedures. These are reviewed on a regular basis and improved as and when required to meet the changes in the laws and other guidelines. The Committees examine specific issues and report to the Board with their decisions and/or recommendations. However, the ultimate responsibility on all matters lies with the entire Board. Board Meetings Held The Board meets at least two times a year. Fixed meetings are scheduled at the start of the financial year. Ad hoc meetings are called when there are pressing matters requiring the Board s consideration and decision in between the scheduled meetings. Page 10

13 ANNUAL REPORT 2012 CORPORATE GOVERNANCE REPORT The Articles of Association of the Company allow directors to participate in a Board meeting by telephone conference or video-conference. The number of meetings held and attended by each director during the financial year from 1 September 2011 to 31 August 2012 is tabulated below: Director Board Audit Nominating Committee Committee Remuneration Committee No. of Meetings Name Held Attended Held Attended Held Attended Held Attended Teo Cher Cheong (1) (2) 2 3 Dr Chau Sik Ting Saw Meng Tee Teo Teck Leong (2) Teo Eng Thian (1) 2 - Note (1) Appointed as a director on 15 October 2012 (2) Appointed as member of the respective committee on 16 October 2012 Matters Requiring the Board s Approval The Board has adopted a set of guidelines on matters that require its approval. Matters which are specifically reserved for the Board s decision include: statutory requirements such as approval of annual report and financial statements; other requirements such as interim and annual results announcements; financial objectives of the Group; corporate strategic direction, strategies and action plans; the setting of policies and key business initiatives; and authorisation of acquisition/disposal and other material transactions. Training of Directors The Company does not have a formal training programme for new directors. However, to assist the Board in discharging its duties, a newly appointed director will be orientated on the Group s business, operations, organisation structure and corporate strategy and policies. He will also be briefed on the Company s corporate governance practices, regulatory regime and his duties as director. Directors are updated via electronic mail of regulatory changes affecting the Group. In addition, Directors are informed and encouraged to attend relevant courses conducted by the Singapore Institute of Directors, Singapore Exchange Securities Trading Limited, business and financial institutions, and consultants. Directors may, at any time, request further explanations, briefings or informal discussions on any aspect of the Group s operations or business issues from management. Page 11

14 ANNUAL REPORT 2012 CORPORATE GOVERNANCE REPORT 2. BOARD COMPOSITION AND GUIDANCE Principle 2: Strong and independent Board Currently, the Board comprises: Teo Cher Cheong (Executive Chairman) Teo Teck Leong (Managing Director) Teo Eng Thian (Executive Director) Dr Chau Sik Ting (Independent Director) Lee Dah Khang (Independent Director) Saw Meng Tee (Independent Director) As a group, the directors bring with them a wide range of business and financial experience, skills and expertise to meet the Company s targets. The Board has reviewed its composition and is satisfied that the existing composition is appropriate taking into account the scope and nature of operations of the Company. Though non-executive directors make up fifty percent of the Board, no individual or group is able to dominate the Board s decision-making process. Although all the directors have an equal responsibility for the Group s operations, the independent and non-executive directors ensure that the strategies proposed by the management are constructively challenged, fully discussed and examined, and taking into account the long term interests, not only of the shareholders, but also of employees, customers, suppliers and the many communities in which the Group conducts business. The independent and non-executive directors also review the performance of the management in meeting agreed goals and objectives. 3. CHAIRMAN AND CHIEF EXECUTIVE OFFICER Principle 3: Clear division of responsibilities between Chairman and Managing Director to ensure a balance of power and authority The Company has a separate executive Chairman and Managing Director. Despite that the Chairman is an executive director, he schedules the meetings, sets the agenda for Board meetings, ensures that adequate time is available for discussion of all agenda items, in particular, strategic issues, and that complete, adequate and timely information is made available to the Board. He encourages constructive relations within the Board and between the Board and Management, facilitates the effective contribution of non-executive directors, and ensures effective communications with shareholders. He takes a lead role in promoting high standards of corporate governance, with the full support of the directors, the company secretary and management. The Chairman and the Managing Director are not related. The Managing Director is responsible for the Group s business and implements the Board s decisions. The roles of the Chairman and the Managing Director are kept separate to ensure an appropriate balance of power. Page 12

15 ANNUAL REPORT 2012 CORPORATE GOVERNANCE REPORT 4. BOARD MEMBERSHIP Principle 4: Formal and transparent process for the appointment of new directors Currently, the Nominating Committee ( NC ) comprises: Saw Meng Tee (Chairman) Dr Chau Sik Ting Lee Dah Khang Teo Teck Leong The Chairman of the NC is neither a substantial shareholder of the Company nor directly associated with a substantial shareholder of the Company. The NC has adopted specific terms of reference and its principal functions are as follows: identify candidates and review all nominations on appointments and re-appointment of directors including making recommendations on the composition of the Board and the balance between executive and non-executive directors to the Board; review the Board structure, size and composition annually; determine the independence of directors annually, guided by the independent guidelines contained in the Code; review and decide if a director is able to and has been adequately carrying out his duties as a director of the Company, when he has multiple representations; and assess the effectiveness of the Board as a whole every year and the contribution of each individual director in terms of required mix of skills and experience and other qualities, including core competencies, to the Group. The NC meets at least once a year. Additional meetings are scheduled if considered necessary by the Chairman of the NC. Pursuant to Article 94 of the Company s Articles of Association, newly appointed directors would be required to submit themselves for re-nomination and re-election at the forthcoming Annual General Meeting ( AGM ). Article 87 of the Company s Articles of Association requires that one-third of the Directors retire by rotation at every AGM. However, the Managing Director is not subject to retirement by rotation. Section 153(6) of the Companies Act, Cap. 50 ( Act ) requires directors who are of or over the age of 70 years to be re-appointed at every AGM. In accordance with the Company s Articles of Association, Messrs Lee Dah Khang, Teo Cher Cheong and Teo Eng Thian will retire pursuant to Article 94 while Mr Saw Meng Tee will retire pursuant to Article 87 at the forthcoming AGM. In accordance with Section 153(6) of the Act, Dr Chau Sik Ting will be re-appointed as a Director of the Company at the forthcoming AGM. Page 13

16 ANNUAL REPORT 2012 CORPORATE GOVERNANCE REPORT Details of the Directors academic and professional qualifications, interests in the Group, committees served, directorships are disclosed in the Annual Report to enable shareholders to make informed decisions. The independent directors have declared their independence for the financial year ended 31 August 2012 ( FY 2012 ), in accordance with the independent guidelines contained in the Code. During FY 2012, the NC is satisfied that sufficient time and attention are being given by the directors to the affairs of the Group, notwithstanding that some of the directors have multiple board representations, and there is presently no need to implement internal guidelines to address their competing time commitments. The NC is also of the opinion that the current board size is adequate for the effective functioning of the board. 5. BOARD PERFORMANCE Principle 5: Formal assessment of the effectiveness of the Board and contribution by each director The Nominating Committee reviews the Board s performance on an annual basis, and decides how this may be evaluated, based on performance criteria approved by the Board. In FY 2012, the Board implemented a process for assessing the effectiveness of the Board as a whole, its three Committees and for assessing the contribution by individual Directors to the effectiveness of the Board. For evaluation of the Board performance, each Director will complete a questionnaire seeking his views on various aspects of Board performance, such as composition, information provided, procedures, accountability, top management and standards of conduct. For evaluation of the individual Director s performance, each Director will complete a questionnaire for each of his peers seeking his views on various aspects of the individual director performance, such as attendance; preparedness; candour; participation and contribution at meetings; and industry and business knowledge. The Company Secretary compiles Directors responses into a consolidated report for the Board and each individual Director. These reports are discussed at the NC meeting and also shared with the entire Board. The NC reviews annually whether the questionnaire on Board evaluation should be completed by Directors. For FY2012, taking into account the Board composition and size, the Board s access to information, Board processes, Board accountability, standard of conduct and performance of its principal functions and fiduciary duties, and guidance to and communication with Management, the NC assessed the performance of the Board as a whole and was of the view that the overall performance of the Board as a whole was satisfactory and that all the Directors had contributed positively to the deliberations and decisions at Board and Committee levels. Page 14

17 ANNUAL REPORT 2012 CORPORATE GOVERNANCE REPORT 6. ACCESS TO INFORMATION Principle 6: Provision of complete, adequate and timely information prior to board meetings and on an on-going basis The Board is usually provided with Board papers in advance before each Board meeting, giving the background, explanatory information and justification for each decision and mandate sought by the management, including, where applicable, pertinent financials, to enable them to be properly informed of matters to be discussed and/or approved. All directors have separate and independent access to the Group s management team at all times and can communicate directly with the management, the officers, the company secretary and external auditors on all matters as and when they deem necessary. They have full access to the Company s records and information and may obtain independent legal and other professional advice if they deem necessary to properly discharge their responsibilities. Such expenses are borne by the Company. The company secretary attends all Board meetings and records all decisions and conclusions of the Board meetings in the minutes book. In addition, the company secretary assists the Chairman in ensuring that Board procedures are followed and reviewed regularly so that the Board functions effectively, and the Company s Memorandum and Articles of Association and relevant rules and regulations, including requirements of the Act and the SGX-ST, are complied with. The appointment and removal of the company secretary are decided by the Board as a whole. 7. REMUNERATION MATTERS Remuneration Policies Principle 7: Formal and transparent procedure for fixing remuneration packages of directors Currently, the Remuneration Committee ( RC ) comprises: Dr Chau Sik Ting (Chairman) Lee Dah Khang Saw Meng Tee Teo Teck Leong The RC has adopted specific terms of reference and its principal functions are as follows: review and recommend to the Board a framework of remuneration for directors and key executives to ensure the package is sufficient to attract and retain people of required quality to run the Company successfully. The review covers all aspects of remuneration including but not limited to directors fees, salaries, bonus, options and benefits-in-kind; Page 15

18 ANNUAL REPORT 2012 CORPORATE GOVERNANCE REPORT determine the specific remuneration packages for executive directors and key executives based on performance, service seniority, experience and scope of responsibility. Such remuneration packages are periodically bench-marked to market/industry; recommend the fees payable to non-executive directors based on the level of responsibilities undertaken by them; and administer the Eastgate Employees Share Option Scheme The RC s recommendations are made and submitted for endorsement by the entire Board. However, members of the RC will ensure that they do not set their own remuneration. The RC may obtain independent professional advice if they deem necessary to properly discharge their responsibilities. Such expenses are borne by the Company. The RC meets at least once a year. Additional meetings are scheduled if considered necessary by the Chairman of the RC. Level and Mix of Remuneration Principle 8: Appropriate remuneration to attract, retain and motivate directors The level and mix of remuneration for Directors is set out under Principle 9. Principle 9: Clear disclosure on remuneration policy, level and mix Summary compensation table for the financial year ended 31 August 2012: Director fees % Other benefits % Name Salaries % Bonus % Total S$ Directors Teo Teck Leong (Managing Director) ,857 Ang Kong Hwee* ,100 Dr Chau Sik Ting (Independent Director) ,000 Saw Meng Tee (Independent Director) ,000 Key Executives Wong Siew Chuan ,966 Teo Cher Cheong ,713 Teo Eng Hwee ,600 Teo Eng Shing ,000 Teo Eng Thian ,800 Voo Kim Seng ,520 Foo Seck Hin ,200 Ng Hoo Teng ,463 Note * Relinguish executive duties on 1 October 2011 Page 16

19 ANNUAL REPORT 2012 CORPORATE GOVERNANCE REPORT The RC and the Board are of the opinion that the remuneration of the directors and key executives for the financial year ended 31 August 2012 are adequate but not excessive in order to attract, retain and motivate them to run the Group successfully. The remuneration of employees who are immediate family members of a Director have been disclosed in Note 27 of the financial statements in the Annual Report. 8. ACCOUNTABILITY Principle 10: Board to present a balanced and understandable assessment of the company s performance, position and prospects. The Board provides shareholders with a balanced and understandable assessment of the Group s performance, financial position and prospects when it announces the half year and full year financial results of the Group. Periodic announcements on business and other developments of the Group via SGX-ST s SGXNET or press releases are made to keep shareholders informed about the progress of the Group. 9. AUDIT COMMITTEE ( AC ) Principle 11: Establishment of an Audit Committee with written terms of reference Currently, the AC comprises: Saw Meng Tee (Chairman) Dr Chau Sik Ting Lee Dah Khang Teo Cher Cheong Three members of the AC have professional and in-depth experiences in the field of financial management and accounting. The Board is of the view that AC members have sufficient accounting and financial management expertise and experience to discharge the AC s responsibilities. The AC meets at least 2 times a year. Additional meetings are scheduled if considered necessary by the Chairman of the AC. During the financial year, the AC met the external auditors once without any executive of the Group being present. The AC carried out its functions in accordance with the Act and SGX-ST Listing Manual. The functions of the AC are as follows: review the audit plans and scope of the external auditors of the Company and ensure adequacy of the system of internal accounting controls and the co-operation given by the Company s management to the external auditors; Page 17

20 ANNUAL REPORT 2012 CORPORATE GOVERNANCE REPORT review the half and full year financial statements and the auditor s report on the annual financial statements of the Company and of the Group before submission to the Board; review the auditors evaluation of the system of internal accounting controls and discuss problems and concerns arising from their audit or any other matters which the auditors might wish to discuss privately with the AC; review any formal announcements relating to the Company s financial performance in addition to the half and full year financial statements compliance; meet with the external auditors and/or the Management in separate executive sessions to discuss any matters that should be discussed privately with the AC; review the independence of the external auditors annually and recommend the external auditors to be nominated, approve the compensation of the external auditors and review the results of the audit; and review interested person transactions in accordance with the requirements of the SGX-ST Listing Manual. Apart from the duties listed above, the AC also has the power to conduct or authorise investigations into any matters within the AC s scope of responsibility, The AC is authorised to obtain independent professional advice if they deem necessary to properly discharge their responsibilities. Such expenses are borne by the Company. The AC has full access to, and the co-operation of, management and has full discretion to invite any director or officer to attend its meetings, and has been given reasonable resources to enable it to discharge its functions properly. The aggregate amount of fees paid and/or payable to the external auditors amounted to approximately S$290,000 for audit services and there were no non-audit services rendered by external auditors. 10. INTERNAL CONTROLS Principle 12: Sound system of internal controls The Board is responsible for the overall internal control framework and is fully aware of the need to put in place a system of internal controls within the Group to safeguard shareholders interests and the Group s assets, and to manage risks. The Board recognises that, in the absence of evidence to the contrary, the internal control system maintained by the Group that was in place throughout the financial year and up to the date of this report provides reasonable, but not absolute, assurance against material financial misstatements or losses, and includes the safeguarding of assets, the maintenance of proper accounting records, the reliability of financial information, compliance with appropriate legislation, regulations and best practices, and the identification and containment of financial, operational and compliance risks. The Board notes that all internal control systems contain inherent limitations and no system of internal controls could provide absolute assurance against the occurrence of material errors, poor judgment in decision making, human error losses, fraud or other irregularities. Page 18

21 ANNUAL REPORT 2012 CORPORATE GOVERNANCE REPORT Based on the internal controls established and maintained by the Group, work performed by the external auditors, and reviews performed by the management and the Board, the Audit Committee and the Board are of the opinion that the Group s internal controls, addressing financial, operational and compliance risks, were adequate as at 31 August INTERNAL AUDIT Principle 13: Establishment of an internal audit function that is independent of the activities it audits. The Group outsources its internal audit function to external professional firms, as and when the need arises. The external professional firm appointed will report directly to the AC Chairman. The AC will review the requirements of outsourcing the internal audit function annually. In FY 2012, there were no outsourcing of internal audit function. This is so after considering that the Group has put in place an organisation structure with formally defined lines of responsibility and delegation of authority. A process of hierarchical reporting has also been established which provides for a documented and auditable trail of accountability. Moreover, the Executive Directors and senior management through their day-to-day involvement in the business operations and regular attendance at senior management level meetings, manage and monitor the Group s financial performance, key business indicators, operational effectiveness and efficiency, discuss and resolve significant business issues and ensure compliance with applicable laws, regulations, rules, directives and guidelines. The appointed external professional firm will plan its internal audit work in consultation with the management and its audit plan will be submitted to the AC for approval. The AC has the full discretion and authority to meet the internal auditors without the presence of the management as and when it feels necessary to gather feedback on management s level of cooperation and other matters that warrant the AC s attention. Internal audit reports will be submitted to the AC for deliberation. A summary of findings, recommendations and management s remedial actions will be discussed at AC meetings. The internal auditors would highlight the high-risk issues that require immediate and serious attention. 12. COMMUNICATION WITH SHAREHOLDERS Principle 14: Regular, effective and fair communication with shareholders Principle 15: Greater shareholder participation at AGMs The Board adopts the practice of regularly communicating major developments in the Group s businesses and operations through SGXNET and press releases to shareholders. The Company sends the annual report and notice of AGM to all shareholders of the Company. The notice of AGM is advertised in a Singapore s newspaper. At the AGM, shareholders are given the opportunity to opine their views and query the Directors or the Management on matters regarding the Company. Shareholders have the opportunity to participate effectively and to vote in AGMs. They are allowed to vote in person or by appointed proxy. Page 19

22 ANNUAL REPORT 2012 CORPORATE GOVERNANCE REPORT During the AGM, the resolutions on each substantial issue are disclosed separately and not bundled together unless the resolutions are interdependent and linked so as to form one significant proposal. For such resolutions, clear explanation and reasons are provided together with its material implications. The Company adopts the practices of preparation of minutes or notes of AGM, including the comments and/or queries from the shareholders and response from the Board and Management, and to make these minutes or notes available to shareholders upon their requests. In addition, the Company practises transparency during the AGM whereby the Chairman of NC, RC and AC and the Company s external auditors are present and available to address shareholders questions and concerns about the conduct of the Company and/or audit and the preparation and content of the Independent Auditors Report. 13. SECURITIES TRANSACTIONS The Company has in place a policy prohibiting share dealings by Directors and officers of the Group while in possession of unpublished material or price-sensitive information during the closed period, which is defined as two weeks before the announcement of the Group s half year financial statements or one month before its full financial year and ending on the date of the announcement of the relevant results. Directors and officers of the Group are expected to observe the insider trading laws at all times even when dealing in securities within permitted trading period. The Directors and officers of the Group are strongly discouraged to deal in the Company s securities on short-term considerations. 14. MATERIAL CONTRACTS There were no material contracts of the Company, or its subsidiaries involving the interests of any director or controlling shareholder, either still subsisting at the end of the financial year or if not then subsisting, entered into since the end of previous financial year. 15. INTERESTED PERSONS TRANSACTIONS The Company has in place proper policies and procedures for the identification, approval and monitoring of transactions with interested persons. All interested persons transactions are subject to review by the AC. During FY 2012, there were no interested persons transactions. 16. RISK MANAGEMENT The Company does not have a Risk Management Committee. However, the Board of Directors will regularly review the Group s business and operating activities and the business environment to identify areas of significant business risks and recommend appropriate measures which will control or mitigate these risks. Page 20

23 REPORT OF THE DIRECTORS The Directors of the Company present their report to the members together with the audited financial statements of the Group for the financial year ended 31 August 2012 and the statement of financial position of the Company as at 31 August Directors The Directors of the Company in office at the date of this report are: Teo Teck Leong Teo Cher Cheong (appointed on 15 October 2012) Teo Eng Thian (appointed on 15 October 2012) Dr Chau Sik Ting Saw Meng Tee 2. Arrangements to enable Directors to acquire shares or debentures Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose object is to enable the Directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. 3. Directors interests in shares or debentures According to the Register of Directors Shareholdings kept by the Company under Section 164 of the Singapore Companies Act, Chapter 50 (the Act ), none of the Directors of the Company who held office at the end of the financial year had any interest in the shares or debentures of the Company and its related corporations except as detailed below: Shareholdings registered in the name of Directors Balance as at Balance as at Shareholdings in which Directors are deemed to have interest Balance as at Balance as at The Company Number of ordinary shares Ang Kong Hwee 22,600,000 22,600, Teo Teck Leong 406, ,800 89,280,000 95,431,000 In accordance with the continuing listing requirements of the Singapore Exchange Securities Trading Limited ( SGX-ST ), the Directors of the Company state that, according to the Register of Directors Shareholdings, the Directors interests as at 21 September 2012 in the shares of the Company have not changed from those disclosed as at 31 August Page 21

24 REPORT OF THE DIRECTORS (Continued) 4. Directors' contractual benefits Since the end of the previous financial year, no Director of the Company has received or become entitled to receive a benefit which is required to be disclosed under 201 (8) of the Act, by reason of a contract made by the Company or a related corporation with the Director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except as disclosed in the financial statements. 5. Share options The Eastgate Technology Share Option Scheme (the "Scheme") in respect of unissued ordinary shares in the Company was approved by the members of the Company at an Extraordinary General Meeting on 20 July Under the Scheme, the exercise price of the granted options is equal to the average of the closing prices of the Company's ordinary shares on the SGX-ST for the five market days immediately preceding the date of the grant. Once the options are vested, they are exercisable for a contractual option term of 10 years. The options may be exercised in full or in respect of 1,000 shares or a multiple thereof, on payment of exercise price. The persons to whom the options have been issued have no right to participate by virtue of the options in any share issue of any other company. The Remuneration Committee comprising the following Directors administer the Scheme: Dr Chau Sik Ting (Chairman) Saw Meng Tee Teo Teck Leong There have been no options granted to the controlling shareholders of the Company or their associates. No key management personnel or employee has received options on 5% or more of the total number of shares available under the Scheme during the financial year. No Director or employee of the Company and its subsidiaries (as defined in the Singapore Exchange Securities Trading Limited Listing Manual) has received options on 5% or more of the total number of shares available to all Directors and employees of the Company and its subsidiaries under the Scheme during the financial year. There were no share options granted for the financial year ended 31 August There were no shares issued during the financial year by virtue of the exercise of the options to take up unissued shares of the Company or its subsidiaries. There were no unissued shares under option in the Company or its subsidiaries at the end of financial year. Page 22