Annual Report Your preferred corrugated products supplier

Transcription

1 Annual Report Your preferred corrugated products supplier

2 ontents 02 Executive Chairman s Statement 04 Board of Directors 06 Sales Analysis by Customer Sector 07 Financial Highlights 08 Corporate Information 09 Corporate Reports

3 ur ission To be the preferred corrugated products supplier Tat Seng strives to position ourselves as the first name that comes to mind whenever cartons and other corrugated packaging products are required by users. Tat Seng progresses through continuous improvements, so as to remain a key supplier in the paper packaging industry and to maintain our continuous growth in the marketplace. Tat Seng Packaging Ltd Annual Report 0

4 xecutive hairman s tatement Dr. Allan Yap Executive Chairman On behalf of the Board of Directors, I am pleased to present the Annual Report of the Company for the financial year ended 31 December. STRATEGIC DIVESTMENT The highlight of the financial year was the strategic divestment of the Company s leasehold land and building. In April, the Company entered into an option agreement with RBC Dexia Trust Services Singapore Pte Limited, the trustee of Cambridge Industrial Trust ( CIT ), an SGX-ST listed real estate investment trust, for the sale and leaseback (the Proposed Transaction ) of the Company s building and the remainder of the Company s leasehold interest in 28 Senoko Drive (the Property ). The sale price of the Property was S12 million, as valued by the Company s independent valuer, Kenwood Property Consultants Pte Ltd. Subsequent to obtaining the Company shareholders approval for the Proposed Transaction in an Extraordinary General Meeting held on 21 June, the sale of the Property was completed on 25 June. Upon completion, the Property was leased back for a term of 15 years, with an option to renew for a further 5 years. The proceeds from the sale of the Property gave the Company a gain of S3.7 million in the year. FINANCIAL REVIEW The s turnover for the year ended 31 December reached S74.6 million, representing an increase of S19.8 million or 36% from S54.8 million in the prior financial year. The inclusion of S13.1 million full year turnover of Hefei Dansun Packaging Co., Ltd. ( Hefei Dansun ) which was acquired in September contributed to the better performance. Excluding the contribution from Hefei Dansun for this current and prior year, the s turnover from Singapore and Suzhou operations grew 18.2%. The s cost of sales increased 40.9% or S17.9 million. Cost of paper materials and labour costs increased significantly during the year. This is in part contributed by the inclusion of a full year cost from Hefei Dansun as compared to the previous year. However, factory overheads relative to turnover decreased as compared to the previous corresponding period. The combined effect resulted in a lower gross profit margin as compared to prior year. In line with the increase in turnover and the inclusion of a full year expenditure of Hefei Dansun, the s operating expenses increased by S1.8 million. Other income increased S3.6 million as compared to the previous corresponding period, mainly due to the gain on sale of the Company s property. This gain lifted the s profit after tax by 1.4 times to S5.7 million. Correspondingly, the net profit attributable to shareholders for the year increased 3.5 million. BUSINESS REVIEW Tat Seng Singapore: With the improvement of Singapore s economy in, Singapore operations consolidated the existing customer base and achieved an 8.3% revenue growth as compared to the previous financial year. In the second half of the year, Singapore operations faced an industry-wide increase in paper prices, causing materials costs to increase substantially. In addition, the Company faced additional expenditure for the lease of property from CIT. These had affected the operation s profit margins. Tat Seng Packaging Suzhou Co., Ltd. ( Tat Seng Suzhou ): Inflation, a general increase in energy prices and an increase in prices of waste paper drove up the cost of paper and other raw materials. However, as a result of economies of scale and better cost control, gross profit margin remained relatively unchanged as compared to financial year. The fourth phase of expansion in Tat Seng Suzhou was completed in the year. This phase 02 Tat Seng Packaging Ltd Annual Report

5 of expansion was designated to house the 2.8m coating machine and to increase storage space. With the completion of Phase four, Tat Seng Suzhou would reorganize its storage facilities so as to improve storage efficiency. In an effort to improve manpower effectiveness, an external consultant was appointed to conduct Training Within Industry for our supervisory staff. These training sessions were held once a month, and gave supervisors an insight into general management methodologies, and equipped them with the skills and knowledge to monitor and control their work functions. Hefei Dansun: In January, the paid up capital of Hefei Dansun was increased by RMB7 million, from RMB15 million to RMB22 million. This increase was to facilitate the expansion plan of Hefei Dansun. The 80% share of the Company s injection of additional capital was funded by the Company s internal resources. Hefei Dansun s expansion progressed as planned. The completion of the second phase of expansion yielded an additional 13,000 square meters of production space. With this addition, Hefei Dansun expects to initiate a reorganization of the plant in the first quarter of At the completion of the reorganization, Hefei Dansun could look forward to smoother work flows, and improved efficiency at the production floor. This would enable them to take on additional and new orders, which had to be declined previously due to constraints in production capacity and storage space. The six-colour flexographic printing machine was commissioned in the year. This was expected to enable Hefei Dansun to provide better quality products and to meet increasing customer requirements. GOING FORWARD Moving forward, the intends to focus on reorganizing the respective operations and to make improvements in productivity and efficiency. Singapore s economic growth in 2008 is expected to be slower as compared to the growth in. We are therefore cautiously optimistic that Singapore operations would maintain a modest growth. In response to the considerable increase in materials prices, Singapore operations initiated a price review exercise. Customers were generally aware of the necessity for price adjustments, and Singapore operations should be able to cushion the impact of costs increases. The appreciation of the Renminbi caused a direct impact on and slowed down China s exports. This in turn resulted in lower demand for export related packaging products. For environmental protection, the Chinese Government had commenced actions to close small, inefficient paper mills which largely use straw and crop fiber to produce paper, and subsequently cause industrial water pollution 1. This would likely result in many small scale packaging factories to be less competitive, since they would not be able to obtain cheaper sources of paper. Our two China operations could therefore be expected to benefit from new business opportunities. Tat Seng Suzhou is expected to reap more economies of scale, as increase in business volume and improvements in productivity optimize the utilization of the expanded production capabilities. The continuing staff training would enhance the effectiveness of their manpower. With improvements in management efficiency, Tat Seng Suzhou is expected to enhance its competitive edge and increase its contribution to the. Hefei Dansun s main focus will be on the reorganization of its production flow. This includes the installation of conveyor systems on the production floor to facilitate movement of inventory-in-process between processes. This is expected to increase production efficiency and reduce waste due to damage. In addition, a computerization project will be initiated for the plant to automate and streamline work procedures. This is expected to increase the productivity and stability of the operations. Hefei Dansun has been identified and accredited by two major consumer electronics manufacturers, Gree Electric Appliance Inc. of Hefei ( Gree Electric ) and Hefei ChangHong Meiling Electric Applicance Co., Ltd as the main supplier of their packaging requirements. They could be expected to commence operations in the second quarter of At the same time, Hefei Dansun will be setting up a new production line to produce Expanded Polyethylene ( EPE ) packaging to supply Gree Electric. EPE is an exceptional protective packaging material and can be used across many industries. This promises to be yet an additional revenue stream for the. REWARDING SHAREHOLDERS In August, the Company announced a special dividend of 1.5 cents per ordinary share less tax for the current year in review. This was subsequently paid in September. APPRECIATION My appreciation goes to our customers, business partners, suppliers and shareholders for their patronage and support. On behalf of the Board of Directors, I would like to thank Mr. Lim Seng Chai for his contributions to the Board. We wish him well in his endeavors. The hard work of the Board, Management and staff of the have been integral to the growth of the this year. With your dedication and efforts, we have gained leaps to being the preferred corrugated products supplier in Singapore and China. Dr. Allan Yap Executive Chairman Tat Seng Packaging Ltd Annual Report 0

6 oard f irectors Dr. Allan Yap Executive Chairman Dr. Allan Yap was appointed as an Executive Chairman of our on 21 November His portfolio includes 25 years of experience in finance, investment and banking. Dr. Yap is also the Executive Chairman of PSC Corporation Ltd and Intraco Limited. He is an Executive Director of Wing On Travel (Holdings) Limited and the Managing Director of Hanny Holdings Limited, both of which are Hong Kong-listed companies. He is also the Chairman of MRI Holdings Limited, an Australian-listed company and the Chairman of China Enterprises Limited, a company whose shares are traded on the OTC Bulletin Board in the United States of America. Dr. Yap is the Chairman and Chief Executive Officer of Burcon NutraScience Corporation, a Canada-listed company. He received an Honorary Degree of Doctor of Law from the University of Victoria, Canada. Loh See Moon Managing Director Mr. Loh See Moon was appointed as the Managing Director/ Chief Executive Officer of our on 21 November Prior to his current appointment, Mr. Loh was the Deputy Managing Director of our. He was appointed as an Executive Director and concurrently as the Factory Manager of our Company in In 1981, he was promoted to the position of General Manager. In 1989, he was appointed as the Deputy Managing Director. Mr. Loh graduated from the Nanyang University in 1971 with a Bachelor of Science Degree. He has more than 30 years of experience in the corrugated products industry. Dr. John Chen Seow Phun Deputy Chairman Dr. John Chen Seow Phun joined our on 21 November 2005 as a Non-Executive Director and was concurrently appointed as a Deputy Chairman of our Board. Dr. Chen was a Member of Parliament from 1988 to. He served as the Assistant Secretary General of the National Trades Union Congress from 1991 to He was a Minister of State from 1997 to He is presently the Managing Director of JCL Business Development Pte Ltd, the Chairman of SAC Capital Private Limited, the Deputy Chairman and Non-Executive Director of PSC Corporation Ltd and sits on the Board of a number of publicly listed companies. Dr. Chen has been a Board member of the Economic Development Board, the Housing & Development Board, the Port of Singapore Authority and Singapore Power Ltd. Foo Der Rong Executive Director Mr. Foo Der Rong graduated with Bachelor of Commerce Degree from Nanyang University and was appointed as an Executive Director of our on 21 November He is currently the Managing Director and CEO of PSC Corporation Ltd and Executive Director of Intraco Limited, both Singapore -listed companies. Mr. Foo has wealth of experience and knowledge in business development, corporate restructuring, investment strategies and operations management in the FMCG, service and manufacturing industries. 0 Tat Seng Packaging Ltd Annual Report

7 Cheong Poh Hua Executive Director Ms. Cheong Poh Hua, is an Executive Director of our. Ms. Cheong joined our Company in September 1981 and was later promoted to Finance and Administration Manager in Ms. Cheong is responsible for all the financial and administrative affairs of our. She was appointed as an Executive Director of our on 1 July Between 1978 to 1981, Ms. Cheong was an auditor in S.L. Chua & Company. Ms. Cheong graduated from Nanyang University in 1978 with a Bachelor of Commerce Degree in Accountancy. Ms. Cheong is a non-practising member of the Institute of Certified Public Accountants of Singapore ( ICPAS ) and a Fellow member of the CPA Australia. Chee Teck Kwong Patrick Independent Director Mr. Chee Teck Kwong Patrick, PBM, was appointed as an Independent Director and Chairman of the Remuneration Committee of our on 24 November Mr. Chee holds a Bachelor of Laws (Hons) Degree from the University of Singapore. He has been in private legal practice since He is now a Senior Legal Consultant with KhattarWong. Mr. Chee is a Notary Public and a Commissioner for Oaths. He is a member of Singapore Institute of Arbitrators, Singapore Institute of Internal Auditors and Singapore Institute of Directors. He also sits on the Board of other public listed companies including PSC Corporation Ltd, CSC Holdings Limited, Richland Limited and King s Safetywear Limited, Singapore Windsor Holdings Limited and Hengxin Technologies Ltd. Mr. Chee is active in community service and is the Vice Chairman of Tech Ghee Community Club and the Organising Chairman of National Street Soccer League. Mr. Chee is the recipient of the National Day Awards 2003 The Public Service Medal (Pingat Bakti Masayarakat) from the President of Republic of Singapore. Lien Kait Long Independent Director Mr. Lien Kait Long was appointed as an Independent Director and Chairman of the Audit Committee of our on 24 November He has over 37 years experience in accounting and finance, corporate management and business investment. He has held a number of senior management positions as well as executive directorships in various public and private corporations in Singapore, Hong Kong and China. He currently serves as an Independent Director on the boards of several Singapore and Chinese companies listed on the Singapore Exchange. The listed companies that he has present and prior experience in are from diverse industries including manufacturing, stockist cum trading, telecommunications, oil & gas, consumer, textile and food & beverage. Mr. Lien holds a Bachelor of Commerce Degree from Nanyang University, and is a Fellow member of the ICPAS and CPA Australia. Kuik See Juan Independent Director Mr. Kuik See Juan was appointed as an Independent Director of our on 14 February He was appointed as Chairman of the Nominating Committee of our on 24 November From 1972 to 1981, he held various senior officer positions with Bank of America NT & SA in Singapore and Jakarta. Thereafter, he spent more than twenty years as executive director in many private and listed public companies as board member during various periods, managing wide ranging businesses in mostly ASEAN countries and China. Currently, he has been appointed as independent director to four other public companies listed on SGX. Since 1969, he has been an Associate Member of the Chartered Institute of Bankers, U.K., known currently as Institute of Financial Services. (Left to right) Dr. Allan Yap, Dr. John Chen Seow Phun, Mr. Loh See Moon, Mr. Foo Der Rong, Ms. Cheong Poh Hua, Mr. Chee Teck Kwong Patrick, Mr. Lien Kait Long, Mr. Kuik See Juan Tat Seng Packaging Ltd Annual Report 0

8 ales nalysis by ustomer ector for FY 36% 4% 11% 3% 7% 24% 15% Electronics & Electrical % Medical, Pharmaceutical & Chemical 24% Printing, Publishers & Converters 36% Plastic & Metal Stamping % Food & Beverage % Computer Industries % Others 7% 0 Tat Seng Packaging Ltd Annual Report

9 inancial ighlights (1) 2005 (2) (1) 2005 (2) Turnover Earnings Per Share ( million) ( cents) (1) 2005 (2) (1) 2005 (2) Profit After Taxation Shareholders Equity ( million) ( million) (1) Twelve (12) months ended 30th June 2005 (2) Six (6) months ended 31st December 2005 Tat Seng Packaging Ltd Annual Report 07

10 orporate nformation BOARD OF DIRECTORS Dr. Allan Yap (Executive Chairman) Dr. John Chen Seow Phun (Deputy Chairman) Loh See Moon (Managing Director) Foo Der Rong (Executive Director) Cheong Poh Hua (Executive Director) Chee Teck Kwong Patrick (Independent Director) Kuik See Juan (Independent Director) Lien Kait Long (Independent Director) COMPANY SECRETARY Lotus Isabella Lim Mei Hua Lee Bee Fong AUDIT COMMITTEE Lien Kait Long (Chairman) Chee Teck Kwong Patrick Kuik See Juan Dr. John Chen Seow Phun REMUNERATION COMMITTEE Chee Teck Kwong Patrick (Chairman) Kuik See Juan Lien Kait Long NOMINATING COMMITTEE Kuik See Juan (Chairman) Chee Teck Kwong Patrick Lien Kait Long REGISTERED OFFICE REGISTRAR AND SHARE TRANSFER OFFICE AUDITORS 28 Senoko Drive Singapore Tel : (65) Fax : (65) corpsec@tspg.sg Website: Company Registration Number : M Tricor Barbinder Share Registration Services (A division of Tricor Singapore Pte Ltd) 8 Cross Street # PWC Building Singapore Ernst & Young Certified Public Accountants One Raffles Quay #18-01 North Tower Singapore Partner-in-charge: Philip Ling (Since financial year ended 30th June 2005) PRINCIPAL BANKERS United Overseas Bank Limited 80 Raffles Place UOB Plaza Singapore DBS Bank Ltd 6 Shenton Way DBS Building Tower One Singapore Tat Seng Packaging Ltd Annual Report

11 orporate eports 10 Corporate Governance Report 15 Directors Report 17 Statement by the Directors 18 Independent Auditors Report 19 Balance Sheets 20 Consolidated Income Statement 21 Statement of Changes in Equity 23 Consolidated Cash Flow Statement 24 Notes to the Financial Statements 54 Land & Buildings 55 Statistics of Shareholdings 56 Notice of Annual General Meeting Proxy Form Tat Seng Packaging Ltd Annual Report 0

12 orporate overnance eport Tat Seng Packaging Ltd (the Company ) continues to be committed to achieving a high standard of corporate conduct. The Company recognizes the importance of having in place a set of well-defined corporate governance processes to enhance corporate performance and accountability. This report describes the Company s corporate governance practices and structure that were in place throughout the financial year, with reference to The Code of Corporate Governance 2005 (the Code ). A. BOARD MATTERS Principle 1: The Board of Directors (the Board ) Conduct of Affairs The Board supervises the management of the business and affairs of the Company and its subsidiaries (the ). Apart from the statutory responsibilities, the Board has the following major responsibilities and functions: (a) (b) (c) (d) (e) reviews and approves the corporate strategy, annual budgets and financial plans and ensures that the necessary financial and human resources are in place for the to meet its objectives; reviews and approves major investments, acquisitions and disposals; reviews financial performance of the ; approves the annual reports and accounts, the release of half-year and full year financial results announcements; and ensures the s compliance with all the laws and regulations that are relevant to the business. These responsibilities and functions are carried out either directly by the Board or through committees such as the Nominating Committee ( NC ), Remuneration Committee ( RC ) and Audit Committee ( AC ). Each Committee has its own defined terms of reference and operating procedures. The terms of references adopted have been reviewed and revised in line with that of the holding company. The Board meets at least twice yearly. Arrangements are also made for the Directors to visit the s operations and to meet with the respective local management teams to help them gain a better understanding of the operations. Attendance of the Board meetings and meetings of the various committees during the financial year are as follows: Name of Director Meetings Board Audit Committee No. Held No. Attended No. Held No. Attended No. Held Nominating Committee No. Attended Remuneration Committee No. Held No. Attended Dr. Allan Yap Dr. John Chen Seow Phun Mr. Loh See Moon Mr. Foo Der Rong Mr. Lim Seng Chai* Ms. Cheong Poh Hua Mr. Lien Kait Long Mr. Chee Teck Kwong Patrick Mr. Kuik See Juan *Mr. Lim Seng Chai resigned as Executive Director on 31 January Principle 2: Board Composition and Guidance The Board comprises eight members as follows: (a) (b) (c) (d) (e) (f) (g) (h) Dr. Allan Yap (Executive Chairman) Dr. John Chen Seow Phun (Non-Executive Deputy Chairman) Mr. Loh See Moon (Managing Director) Mr. Foo Der Rong (Executive Director) Ms. Cheong Poh Hua (Executive Director) Mr. Lien Kait Long (Non-Executive & Independent Director) Mr. Chee Teck Kwong Patrick (Non-Executive & Independent Director) Mr. Kuik See Juan (Non-Executive & Independent Director) 10 Tat Seng Packaging Ltd Annual Report

13 The Board comprises high calibre individuals who are suitably qualified with the appropriate mix of expertise, experience and knowledge with core competencies in areas relating to accounting, finance, business, management experience, industry knowledge, strategic planning experience and customer-based experience or knowledge. The profiles of each of the Directors are set out on pages 4 and 5. The Board reviews the independence of each Independent Director on a yearly basis and adopts the Code s definition of what constitutes an Independent Director. Principle 3: Chairman and Chief Executive Officer The Executive Chairman of the Board, Dr. Allan Yap and the Chief Executive Officer (CEO) or Managing Director, Mr. Loh See Moon each have a clear division of responsibilities to ensure an appropriate balance of power, increase accountability and greater capacity of the Board for independent decision making. The Chairman is responsible for leading the Board to ensure its effectiveness on all aspects of its role, while the CEO is responsible for the day-to-day operations of the and plays a leading role in developing the businesses of the. Both of them are not related to each other. Principle 4: Board Memberships The NC comprises three Non-Executive and Independent Directors as follows: (a) (b) (c) Mr. Kuik See Juan (Chairman) Mr. Lien Kait Long (Member) Mr. Chee Teck Kwong Patrick (Member) The NC meets at least once a year. The responsibilities of NC include: (a) (b) (c) making recommendations to the Board on all board appointments and re-appointments; determining the independence of the Directors; and deciding how the Board s performance is to be evaluated. The Company s Articles provide that at least one-third of the Directors, or the number nearest to one-third, are to retire by rotation and submit themselves for re-election at every Annual General Meeting ( AGM ). The Managing Director is not subject to retirement by rotation. The NC has reviewed the independence of each Independent Director for Financial Year in accordance with the Code s definition of independence and is satisfied that one-third of the Board comprises Independent Directors. Principle 5: Board Performance The NC evaluates the Board s performance annually, based on a set of quantitative and qualitative criteria which includes the attendance record at Board and Board Committee meetings, the level of participation at such meetings, the guidance provided to the Management and the performance of the. The NC has conducted a formal assessment of the Board s performance for Financial Year. Principle 6: Access to Information The Directors are furnished with sufficient information within a reasonable period in advance of the Board meetings. Management personnel gives presentations on the performance of the respective operating divisions at such Board meetings. The Directors have separate and independent access to the Company s Management and the Company Secretary at all times on an on-going basis when they have queries or require clarifications or seek further information. The Company Secretary attends all the Board meetings and ensures that board procedures are followed and that applicable rules and regulations are complied with. Tat Seng Packaging Ltd Annual Report 11

14 B. REMUNERATION MATTERS Principle 7: Procedures for Developing Remuneration Policies The RC consists of three members who are Independent and Non-Executive as follows: (a) (b) (c) Mr. Chee Teck Kwong Patrick (Chairman) Mr. Lien Kait Long (Member) Mr. Kuik See Juan (Member) The RC carries out duties that include: (a) (b) recommending to the Board, a framework of remuneration for individual Directors and Senior Management; and reviewing the Directors remuneration and makes recommendations to the Board for approval. Principle 8: Level and Mix of Remuneration The RC determines the remuneration package of the Executive Directors based on the performance of the. Directors fees payable to Non-Executive Directors are based on effort, time spent and responsibilities of each individual Director. The RC recommends the proposed Directors fees to the Board for presentation to the shareholders for approval at the AGM. Principle 9: Disclosure on Remuneration The remuneration of the Directors for Financial Year is appended below: Remuneration Band and Name of Director Directors Fees % Salary/ Allowance % Bonus/Profit Sharing % Benefitsin-kind % 500,000 and above Mr. Loh See Moon ,000 to below 500,000 Dr. Allan Yap Mr. Lim Seng Chai Below 250,000 Mr. Foo Der Rong Ms. Cheong Poh Hua Dr. John Chen Seow Phun Mr. Lien Kait Long Mr. Chee Teck Kwong Patrick Mr. Kuik See Juan Note: a. Directors fees are subjected to approval of the shareholders at the forthcoming Annual General Meeting. Save as disclosed above, there was no employee of the who is an immediate family member of a Director or the CEO and whose remuneration exceeds S150,000 during the financial year ended 31 December Total % C. ACCOUNTABILITY AND AUDIT Principle 10: Accountability The primary role of the Board is to protect shareholders interests and enhance long-term returns for the shareholders. The accountability of the Board to the shareholders is demonstrated through the presentation of the periodic financial statements as well as timely announcements and news releases of significant corporate developments and activities so that the shareholders can have a detailed explanation and balanced assessment of the s financial position and prospects. The Management presents to the AC the half-year and full year results. The AC reviews the results and recommends them to the Board for approval. The Board approves the results and authorises the release of the results to the SGX-ST and the public via SGXNET. 12 Tat Seng Packaging Ltd Annual Report

15 Principle 11: Audit Committee The AC comprises three Independent Directors and one Non-Executive Director as follows: (a) Mr. Lien Kait Long (Chairman) (b) Mr. Chee Teck Kwong Patrick (Member) (c) Mr. Kuik See Juan (Member) (d) Dr. John Chen Seow Phun (Member) The AC s duties are to: (a) (b) (c) (d) (e) (f) (g) (h) (i) review the audit plans and audit reports of the s internal and external auditors; review the s half-yearly and yearly results announcements and the financial statements before submission to the Board for approval to release the results announcement via the SGXNET; review with the internal auditors on their evaluations of the systems of internal accounting controls and actions required to address noted deficiencies; review related and interested person transactions; review the independence of external auditors annually including the nature and extent of non-audit services provided by the external auditors; recommend to the Board the appointment or re-appointment of the external auditors; assist the Board in the execution of its corporate governance responsibilities according to established Board references and requirements; meet with the external auditors, other committees, and management in separate executive sessions to discuss any matters that these groups believe should be discussed privately with the AC; and report actions and minutes of the AC to the Board with such recommendations as the AC considers appropriate. The AC has full access to and co-operation of the Management and has full discretion to invite any Director or executive officer to attend meetings, and has reasonable resources to enable it to discharge its function properly. In accordance with the Code, the AC has in place a whistle-blowing policy to provide arrangements whereby concerns on financial improprieties or other matters raised by whistle-blower may be investigated and appropriate follow up action taken. The AC has reviewed the non-audit services provided by the external auditors and is satisfied that the provision of such services has not affected the independence of the external auditors. The AC is pleased to confirm their re-nomination. Principle 12: Internal Controls The Board acknowledges that a system of internal controls is designed to manage rather than to eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss and therefore no cost effective internal control system will preclude all errors and irregularities. Based on the AC s discussion with the external and internal auditors and the Management s responses to their recommendations for improvement to the s internal controls, the Board is satisfied that the Management has put in place a system of internal controls to safeguard the s assets and ensure compliance with laws and regulations and the reliability of financial reporting. Principle 13: Internal Audit The AC reviews and approves the Internal Audit plan on an annual basis to ensure the adequacy of the internal audit function. The Internal Auditor reports directly to the Chairman of AC and administratively to the Management. An internal auditor has been appointed during the Financial Year to review the and to assess if adequate systems of internal controls are in place to protect the funds and assets of the and to ensure the control procedures are complied with. The AC has reviewed the Internal Auditor s findings and recommendations for improvement, and there was no material internal control weakness found in the processes under review for the financial year ended 31 December. Tat Seng Packaging Ltd Annual Report 13

16 D. COMMUNICATION WITH SHAREHOLDERS The is aware of its obligation to shareholders in providing regular, effective and fair communication with shareholders. Information is disseminated to shareholders on a timely basis through: (a) (b) (c) (d) SGXNET announcement and news releases; Annual Report prepared and issued to all shareholders; Notice of and explanatory memoranda of AGM and Extraordinary General Meetings ( EGM ); and Company website at at which shareholders can access information on the The Company s AGMs are the principal forums for dialogue with shareholders. The Chairpersons of the Audit, Remuneration, Nominating Committees and External Auditors are normally available at the meetings to address shareholders queries. Shareholders are encouraged to attend the AGM/EGM. Notice of AGM/EGM will be advertised in newspapers and announced on SGXNET. The also allows each shareholder to appoint one to two proxies to attend and vote at all AGMs/EGMs on his/her behalf using a proxy form. E. RISK MANAGEMENT The regularly assesses and reviews its business and operational environments in order to identify areas of significant business and financial risks such as political risks, industrial risks, credit risks, foreign exchange risks, liquidity risks and interest rate risks, as well as deliberate on appropriate measures to control and mitigate these risks. F. DEALING IN SECURITIES The has adopted an internal compliance practice pursuant to the SGX-ST Listing Manual applicable to all Directors and employees in relation to dealings in the Company s securities. The reminds its Directors and employees to refrain from trading in its securities for the period one month before the announcement of the s half-year and full year results and ending on the date of the announcement of the results. s and notices were sent and published to all Directors and employees within the prescribed period respectively. G. MATERIAL CONTRACTS There were no material contracts entered into by the or any of its subsidiaries involving the interest of the CEO, any Director, or controlling shareholder. H. INTERESTED PERSON TRANSACTIONS Save as disclosed in the Note 30 of the financial statements on page 48, there were no interested person transactions with aggregate value of 100,000 or more for the financial year ended 31 December. 14 Tat Seng Packaging Ltd Annual Report

17 irectors eport The Directors are pleased to present their report to the members together with the audited consolidated financial statements of Tat Seng Packaging Ltd (the Company ) and its subsidiaries (collectively, the ) and the balance sheet and statement of changes in equity of the Company for the financial year ended 31 December. 1. Directors The Directors of the Company in office at the date of this report are: Allan Yap - Chairman John Chen Seow Phun - Deputy Chairman Loh See Moon - Managing Director Foo Der Rong Cheong Poh Hua Kuik See Juan Chee Teck Kwong Patrick Lien Kait Long In accordance with Article 91 of the Company s Articles of Association, Dr. John Chen Seow Phun, Mr. Foo Der Rong, and Ms. Cheong Poh Hua shall retire and, being eligible, offer themselves for re-election. 2. Arrangements to Enable Directors to Acquire Shares and Debentures Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose objects are, or one of whose object is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares or debentures of the Company or any other body corporate. 3. Directors Interests in Shares and Debentures The following directors, who held office at the end of the financial year, had, according to the register of directors shareholdings required to be kept under Section 164 of the Singapore Companies Act, Cap. 50, an interest in shares and share options of the Company and related corporations (other than wholly-owned subsidiary) as stated below: Name of director Ordinary shares of the Company Loh See Moon Cheong Poh Hua Lim Seng Chai* * Resigned on 31 January 2008 At the beginning of financial year 23,580, , ,000 Direct interest At the end of financial year 23,580, ,000 - At the beginning of financial year Deemed interest - 260, ,000 At the end of financial year - 260,000 - Ordinary shares of the ultimate holding company (PSC Corporation Ltd) Foo Der Rong Lien Kait Long Loh See Moon Share options of the ultimate holding company (PSC Corporation Ltd) 2,922,500 (1) 876,750 (2) 5,530 3,000 Allan Yap John Chen Seow Phun Foo Der Rong Chee Teck Kwong Patrick 5,000,000 (1) 2,000,000 (1) 4,000,000 (1) 1,000,000 (1) 1,000,000 (2) 400,000 (2) 800,000 (2) 200,000 (2) 1. The number of shares/share options stated is before the completion of the consolidation of every five (5) issued ordinary shares into one (1) ordinary share in the share capital of PSC Corporation Ltd on 18 October ( Share Consolidation Exercise ). 2. The number of shares/share options is stated after the completion of Share Consolidation Exercise. There was no change in any of the above-mentioned interests between the end of the financial year and 21 January Except as disclosed in this report, no other director who held office at the end of the financial year had interests in shares, share options, warrants or debentures of the Company, or of related corporations, either at the beginning or end of the financial year. Tat Seng Packaging Ltd Annual Report 15

18 4. Directors Contractual Benefits Except as disclosed in the financial statements, since the end of the previous financial year, no director of the Company has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director, or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest. 5. Issue of Shares, Debentures or Options No shares or debentures or options to take up unissued shares of the Company and its subsidiaries were issued or granted during the financial year. As at 31 December, no options over the unissued shares of the Company and its subsidiaries were outstanding. 6. Audit Committee The Audit Committee ( AC ) carries out its functions in accordance with section 201B(5) of the Singapore Companies Act, Cap. 50, including the following: Reviews the audit plans of the internal and external auditors of the Company and reviews the internal auditors evaluation of the adequacy of the Company s system of internal accounting controls and the assistance given by the Company s management to the external and internal auditors; Reviews the half yearly and annual financial statements and the auditors report on the annual financial statements of the Company before their submission to the board of directors; Reviews effectiveness of the Company s material internal controls, including financial, operational and compliance controls and risk management via reviews carried out by the internal auditors; Meets with the external auditors, other committees, and management in separate executive sessions to discuss any matters that these groups believe should be discussed privately with the AC; Reviews legal and regulatory matters that may have a material impact on the financial statements, related compliance policies and programmes and any reports received from regulators; Reviews the cost effectiveness and the independence and objectivity of the external auditors; Reviews the nature and extent of non-audit services provided by the external auditors; Recommends to the board of directors the external auditors to be nominated, approves the compensation of the external auditors, and reviews the scope and results of the audit; Reports actions and minutes of the AC to the board of directors with such recommendations as the AC considers appropriate; and Reviews interested person transactions in accordance with the requirements of the Singapore Exchange Securities Trading Limited (SGX-ST) s Listing Manual. The AC, having reviewed all non-audit services provided by the external auditors to the, is satisfied that the nature and extent of such services would not affect the independence of the external auditors. The AC has also conducted a review of interested person transactions. The AC met with external auditors, without the presence of the Company s Management, at least once a year. Further details regarding the Audit Committee are disclosed in the Report on Corporate Governance. 7. Auditors Ernst & Young have expressed their willingness to accept reappointment as auditors. On behalf of the board of directors: Loh See Moon Director Singapore 21 February 2008 Cheong Poh Hua Director 16 Tat Seng Packaging Ltd Annual Report

19 tatement by irectors We, Loh See Moon and Cheong Poh Hua, being two of the directors of Tat Seng Packaging Ltd, do hereby state that, in the opinion of the directors, (i) the accompanying balance sheets, consolidated income statement, statement of changes in equity, and consolidated cash flow statement together with notes thereto are drawn up so as to give a true and fair view of the state of affairs of the and of the Company as at 31 December and the results of the business, changes in equity and cash flows of the and the changes in equity of the Company for the year ended on that date, and (ii) 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. On behalf of the board of directors: Loh See Moon Director Singapore 21 February 2008 Cheong Poh Hua Director Tat Seng Packaging Ltd Annual Report 17

20 ndependent uditors eport To the members of Tat Seng Packaging Ltd We have audited the accompanying financial statements of Tat Seng Packaging Ltd (the Company ) and its subsidiaries (collectively, the ) set out on pages 19 to 53, which comprise the balance sheets of the and the Company as at 31 December, the statements of changes in equity of the and the Company, the income statement and cash flow statement of the for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors Responsibility for the Financial Statements The Company s directors are responsible for the preparation and fair presentation of these financial statements in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the Act ) and Singapore Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; 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 financial 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 financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial 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 financial 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 directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, (i) the consolidated financial statements of the and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the and of the Company as at 31 December and the results, changes in equity and cash flows of the and the changes in equity of the Company for the year ended on that date; and (ii) the accounting and other records required by the Act to be kept by the Company have been properly kept in accordance with the provisions of the Act. Ernst & Young Certified Public Accountants Singapore 21 February Tat Seng Packaging Ltd Annual Report

21 alance heets Balance Sheets as at 31 December ASSETS Note Company Non-current assets Property, plant and equipment Intangible assets Investments in subsidiaries Loans to subsidiaries Investment securities Current assets Inventories Prepaid operating expenses Trade and bills receivables Other receivables and deposits Loan to a subsidiary Amounts due from subsidiaries Fixed deposits Cash at bank and in hand ,416, , ,113,373 42,021, , ,111,505 2,177,270 45,000 12,121,981 7,571,500 1,113,373 11,120,601 30,000 11,012,381 4,867,300 1,111,505 36,183,236 43,771,367 23,029,124 28,141,787 10,915, ,865 18,118,607 1,193, ,000,000 8,889,396 7,148, ,562 12,355, , ,250,000 8,320,618 3,123, ,571 2,905,129 62, , ,143 10,000,000 1,715,092 2,394,560 18,837 2,663,634 73, ,070 4,250,000 1,340,480 49,369,971 32,873,970 19,204,566 11,192,181 TOTAL ASSETS 85,553,207 76,645,337 42,233,690 39,333,968 EQUITY AND LIABILITIES Current liabilities Deferred capital grant Income tax payable Loans and borrowings Bills payable to banks Trade and other payables Other liabilities ,912 2,031,927 6,522,780 15,478,658 8,827,059 2,602,442 1,344,709 4,906,762 11,125,374 6,552,362 1,957,677 1,732,821 65,542 1,093,642 1,723,016 1,245,833 75, ,050 1,311,171 35,465,778 25,886,884 4,615,021 3,508,587 NET CURRENT ASSETS 13,904,193 6,987,086 14,589,545 7,683,594 Non-current liabilities Deferred capital grant Deferred tax liabilities Loans and borrowings ,313 1,630,195 3,900,271 1,790, ,259 2,220,379 1,702,508 5,691, ,259 2,220,379 TOTAL LIABILITIES 37,168,286 31,578,141 4,949,280 5,728,966 NET ASSETS 48,384,921 45,067,196 37,284,410 33,605,002 Equity attributable to equity holders of the parent Share capital Retained earnings Other reserves ,440,000 7,146,175 8,872,354 31,440,000 3,677,225 9,182,407 31,440,000 6,034,334 (189,924) 31,440,000 1,535, ,886 Minority interests 47,458, ,392 44,299, ,564 37,284,410 33,605,002 TOTAL EQUITY 48,384,921 45,067,196 37,284,410 33,605,002 TOTAL EQUITY AND LIABILITIES 85,553,207 76,645,337 42,233,690 39,333,968 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. Tat Seng Packaging Ltd Annual Report 19

22 onsolidated ncome tatement Consolidated Income Statement for the financial year ended 31 December Note Sales of goods Cost of sales 74,618,054 (61,808,994) 54,826,606 (43,876,390) Gross profit 12,809,060 10,950,216 Other operating income Distribution and selling expenses General and administrative expenses Other operating expenses Finance costs ,118,005 (4,296,160) (5,620,418) (915,012) (517,406) 503,331 (3,409,686) (4,751,266) (117,458) (187,452) Profit before tax Income tax credit/(expense) ,578,069 99,061 2,987,685 (634,556) Profit for the year 5,677,130 2,353,129 Attributable to: Equity holders of the parent Minority interests 5,780,056 (102,926) 2,321,755 31,374 5,677,130 2,353,129 Earnings per share attributable to equity holders of the parent (cents per share) Basic Diluted The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 20 Tat Seng Packaging Ltd Annual Report

23 tatement of hanges in quity Statement of Changes in Equity for the financial year ended 31 December Share capital (Note 19) Retained earnings Other reserves (Note 20) Equity attributable to equity holders of the parent, total Minority interests Equity, total Opening balance at 1 January 31,440,000 1,505,819 10,438,932 43,384,751 43,384,751 Net change in fair value adjustment reserve (Note 20(a)) Net effect of exchange differences (Note 20(c)) (191,793) (1,215,081) (191,793) (1,215,081) (191,793) (1,215,081) Net income recognised directly in equity Profit for the year 2,321,755 (1,406,874) (1,406,874) 2,321,755 31,374 (1,406,874) 2,353,129 Total recognised income and expenses for the year Acquisition of subsidiary Appropriation to statutory reserve fund (Note 20(d)) 2,321,755 (150,349) (1,406,874) 150, ,881 31, , , ,190 Closing balance at 31 December 31,440,000 3,677,225 9,182,407 44,299, ,564 45,067,196 Opening balance at 1 January 31,440,000 3,677,225 9,182,407 44,299, ,564 45,067,196 Net change in fair value adjustment reserve (Note 20(a)) Net effect of exchange differences (Note 20(c)) Reversal of assets revaluation reserve upon disposal of leasehold building Deferred tax changes on revaluation surplus 821,679 1, ,024 (821,679) 8,288 1, ,024 8,288 7,674 (20,575) 1, ,698 (12,287) Net income recognised directly in equity Profit for the year 821,679 5,780,056 (542,498) 279,181 5,780,056 (12,901) (102,926) 266,280 5,677,130 Total recognised income and expenses for the year Capital contribution arising from additional investment in a subsidiary company Dividends on ordinary shares (Note 37) Appropriation to statutory reserve fund (Note 20(d)) 6,601,735 (2,900,340) (232,445) (542,498) 232,445 6,059,237 (2,900,340) (115,827) 274,655 5,943, ,655 (2,900,340) Closing balance at 31 December 31,440,000 7,146,175 8,872,354 47,458, ,392 48,384,921 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. Tat Seng Packaging Ltd Annual Report 21

24 tatement of hanges in quity (cont d) Statement of Changes in Equity for the financial year ended 31 December Share capital (Note 19) Retained earnings Other reserves (Note 20) Equity, total Company Opening balance at 1 January 31,440,000 1,203, ,679 33,464,693 Net change in fair value adjustment reserve (Note 20(a)) (191,793) (191,793) Net income recognised directly in equity Profit for the year 332,102 (191,793) (191,793) 332,102 Total recognised income and expenses for the year 332,102 (191,793) 140,309 Closing balance at 31 December 31,440,000 1,535, ,886 33,605,002 Opening balance at 1 January 31,440,000 1,535, ,886 33,605,002 Net change in fair value adjustment reserve (Note 20(a)) Reversal of assets revaluation reserve upon disposal of leasehold building 821,679 1,869 (821,679) 1,869 Net income recognised directly in equity Profit for the year 821,679 6,577,879 (819,810) 1,869 6,577,879 Total recognised income and expenses for the year Dividends on ordinary shares (Note 37) 7,399,558 (2,900,340) (819,810) 6,579,748 (2,900,340) Closing balance at 31 December 31,440,000 6,034,334 (189,924) 37,284,410 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 22 Tat Seng Packaging Ltd Annual Report

25 onsolidated ash low Consolidated Cash Flow Statement for the year ended 31 December tatement Note OPERATING ACTIVITIES Profit before tax 5,578,069 2,987,685 Adjustments for: Amortisation of deferred capital grant Bad trade debts written off Depreciation of property, plant and equipment Dividend income from investment securities Impairment loss on property, plant and equipment Interest expense Interest income Net (gain)/loss on disposal of property, plant and equipment Net effect of exchange differences Property, plant and equipment written off Reversal of write-down of inventories Write back of impairment loss of club membership Write back of allowance for doubtful trade receivables , (1,942) 91,845 3,353,789 (570) 748, ,404 (226,841) (3,677,743) 4,475 13,140 (8,341) (15,000) (10,987) 3,274, ,435 (221,103) 10,400 (199,011) 7,731 (102,570) (60,767) Operating cash flows before changes in working capital 6,324,845 5,847,646 Increase in inventories Increase in trade and other receivables and prepaid operating expenses Decrease in trade and other payables and other liabilities (3,758,257) (6,491,485) 7,349,912 (898,251) (852,816) 1,354,079 Cash flows from operations 3,425,015 5,450,658 Interest paid Income tax paid (476,404) (1,443,700) (150,435) (429,411) Net cash flows from operating activities 1,504,911 4,870,812 INVESTING ACTIVITIES Proceeds from disposal of property, plant and equipment Purchase of property, plant and equipment Acquisition of a subsidiary, net of cash acquired Purchase of investment securities Interest received Dividend received ,033,192 (4,646,083) 226, ,974 (1,281,544) (1,635,907) (1,296,000) 221,103 Net cash flows generated from/(used in) investing activities 7,614,520 (3,978,374) FINANCING ACTIVITIES Dividends paid Investment in a subsidiary by a minority shareholder (Repayment of)/proceeds from loans and borrowings (Increase)/decrease in pledge in cash and bank balances (2,900,340) 274,655 (174,968) (945,887) 1,497, ,840 Net cash flows (used in)/ generated from financing activities (3,746,540) 2,245,974 Net increase in cash and cash equivalents Cash and cash equivalents at 1 January 5,372,891 8,868,615 3,138,412 5,730,203 Cash and cash equivalents at 31 December 13 14,241,506 8,868,615 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. Tat Seng Packaging Ltd Annual Report 23

26 otes to the inancial tatements 1. Corporate information Tat Seng Packaging Ltd (the Company ) is a limited liability company incorporated in Singapore and is listed on Singapore Exchange Securities Trading Limited. The immediate and ultimate holding company is PSC Corporation Ltd, incorporated in the Republic of Singapore. The registered office and principal place of business of the Company is located at 28 Senoko Drive, Singapore The principal activities of the Company and its subsidiaries (Note 6) are in the manufacture and sales of corrugated paper products and sales of other packaging products. There have been no significant changes in the nature of these activities during the financial year. 2. Summary of Significant Accounting Policies 2.1 Basis of preparation The consolidated financial statements of the and the balance sheet and statement of changes in equity of the Company have been prepared in accordance with Singapore Financial Reporting Standards ( FRS ). The financial statements have been prepared on the historical cost basis except for leasehold land and buildings and available-for-sales financial assets that have been measured at their fair values. The financial statements are presented in Singapore Dollars ( SGD or ). 2.2 Future changes in accounting policies The has not adopted the following FRS and INT FRS that have been issued but not yet effective: Reference Description Effective for annual periods beginning on or after FRS 23 : Amendment to FRS 23, Borrowing Costs 1 January 2009 FRS 108 : Operating Segments 1 January 2009 INT FRS 111 : and Treasury Share Transactions 1 March INT FRS 112 : Service Concession Arrangements 1 January 2008 The Directors expect that the adoption of the above pronouncements will have no material impact to the financial statements in the period of initial application, except for FRS 108 as indicated below. FRS 108 requires entities to disclose segment information based on the information reviewed by the entity s chief operating decision maker. The impact of this standard on the other segment disclosures is still to be determined. As this is a disclosure standard, it will have no impact on the financial position or financial performance of the when implemented in Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the holding company. Consistent accounting policies are applied to like transactions and events in similar circumstances. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full. Acquisitions of subsidiaries are accounted for by applying the purchase method. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Adjustments to those fair values relating to previously held interests are treated as a revaluation and recognised in equity. Any excess of the cost of business combination over the s share in the net fair value of the acquired subsidiary s identifiable assets, liabilities and contingent liabilities is recorded as goodwill on the balance sheet. The accounting policy for goodwill is set out in Note 2.8 (a). Any excess of the s share in the net fair value of the acquired subsidiary s identifiable assets, liabilities and contingent liabilities over the cost of business combination is recognised as income in the income statement on the date of acquisition. Subsidiaries are consolidated from the date of acquisition, being the date on which the obtains control, and continue to be consolidated until the date that such control ceases. 24 Tat Seng Packaging Ltd Annual Report

27 2. Summary of Significant Accounting Policies (cont d) 2.4 Transactions with minority interests Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the and are presented separately in the consolidated income statement and within equity in the consolidated balance sheet, separately from parent shareholders equity. Transactions with minority interests are accounted for using the entity concept method, whereby, transactions with minority interests are accounted for as transactions with equity holders. On acquisition of minority interests, the difference between the consideration and book value of the share of the net assets acquired is reflected as being a transaction between owners and recognised directly in equity. Gain or loss on disposal to minority interests is recognised directly in equity. 2.5 Functional and foreign currency (a) (b) Functional currency The directors have determined the currency of the primary economic environment in which the Company operates i.e. functional currency, to be SGD. Sales prices and major costs of providing services including major operating expenses are primarily influenced by fluctuations in SGD. Foreign currency Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in the income statement except for exchange differences arising on monetary items that form part of the s net investment in foreign subsidiaries, which are recognised initially in equity as foreign currency translation reserve in the consolidated balance sheet and recognised in the consolidated income statement on disposal of the subsidiary. The assets and liabilities of foreign operations are translated into SGD at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to a separate component of equity as foreign currency translation reserve. On disposal of a foreign operation, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement. 2.6 Property, plant and equipment All items of property, plant and equipment are initially recorded at cost. The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the and the cost of the item can be measured reliably. Subsequent to recognition, property, plant and equipment and furniture and fittings are measured at cost less accumulated depreciation and accumulated impairment losses. Leasehold land and buildings are measured at fair value less accumulated depreciation on buildings and impairment losses recognised after the date of revaluation. Valuations are performed with sufficient regularity to ensure that the carrying amount does not differ materially from the fair value of the leasehold land and buildings at the balance sheet date. Any revaluation surplus is credited directly to the asset revaluation reserve in equity, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in the income statement, in which case the increase is recognised in the income statement. A revaluation deficit is recognised in income statement, except to the extent that it offsets an existing surplus on the same asset carried in the asset revaluation reserve. Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. The whole of the revaluation surplus included in the asset revaluation reserve in respect of an asset is transferred directly to retained earnings on retirement or disposal of the asset. Depreciation is computed on a straight-line basis over the estimated useful lives of the asset as follows: Leasehold land and buildings years Plant and machinery 5-10 years Furniture and fittings /3 years Motor vehicles 5-8 years Assets under construction and installation-in-progress are not depreciated as these assets are not available for use. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Tat Seng Packaging Ltd Annual Report 25

28 2. Summary of Significant Accounting Policies (cont d) 2.6 Property, plant and equipment (cont d) The residual value, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on derecognition of the asset is included in the income statement in the year the asset is derecognised. 2.7 Investment securities Investment securities are classified as financial assets at fair value through profit or loss or available-for-sale. The accounting policies are stated in Note Intangible assets (a) Goodwill Goodwill acquired in a business combination is initially measured at cost. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events and circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired is allocated to each of the s cash-generating units that are expected to benefit from the synergies of the combination. The cash-generating unit to which goodwill has been allocated is tested for impairment annually and whenever there is an indication that the cash-generating unit may be impaired, by comparing the carrying amount of the cashgenerating unit, including the allocated goodwill, with the recoverable amount of the cash-generating unit. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised in the income statement. Impairment losses recognised for goodwill are not reversed in subsequent periods. Where goodwill forms part of a cash-generating unit and part of the operation within that cash-generating unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operations disposed of and the portion of the cashgenerating unit retained. Goodwill and fair value adjustments arising on the acquisition of foreign operations on or after 1 January 2005 are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated in accordance with the accounting policy set out in Note 2.5 (b). Goodwill and fair value adjustments which arose on acquisitions of foreign subsidiaries before 1 January 2005 are deemed to be assets and liabilities of the Company and are recorded in SGD at the rates prevailing at the date of acquisition. (b) Other intangible assets Intangible assets acquired separately are measured initially at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial acquisition, intangible assets are measured at cost less any accumulated amortisation and accumulated impairment losses. Intangible assets with finite useful lives are amortised over the estimated useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method are reviewed at least at each financial year-end. (i) Club membership Club membership was acquired separately and is amortised on a straight line basis over its finite useful life of 29 years. 2.9 Impairment of non-financial assets The assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment assessment for an asset is required, the makes an estimate of the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s or cash-generating unit s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets. In assessing value in use, the estimated future cash flows expected to be generated by the asset are discounted to their present value. Where the carrying amount of an asset exceeds its recoverable amount, the asset is written down to its recoverable amount. Impairment losses are recognised in the income statement except for assets that are previously revalued where the revaluation was taken to equity. In this case the impairment is also recognised in equity up to the amount of any previous revaluation. 26 Tat Seng Packaging Ltd Annual Report

29 2. Summary of Significant Accounting Policies (cont d) 2.9 Impairment of non-financial assets (cont d) An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increase cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss be recognized previously. Such reversal is recognised in the income statement unless the asset is measured at revalued amount, in which case the reversal is treated as a revaluation increase Subsidiaries A subsidiary is an entity over which the has the power to govern the financial and operating policies so as to obtain benefits from its activities. In the Company s separate financial statements, investments in subsidiaries are accounted for at cost less any impairment losses Financial assets Financial assets are recognised on the balance sheet when, and only when, the becomes a party to the contractual provisions of the financial instruments. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. A financial asset is derecognised where the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that has been recognised directly in equity is recognised in the income statement. All regular way purchase and sales of financial assets are recognised or derecognised on the trade date i.e. the date of the commits to purchase or sell the assets. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned. (a) Loans and receivables Financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method. Gains and losses are recognised in income statement when the loans and receivables are derecognised or impaired, and through the amortisation process. The classified the following financial assets as loans and receivables: Fixed deposits, cash at bank and in hand trade and other receivables, including amounts due from subsidiaries and loans to subsidiaries (b) Available-for-sale financial assets Available-for-sale financial assets are financial assets that are not classified in any of the other categories. After initial recognition, available-for-sale financial assets are measured at fair value. Any gains or losses from changes in fair value of the financial asset are recognised directly in the fair value adjustment reserve in equity, except that impairment losses, foreign exchange gains and losses and interest calculated using the effective interest method are recognised in the income statement. The cumulative gain or loss previously recognised in equity is recognised in the income statement when the financial asset is derecognised. Investments in equity instruments whose fair value cannot be reliably measured are measured at cost less impairment loss Impairment of financial assets The assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired. (a) Assets carried at amortised cost If there is objective evidence that an impairment loss on financial assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. The impairment loss is recognised in the income statement. When the asset becomes uncollectible, the carrying amount of impaired financial assets is reduced directly or if an amount was charged to the allowance account, the amounts charged to the allowance account are written off against the carrying value of the financial asset. Tat Seng Packaging Ltd Annual Report 27

30 2. Summary of Significant Accounting Policies (cont d) 2.12 Impairment of financial assets (cont d) (a) (b) (c) Assets carried at amortised cost (cont d) To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in the income statement. Assets carried at cost If there is objective evidence (such as significant adverse changes in the business environment where the issuer operates, probability of insolvency or significant financial difficulties of the issuer) that an impairment loss on financial assets carried at cost has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods. Available-for-sale financial assets Significant or prolonged decline in fair value below cost, significant financial difficulties of the issuer or obligor, and the disappearance of an active trading market are considerations to determine whether there is objective evidence that investment securities classified as available-for-sale financial assets are impaired. If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the income statement, is transferred from equity to the income statement. Reversals of impairment losses in respect of equity instruments are not recognised in the income statement. Reversals of impairment losses on debt instruments are recognised in the income statement if the increase in fair value of the debt instrument can be objectively related to an event occurring after the impairment loss was recognised in the income statement Cash and cash equivalents Cash and cash equivalents comprise cash on hand and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value Inventories Inventories are stated at the lower of cost and net realisable value. Costs incurred in bringing the inventories to their present location and condition are accounted for as follows: Raw materials purchase costs on specific identification basis; Finished goods and work-in-progress costs of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. These costs are assigned on a specific identification basis Provisions Provisions are recognised when the has a present obligation as a result of a past event, it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be estimated reliably. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic resources will be required to settle the obligation, the provision is reversed. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. Where the grant relates to an asset, the fair value is recognised as deferred capital grant on the balance sheet and is amortised to the income statement over the expected useful life of the relevant asset by equal annual instalments Financial liabilities Financial liabilities are recognised on the balance sheet when, and only when, the becomes a party to the contractual provisions of the financial instrument. 28 Tat Seng Packaging Ltd Annual Report

31 2. Summary of Significant Accounting Policies (cont d) 2.17 Financial liabilities (cont d) Financial liabilities are recognised initially at fair value, plus, in the case of financial liabilities other than derivatives, directly attributable transaction costs. Subsequent to initial recognition, all financial liabilities are measured at amortised cost using the effective interest method, except for derivatives, which are measured at fair value. A financial liability is derecognised when the obligation under the liability is extinguished. For financial liabilities other than derivatives, gains and losses are recognised in the income statement when the liabilities are derecognised or impaired, and through the amortisation process. Any gains or losses arising from changes in fair value of derivatives are recognised in the income statement. Net gains or losses on derivatives include exchange differences Borrowing costs Borrowing costs are recognised in the income statement as incurred Employee benefits (a) Defined contribution plan The participates in the national pension schemes as defined by the laws of the countries in which it has operations. In particular, the Company makes contributions to the Central Provident Fund ( CPF ) scheme in Singapore, a defined contribution pension scheme. Contributions to national pension schemes are recognised as an expense in the period in which the related service is performed. (b) Retirement benefits In accordance with the regulations of the People s Republic of China (the PRC ) Government, the subsidiaries are required to contribute employee retirement benefits to the relevant authority. The contributions are calculated based on directives issued by the relevant authority and are charged to the income statement when incurred. (c) Employee leave entitlement Employee entitlements to annual leave are recognised as a liability when they accrue to employees. The estimated liability for leave is recognised for services rendered by employees up to the balance sheet date Leases As lessee Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the and the revenue can be reliably measured. Revenue is measured at the fair value of consideration received or receivable. (a) Sales of goods Revenue is recognised net of goods and services tax, discounts and returns upon the transfer of significant risks and rewards of ownership of the goods to the customer which generally coincides with delivery and acceptance of the goods sold. Revenue is not recognised to the extent where there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods. (b) Interest income Interest income is recognised using the effective interest method. (c) Dividend income Dividend income is recognised when the s rights to receive payment is established Income taxes (a) Current tax Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Current taxes are recognised in the income statement except that tax relating to items recognised directly in equity is recognised in equity. Tat Seng Packaging Ltd Annual Report 29

32 2. Summary of Significant Accounting Policies (cont d) 2.22 Income taxes (cont d) (b) (c) Deferred tax Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: Where the deferred tax arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; In respect of temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled by the and it is probable that the temporary differences will not reverse in the foreseeable future; and In respect of deductible temporary differences and carry-forward of unused tax credits and unused tax losses, if it is not probable that taxable profit will be available against which the deductible temporary differences and carry-forward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax are recognised in the income statement except that deferred tax relating to items recognised directly in equity is recognised directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition. Sales tax Revenues, expenses and assets are recognised net of the amount of sales tax except: Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and Receivables and payables that are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet Segment reporting A business segment is a distinguishable component of the that is engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of the that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments Contingencies A contingent liability or asset is a possible obligation or asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future event(s) not wholly within the control of the. Contingent liabilities and assets are not recognised on the balance sheet of the. 30 Tat Seng Packaging Ltd Annual Report

33 3. Significant Accounting Judgements and Estimates The preparation of the s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future. 3.1 Judgements made in applying accounting policies In the process of applying the s accounting policies, management has made the following judgements, apart from those involving estimations, which has the most significant effect on the amounts recognised in the financial statements: (a) Income taxes The has exposure to income taxes in numerous jurisdictions. Significant judgement is involved in determining the -wide provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The carrying amounts of the s income tax payables and deferred tax liabilities at 31 December was 2,031,927 (: 1,344,709) and 1,630,195 (: 3,900,271) respectively. 3.2 Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: (a) (b) Useful lives of plant and equipment The cost of plant and machinery for the manufacture of finished goods is depreciated on a straight-line basis over the plant and machinery s estimated economic useful lives. Management estimates the useful lives of these plant and machinery to be within 5 to 10 years. These are common life expectancies applied in the packaging industry. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore, future depreciation charges could be revised. The carrying amount of the s plant and machinery at the balance sheet date is disclosed in Note 4 to the financial statements. A 5% difference in the expected useful lives of these assets from management s estimates would result in approximately 3% (: 7%) variance in the s profit for the year. Impairment of non-financial assets The assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Goodwill is tested for impairment annually and at other times when such indicators exist. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows. Further details of the key assumptions applied in the impairment assessment of goodwill, is given in Note 5 to the financial statements. Tat Seng Packaging Ltd Annual Report 31

34 4. Property, plant and equipment At valuation At cost Leasehold land and buildings Leasehold land and buildings Plant and machinery Furniture and fittings Motor vehicles Construction in progress Installation in progress Total Cost or valuation: At 1 January Arising from acquisition of a subsidiary Additions Disposals/ write-offs Reclassification Net exchange differences 20,734,405 38,693 (583,970) 4,871,450 6,909 (108,046) 36,758,512 2,417, ,901 (79,787) 116,644 (892,315) 2,079,075 47,914 72,538 (31,965) 17,858 (14,847) 931,889 59,891 88,479 (49,737) (17,242) 650,390 (8,755) 1,546, ,634 (134,502) (87,035) 62,050,709 7,396,727 1,281,544 (161,489) (1,712,210) At 31 December and 1 January Additions Disposals/ write-offs Reclassification Net exchange differences 20,189,128 (8,501,100) 82,715 4,770, ,729 1,762,828 32,501 38,474, ,798 (459,038) 1,458, ,161 2,170,573 80,435 (494,069) 2,545 1,013,280 40,901 (444,003) 2, ,635 2,525,520 (1,762,828) 4,074 1,595, ,700 (1,458,081) 13,329 68,855,281 4,646,083 (9,898,210) 273,232 At 31 December 11,770,743 6,859,371 40,407,429 1,759, ,085 1,408,401 1,057,873 63,876, Tat Seng Packaging Ltd Annual Report

35 4. Property, plant and equipment (cont d) At valuation At cost Leasehold land and buildings Leasehold land and buildings Plant and machinery Furniture and fittings Motor vehicles Construction in progress Installation in progress Total Accumulated depreciation and impairment: At 1 January Depreciation charge for the year Disposals/write-off Net exchange differences 192, ,892 (12,911) 50,744 (683) 21,624,360 2,211,142 (79,024) (281,535) 1,649, ,474 (24,994) (9,778) 537, ,594 (25,366) (11,158) 24,004,469 3,274,846 (129,384) (316,065) At 31 December and 1 January Depreciation charge for the year Impairment loss Disposals/write-off Net exchange differences 937, ,273 (318,771) 4,070 50, , ,474,943 2,453,652 (452,358) 46,605 1,720,464 91,448 (424,109) 1, ,893 94,966 (334,383) 1, ,547 (605) 26,833,866 3,353, ,547 (1,529,621) 53,389 At 31 December 1,124, ,736 25,522,842 1,389, , ,942 29,459,970 Net carrying amount: At 31 December 19,251,623 4,720,252 14,999, , , ,635 1,595,925 42,021,415 At 31 December 10,646,666 6,596,635 14,884, , ,978 1,408, ,931 34,416,416 Tat Seng Packaging Ltd Annual Report 33

36 4. Property, plant and equipment (cont d) Company Cost or valuation: At valuation Leasehold building Plant and machinery At cost Furniture and fittings Motor vehicles Total At 1 January Additions Disposals/write-offs 8,500,000 1,100 19,240,585 17,374 (72,195) 1,805,569 29,626 (26,311) 609,110 30,155,264 48,100 (98,506) At 31 December and 1 January Additions Disposals/write-offs 8,501,100 (8,501,100) 19,185,764 31,173 (427,875) 1,808,884 45,988 (481,923) 609,110 (326,100) 30,104,858 77,161 (9,736,998) At 31 December 18,789,062 1,372, ,010 20,445,021 Accumulated depreciation: At 1 January Depreciation charge for the year Disposals/write-offs 63, ,021 16,163, ,825 (72,191) 1,450,249 80,724 (19,906) 304, ,822 17,981,962 1,094,392 (92,097) At 31 December and 1 January Depreciation charge for the year Disposals/write-offs 318,771 (318,771) 16,728, ,983 (426,915) 1,511,067 51,043 (413,178) 426,377 56,602 (228,270) 18,984, ,628 (1,387,134) At 31 December 16,864,110 1,148, ,709 18,267,751 Net carrying amount: At 31 December 8,182,329 2,457, , ,733 11,120,601 At 31 December 1,924, ,017 28,301 2,177,270 (a) Revaluation of leasehold land and buildings In prior years, the and the Company have engaged Robert Khan & Co Pte Ltd, an accredited independent valuer, to determine the fair value of its leasehold land and buildings for the Company and one of its subsidiaries. Fair value is determined by reference to open market values on an existing use basis. The date of the last valuation was 14 October If the property, plant and equipment were measured using the cost model, the net carrying amount would have been as follows: Leasehold land and buildings 6,240,000 14,350,000 Company 3,363,000 On 26 September, the Company acquired an 80% share of Hefei Dansun Packaging Co., Ltd., a company based in the People s Republic of China. The leasehold land and building and plant and machinery of Hefei Dansun Packaging Co., Ltd. were accounted for at their fair values on the date of acquisition. The fair value of these assets were based on their open market values on an existing use basis as determined by Anhui Zhong Zheng Fang Di Chan Ping Gu Co., Ltd, and Anhui Xin Shi Ji Zi Chan Ping Gu Shi Wu Suo, accredited independent valuers on 10 February and 10 April respectively. 34 Tat Seng Packaging Ltd Annual Report

37 4. Property, plant and equipment (cont d) (b) (c) (d) Assets pledged as security The leasehold land and certain leasehold buildings, and certain plant and machinery of the whollyowned subsidiary, Tat Seng Packaging Suzhou Co., Ltd. with net carrying amount of approximately Rmb 49,921,000 or 9,867,000 (: Rmb 56,398,000 or 11,069,000) and Rmb 51,385,000 or 10,157,000 (: Nil) respectively are pledged to a bank to secure banking facilities granted to the subsidiary (Notes 15, 16 and 29). The leasehold land and building, and certain plant and machinery of another subsidiary, Hefei Dansun Packaging Co., Ltd. with net carrying amount of approximately Rmb 24,461,000 or 4,835,000 (: Rmb 24,050,000 or 4,720,000) and Rmb 10,065,000 or 1,989,000 (: Rmb 11,277,000 or 2,213,000) respectively are pledged to a bank to secure banking facilities granted to the subsidiary (Notes 15, 16 and 29). Impairment of assets During the financial year, a subsidiary of the carried out a review of the recoverable amount of its installation-inprogress as it has not been put into production since they were assembled. An impairment loss of 748,547 (: Nil), representing the write down of these equipments to its recoverable amount was recognised in Other operating expenses (Note 22) line item of the income statement for the financial year 31 December. The recoverable amount of the equipment was based on its fair value less costs to sell. Sale and leaseback of leasehold building During the year, the Company sold its leasehold building together with attached fittings and renovations to a third party under a sale and leaseback arrangement. At the time of sale, the leasehold building and attached fittings and renovations had a carrying value of 8,243,657. The consideration of sale is 12,000,000. The leasehold building was leased back by the Company for 15 years from June. The Company has the option to renew the lease for an additional 5 years at a rate to be agreed with the lessor. The Company has determined that all the significant risks and rewards of ownership of this building has transferred to the lessor. Accordingly, the leaseback has been accounted for as an operating lease. 5. Intangible assets Company Cost: At 1 January Arising from acquisition of a subsidiary At 31 December, 1 January and 31 December Goodwill 608,447 Club membership 95,000 Total 95, ,447 Club membership 95, ,447 95, ,447 95,000 Accumulated amortisation and impairment: At 1 January, 31 December and 1 January Reversal of impairment loss 65,000 (15,000) 65,000 (15,000) 65,000 (15,000) At 31 December 50,000 50,000 50,000 Net carrying amount: At 31 December 608,447 30, ,447 30,000 At 31 December 608,447 45, ,447 45,000 Impairment testing of goodwill Goodwill arising from business combination has been allocated to the cash-generating unit ( CGU ) which is a subsidiary, located in the PRC. The recoverable amount has been determined based on a value in use calculation using cash flow projections from financial budgets approved by management covering a five-year period. The pre-tax discount rate applied to the cash flow projection and the forecasted growth rate used to extrapolate cash flow beyond the five-year period are 7% (: 10%) and 3% (: 3%) respectively. Tat Seng Packaging Ltd Annual Report 35

38 5. Intangible assets (cont d) The calculations of value in use for the CGU is most sensitive to the following assumptions: Budgeted gross margins Gross margins are based on average values achieved in the year preceding the start of the budget period. This is increased over the budget period for anticipated efficiency improvements. Growth rates The forecasted growth rate is based on management s estimate and do not exceed the long-term average growth rate for the industry relevant to the CGU. Pre-tax discount rates Discount rates reflect management s estimate of the risks specific to each CGU. This is the benchmark used by management to assess operating performance and to evaluate future investment proposals. In determining appropriate discount rates for each CGU, regard has been given to the weighted average cost of funds to each CGU at the beginning of the budgeted year. 6. Investments in subsidiaries Company Unquoted shares, at cost 12,121,981 11,012,381 Name Country of incorporation Principal activities Proportion (%) of ownership interest Tat Seng Packaging (Suzhou) Co., Ltd. (1) People s Republic of China Manufacture and sales of corrugated boards, corrugated cartons and other packing products Hefei Dansun Packaging Co., Ltd. (1) (1) Audited by Ernst & Young, Shanghai. People s Republic of China Manufacture and sales of corrugated boards, corrugated cartons and other packing products Loans to subsidiaries Company Current: Loan to Hefei Dansun Packaging Co., Ltd. (Note A) 720,000 Non-current: Loan to Hefei Dansun Packaging Co., Ltd. Loan to Tat Seng Packaging (Suzhou) Co., Ltd. (Note A) (Note B) 2,880,000 4,691,500 4,867,300 7,571,500 4,867,300 Note A The loan to Hefei Dansun Packaging Co., Ltd is unsecured, bears interest at 5.5% per annum (: Nil) and is repayable over 60 monthly instalments commencing from August Note B The loan to Tat Seng Packaging (Suzhou) Co., Ltd. represents the Company s net investment in the subsidiary, is unsecured, non-interest bearing and with no fixed term of repayment. The fair value of the amount is not determinable as the timing of the future cash flows arising from the amount cannot be estimated reliably. A portion of the loans amounting to 2,891,500 (: 3,067,300) are denominated in US dollars. 36 Tat Seng Packaging Ltd Annual Report

39 8. Investment securities Available-for-sale financial assets and Company Equity instruments (quoted) 1,113,373 1,111,505 Quoted equity instruments and their dividends receivable are denominated in Singapore dollar. Quoted equity instruments are stated at market value determined on an individual basis. 9. Inventories Balance sheet: Raw materials Work-in-progress Finished goods Goods-in-transit Machinery parts 9,679, , , ,724 20,318 5,600, , , ,360 77,633 2,460,987 81, , ,607 20,318 Company 1,841,462 70, , ,681 20,319 10,915,331 7,148,734 3,123,358 2,394,560 Income statement: Inventories recognised as an expense in cost of sales Reversal of write-down of inventories 61,619,227 8,341 43,739, ,570 The reversal of write-down of inventories was made when the raw materials were used in production and the related finished goods were sold above their carrying amounts. 10. Trade and bills receivables Trade receivables Bills receivables 16,647,169 1,471,438 12,213, ,502 Company 2,905,129 2,663,634 18,118,607 12,355,693 2,905,129 2,663,634 Trade receivables and bills receivables are non-interest bearing and are generally on days and days terms respectively. They are recognised at their original invoice amounts which represent their fair values on initial recognition. Receivables that are past due but not impaired The has trade receivables amounting to 3,188,913 (: 2,495,234) that are past due at the balance sheet date but not impaired. These receivables are unsecured and the analysis of their aging at the balance sheet date is as follows: Trade receivables past due: Lesser than 91 days 91 to 180 days 181 to 365 days More than 365 days 3,178,110 10, ,362,703 35,013 75,751 20,767 3,188,913 2,494,234 Tat Seng Packaging Ltd Annual Report 37

40 10. Trade and bills receivables (cont d) Receivables that are impaired The s trade receivables that are impaired at the balance sheet date and the movement of the allowance accounts used to record the impairment are as follows: Individually impaired Trade receivables nominal amounts Less: Allowance for impairment 102,352 (102,352) 113,141 (113,141) Movement in allowance accounts: At 1 January Reversal of allowance for impairment Exchange differences 113,141 (10,987) ,026 (60,767) (1,118) At 31 December 102, ,141 Trade receivables that are individually determined to be impaired at the balance sheet date relate to debtors that are in significant financial difficulties and have defaulted on payments. These receivables are not secured by any collateral or credit enhancements. Trade and bills receivables are denominated in the following currencies: - Singapore dollars - Renminbi - US dollars 2,905,130 15,213,477 2,663,634 9,666,452 25,607 2,905,129 Company 2,663,634 18,118,607 12,355,693 2,905,129 2,663, Other receivables and deposits Company Other receivables Advance to suppliers Deposits 138, ,303 85, , ,665 60,373 12,061 50,212 15,298 58,302 1,193, ,363 62,273 73,600 Other receivables and deposits are denominated in the following currencies: - Singapore dollars - Renminbi 62,273 1,131,499 73, ,763 62,273 73,600 1,193, ,363 62,273 73, Amounts due from subsidiaries The amounts due from subsidiaries are non-trade related, unsecured, non-interest bearing and are to be settled in cash. 38 Tat Seng Packaging Ltd Annual Report

41 13. Cash and cash equivalents For the purpose of the Consolidated Cash Flow Statement, cash and cash equivalents comprise the following as at 31 December: Fixed deposits Cash at banks and in hand 10,000,000 8,889,396 4,250,000 8,320,618 18,889,396 12,570,618 Cash and bank balances pledged as security for bills payable granted to the (4,647,890) (3,702,003) 14,241,506 8,868,615 Cash at banks earns interest at floating rates based on daily bank deposit rates ranging from 0.05% to 1.15% (: 0.06% to 0.67%) per annum. Fixed deposits have an average maturity of 7 days (: 120 days) depending on the immediate cash requirements of the, and earn interests at the respective short-term deposit rates. The weighted average effective interest rate of fixed deposits is 1.345% (: 0.05% to 3.345%) per annum. Included in the cash and bank balances is an amount of 4,647,890 (: 3,702,003) held as pledge by the subsidiaries banks for bills payable by the subsidiaries (Note 16). Cash and cash equivalents are denominated in the following currencies: - Singapore dollars - Renminbi - US dollars 11,706,939 7,136,816 45,641 5,578,281 6,927,126 65,211 Company 11,706,939 8,153 5,578,281 12,199 18,889,396 12,570,618 11,715,092 5,590, Deferred capital grant Cost: At 1 January Received during the year 77,167 At 31 December 77,167 Accumulated amortisation: At 1 January Amortisation 1,942 At 31 December 1,942 Net carrying amount: Current Non-current 2,912 72,313 75,225 Deferred capital grant relate to subsidies received for the acquisition of factory building, and plant and machinery by one of the subsidiaries in People s Republic of China. The grant is amortised to match the depreciation of the related property, plant and equipment acquired. There are no unfulfilled conditions or contingencies attached to this grant. Tat Seng Packaging Ltd Annual Report 39

42 15. Loans and borrowings Current: Renminbi ( Rmb ) loan A (unsecured) Rmb loan B (secured) Rmb loan C (secured) Rmb loan D (secured) Rmb loan E (secured) Rmb loan F (secured) Rmb loan G (secured) Weighted average effective interest rate (per annum) Maturity ,569, ,640 3,162,560 1,962,710 1,570, , ,800 6,522,780 4,906,762 Non-current: Rmb loan D (secured) Rmb loan H (unsecured) Rmb loan A (unsecured) , ,355 1,790,986 This loan comprised of two equal loans from different banks at the same interest rate, and was fully repaid on 19 March and 25 April respectively. Rmb loan B (secured) This loan comprised of two loans at the same interest rate, and were fully repaid on 24 January and 18 April respectively. They were secured by the leasehold land and building of Hefei Dansun Packaging Co., Ltd.. Rmb loan C (secured) This loan was fully repaid on 26 July and was secured by certain plant & machinery of Hefei Dansun Packaging Co., Ltd.. Rmb loan D (secured) The loan was repayable in 8 equal monthly instalments of 73,600, from the 5th to 12th months after the loan has been drawn down, and subsequently in 12 equal monthly instalments of 98,100 from the 13th to 24th months. The loan was fully repaid in. The loan was secured by a mortgage over the leasehold land and building of Hefei Dansun Packaging Co., Ltd.. Rmb loan E (secured) The loan consists of two loans from the same bank at different interest rates and are repayable on 6 January 2008 and 3 June They are secured by the leasehold land and building of Tat Seng Packaging (Suzhou) Co., Ltd. Rmb loan F (secured) The loan is fully repayable on 31 August 2008 and is secured by certain leasehold land of Hefei Dansun Packaging Co., Ltd. Rmb loan G (secured) The loan consists of four loans from the same bank at different interest rates and are fully repayable on 7 February 2008, 6 June 2008, 11 October 2008 and 9 November They are secured by certain leasehold land and building of Hefei Dansun Packaging Co., Ltd.. Rmb loan H (unsecured) The loan was unsecured and was fully repaid in. 16. Bills payable to banks The bills payable of the Company are unsecured and non-interest bearing. The bills payable of the subsidiaries are secured by the leasehold land, certain leasehold buildings, certain plant and machinery, cash and bank balances of the subsidiaries, and are non-interest bearing and mature within 6 months from the financial year end (Note 4, 13 and 29). 40 Tat Seng Packaging Ltd Annual Report

43 17. Trade and other payables Trade payables Amount due to a minority shareholder of a subsidiary Other payables Payables arising from purchase of property, plant and equipment 7,046,326 1,313, ,840 5,517, , , , ,607 Company 595, ,855 8,827,059 6,552,362 1,093, ,050 Trade payables Trade payables are non-interest bearing and are normally settled on 60-day terms. Amount due to a minority shareholder of a subsidiary The amount owing was interest-free and was fully repaid in. Other payables Other payables are non-interest bearing and have an average term of six months. Trade and other payables are denominated in the following currencies: - Singapore dollars - Renminbi - US dollars - Others 704,103 7,733, ,484 1, ,462 5,626, ,499 8,666 Company 704, ,484 1, , ,922 8,666 8,827,059 6,552,362 1,093, , Other liabilities Accrued operating expenses Accrued staff remuneration Provision for employee reward Advances from customers 566,716 1,735, , , ,039 1,263, ,976 50,500 Company 274,256 1,398,260 50, ,164 1,011,507 50,500 2,602,442 1,957,677 1,723,016 1,311,171 Movements in provision for employee reward during the financial year are as follows: At 1 January Provision for the year Utilisation of provision Exchange differences 203, ,223 (147,269) 1, ,084 75,174 (136,850) (12,432) Company At 31 December 174, ,976 Provision for employee reward Pursuant to the relevant laws and regulations of the PRC, the subsidiary is required to appropriate to an employee reward fund at least 5% of its statutory net profit for the year. This fund can only be utilised for bonuses or rewards of the subsidiary s employees. Appropriation to this fund has been charged to the income statement. Tat Seng Packaging Ltd Annual Report 41

44 19. Share capital and Company Issued and fully paid At 1 January and 31 December - 157,200,000 ordinary shares 31,440,000 31,440,000 The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restrictions. 20. Other reserves Fair value adjustment reserve Asset revaluation reserve Foreign currency translation reserve Statutory reserve fund Capital reserve (189,924) 3,785, ,285 1,321,071 3,745,523 (191,793) 4,598,790 (58,739) 1,088,626 3,745,523 Company (189,924) (191,793) 821,679 8,872,354 9,182,407 (189,924) 629,886 (a) Fair value adjustment reserve Fair value adjustment reserve represents the cumulative fair value changes, net of tax, of available-for-sale financial assets until they are disposed of or impaired. At 1 January Net gain/(loss) on fair value changes during the year (191,793) 1,869 (191,793) Company (191,793) 1,869 (191,793) At 31 December (189,924) (191,793) (189,924) (191,793) (b) Asset revaluation reserve The asset revaluation reserve represents increases in the fair value of leasehold land and building, net of tax, and decreases to the extent that such decrease relates to an increase on the same asset previously recognised in equity. At 1 January Reversal of assets revaluation reserve upon disposal of leasehold building Effect of reduction in tax rate 4,598,790 (821,679) 4,598,790 Company 821,679 (821,679) 821,679 8,288 At 31 December 3,785,399 4,598, , Tat Seng Packaging Ltd Annual Report

45 20. Other reserves (cont d) (c) Foreign currency translation reserve The foreign currency translation reserve represents exchange differences arising from the translation of the financial statements of foreign operations whose functional currencies are different from that of the s presentation currency. At 1 January Net effect of exchange differences arising from translation of financial statements of foreign operations (58,739) 269,024 1,156,342 (1,215,081) At 31 December 210,285 (58,739) (d) Statutory reserve fund In accordance with the Foreign Enterprise Law applicable to the subsidiary in the People s Republic of China ( PRC ), the subsidiary is required to make appropriation to statutory reserve fund ( SRF ). At least 10% of its profit after tax, as determined in accordance with PRC accounting standards and regulations must be allocated to the SRF until it reaches 50% of the registered capital. Subject to approval from the relevant PRC authorities, the SRF may be used to offset any accumulated losses or increase the registered capital of the subsidiary. The SRF is not available for dividend distribution to shareholders. At 1 January Transferred from retained earnings 1,088, , , ,349 At 31 December 1,321,071 1,088,626 (e) Capital reserve The capital reserve represents the capitalisation of retained earnings of a subsidiary of the. The subsidiary capitalised its retained earnings in 2002 and 2005 in view of its expansion plans. At 1 January and 31 December 3,745,523 3,745, Other operating income Amortisation of deferred capital grant Dividend income from investment securities Interest income from fixed deposit and others Net gain on disposal of property, plant and equipment Reversal of write-down of inventories Reversal of impairment loss in club membership Waiver of debts by trade creditors Write back of allowance for doubtful trade receivables Write back of withholding tax Others 1, ,841 3,677,743 8,341 15,000 97,405 10,987 79, , ,570 60,767 58,323 60,568 4,118, ,331 Tat Seng Packaging Ltd Annual Report 43

46 22. Other operating expenses The following items have been included in arriving at other operating expenses: Foreign exchange loss Bad trade debts written off Impairment loss of property, plant and equipment Net loss on disposal of property, plant and equipment Property, plant and equipment written off 21,643 91, ,547 13,140 58,015 10,400 7, Finance costs Interest expense on bank loans and borrowings Bank charges 476,404 41, ,435 37, , , Profit before tax The following items have been included in arriving at profit before tax: Non-audit fees paid to: Auditors of the Company Depreciation of property, plant and equipment (Note 4) Directors fees Directors remuneration Operating lease expenses Employee benefits expense including Directors remuneration (Note 25) 4,000 3,353, ,000 1,679, ,939 9,514,942 7,500 3,274, ,832 1,543, ,314 7,385, Employee benefits Employee benefits expense (including Directors): Salaries and bonuses Central Provident Fund and pension contributions Other personnel expenses The above includes Directors remuneration shown in Note 24. 8,666, , ,869 6,738, , ,871 9,514,942 7,385, Tat Seng Packaging Ltd Annual Report

47 26. Taxation (a) Major components of income tax expense The major components of income tax expense for the years ended 31 December and are: Income Statement: Current income tax - current income taxation - underprovision in respect of previous years Deferred income tax - movement in temporary differences - reversal of deferred tax liabilities on revaluation upon disposal of leasehold building - Effect of reduction in tax rate - overprovision in respect of previous years 2,118,388 11,953 (868,987) (956,829) (180,768) (222,818) 702,155 10,671 (78,270) Income tax (credit)/expense recognised in the income statement (99,061) 634,556 Statement of changes in equity: Deferred income tax related to items credited directly to equity: - Effect of reduction in tax rate 12,287 Pursuant to the Income Tax Law of the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and various local income tax laws, foreign investment enterprises in the PRC are subject to the statutory income tax rate of 33% (30% state income tax plus 3% local income tax) unless the enterprises are located in specially designated regions or cities in the PRC in which more favourable tax rates will apply. One of the subsidiaries is located in a region in the PRC where a preferential tax applies and currently qualifies for a reduced tax rate of 27% (24% state income tax plus 3% local income tax). Another PRC subsidiary is entitled to income tax exemption for the two years commencing from the first profit making year (after deducting losses incurred in previous years) and full exemption of the local income tax and 50% reduction in the state income tax for the succeeding three years. (b) Relationship between tax expense and accounting profit A reconciliation between tax (credit)/expense and the product of accounting profit multiplied by the applicable corporate tax rate for the years ended 31 December and is as follows: Accounting profit before income tax 5,578,069 2,987,685 Tax at applicable rate of 18% (: 20%) 1,004, ,537 Adjustments: Non deductible expenses Income not subject to taxation (Over)/underprovision in respect of previous years Effect of partial tax exemption Effect of changes in tax rate Tax credit from subsidiary Tax effect of different tax rate for the subsidiary Tax exemption of a subsidiary Reversal of deferred tax liabilities on asset revaluation reserve upon disposal of leasehold building Others 90,155 (45,931) (210,865) (27,450) (180,768) 228,609 (956,829) (34) (53,486) Income tax (credit)/expense recognised in the income statement (99,061) 634, ,150 10,671 (10,500) (177,652) 157,477 (30,641) Tat Seng Packaging Ltd Annual Report 45

48 26. Taxation (cont d) (c) Deferred tax assets and liabilities as at 31 December relate to the following: Deferred tax liabilities Difference in depreciation for tax purposes Revaluation reserve Other items 380,250 1,589,843 1,176,367 2,738,691 84, ,250 Company 1,176,367 1,058,799 84,479 Deferred tax assets Provisions Unutilised losses (296,082) (43,816) (99,266) (45,991) (99,266) Net deferred tax liabilities 1,630,195 3,900, ,259 2,220,379 Deferred tax assets and liabilities are offset when there is a legally enforceable right to set-off current tax assets against current tax liabilities and when the deferred taxes relate to the same taxation authority. 27. Earnings per share Basic earnings per share amounts are calculated by dividing profit for the year that is attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing profit for the year that is attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The following tables reflect the profit and loss and share data used in the computation of basic and diluted earnings per share for the years ended 31 December: Profit net of tax attributable to ordinary equity holders of the parent 5,780,056 2,321,755 Weighted average number of ordinary shares for basic and diluted earnings per share computation 157,200, ,200,000 As there are no share options and warrants in issue as at the financial year end, the basic and fully diluted earnings per share are the same. 46 Tat Seng Packaging Ltd Annual Report

49 28. Business combination and goodwill Acquisition of Hefei Dansun Packaging Co., Ltd. On 26 September, the acquired 80% of the voting shares of Hefei Dansun Packaging Co., Ltd., a company based in the People s Republic of China ( PRC ) specialising in the manufacture of corrugated paper cartons. The fair values of the identifiable assets and liabilities of Hefei Dansun Packaging Co., Ltd. as at the date of acquisition and the corresponding carrying amounts immediately before the acquisition were: Property, plant and equipment Trade and other receivables Inventories Cash and cash equivalents Trade and other payables Long term liabilities Deferred tax liability on fair value adjustment Tax payable Recognised on acquisition 7,396,727 2,462,954 1,178,370 1,985,414 13,023,465 (6,150,354) (2,734,796) (360,817) (11,317) Carrying amount before combination 5,392,187 2,462,954 1,178,370 1,985,414 11,018,925 (6,150,354) (2,734,796) (11,317) (9,257,284) (8,896,467) Net identifiable assets 3,766,181 2,122,458 Goodwill arising on acquisition (Note 5) 608,447 4,374,628 Minority interests (752,957) Total purchase consideration 3,621,671 The total cost of the acquisition was 3,621,671 and was paid in cash. Cost of acquisition Costs directly attributable to the acquisition Cash settlement 37,943 3,583,728 Total cost of acquisition 3,621,671 Net cash acquired with the subsidiary Cash paid 1,985,764 (3,621,671) Net cash outflow on acquisition (1,635,907) During the period from 1 October to 31 December, Hefei Dansun Packaging Co., Ltd. has contributed 125,497 to the net profit of the. If the combination had taken place at the beginning of, the profit for the for the year ended 31 December would have been 2,373,341 and revenue from continuing operations would have been 61,087,594. The goodwill of 608,447 arising from the acquisition of Hefei Dansun Packaging Co., Ltd. has been reflected under the balance sheet as an intangible asset, and is attributable to the excess of the purchase consideration over the fair value of the tangible net assets acquired. Fair value adjustments amounting to 2,004,539 and 360,817 were made to the carrying value of property, plant and equipment and deferred tax liability, in arriving at the recognised value of 7,396,727 and 360,817 respectively. Tat Seng Packaging Ltd Annual Report 47

50 29. Banking facilities The banking facilities of the and of the Company as at the year end were as follows: Trade finances Overdraft facilities Term loan Foreign exchange contracts 11,325,120 2,000,000 18,184,720 2,000,000 11,851,000 1,000,000 12,954,000 2,000,000 5,000,000 2,000,000 2,000,000 Company 5,000,000 1,000,000 2,000,000 The banking facilities of the Company are previously secured by the leasehold land and building of the Company (Note 4). The security was discharged on 26 October (Note 4). The banking facilities of its subsidiaries are secured by the leasehold land, certain leasehold buildings and certain plant and machinery of its subsidiaries (Note 4). 30. Related party disclosures (a) Sale and purchase of goods and services In addition to the related party information disclosed elsewhere in the financial statements, the following significant transactions between the and related parties took place at terms agreed between the parties during the financial year: Company Sales to holding company Consultancy fee paid to holding company Interest charged to a subsidiary company 8,689 9,900 8, ,529 9,900 71,477 (b) (c) Amount due to a minority shareholder of a subsidiary In the financial year, one of the subsidiaries borrowed 200,000 from its minority shareholder. The amount owing was interest-free and repayable within one year. The amount has been fully repaid in. Compensation of key management personnel Short-term employee benefits Central Provident Fund contributions Other short-term benefits 1,567,422 51,387 61,140 1,442,526 40,389 60,760 Total compensation paid to Directors of the Company 1,679,949 1,543,675 The management considers that there were no key management personnel other than the executive directors. 31. Commitments (a) Operating lease commitments as lessee The has entered into commercial property leases on leasehold properties. These non-cancellable leases have remaining lease terms of between 2 to 14 years. Lease terms do not contain restrictions on the s activities concerning dividends, additional debt or further leasing. One of the leases contains a clause to enable upward revision of rental charge by 7% in June 2010 and 7% every 3 years thereafter. Future minimum rental payable under non-cancellable operating lease commitment in respect of leasehold properties at the balance sheet date are as follows: Not later than one year Later than one year but not later than five years Later than five years 1,498,236 5,942, ,000 1,321,000 Company 1,440,187 5,861, ,000 1,321,000 16,897,941 10,925,000 16,183,138 10,925,000 24,339,151 12,503,000 23,484,772 12,503, Tat Seng Packaging Ltd Annual Report

51 31. Commitments (cont d) (b) Capital commitments Capital expenditure contracted for as at the balance sheet date but not recognised in the financial statements are as follows: Company Capital commitments in respect of purchase of property, plant and equipment 1,240,713 1,880, , Contingencies Guarantees The has provided the following guarantees at the balance sheet date: Banker s guarantee issued for lease rental Shipping guarantee for purchase of materials Guarantees issued for foreign workers Letter of credit and Company 2,100,000 28, ,000 4,232 2,302, Fair value of financial instruments Fair values The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm s length transaction, other than in a forced or liquidation sale. Financial instruments whose carrying amount approximates fair value Management has determined that the carrying amounts of trade receivables, other receivables and deposits, loan to Hefei Dansun Packaging Co., Ltd., amount due from subsidiaries, fixed deposits, cash at bank and in hand, loans and borrowings, bills payable to banks, trade and other payables and other liabilities based on their notional amounts, reasonably approximate their fair values because these are mostly short term in nature or are repriced frequently. Financial instruments carried at other than fair value The fair value of the loan to Tat Seng Packaging (Suzhou) Co., Ltd. is not determinable as the timing of the future cash flows arising from the amount cannot be estimated reliably. 34. Financial risk management objectives and policies The and the Company is exposed to financial risks arising from its operations and the use of financial instruments. The key financial risks include interest rate risk, liquidity risk, credit risk, foreign currency risk and market price risk. The Board of Directors reviews and agrees policies and procedures for the management of these risks, which are executed by the Management. The Audit Committee provides independent oversight to the effectiveness of the risk management process. It is, and has been throughout the current and previous financial year the s practice that no derivatives shall be undertaken. The and the Company do not apply hedge accounting. The following sections provide details regarding the s and Company s exposure to the above-mentioned financial risks and the objectives, policies and processes for the management of these risks. (a) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of the s and the Company s financial instruments will fluctuate because of changes in market interest rates. The s and the Company s exposure to interest rate risks arise primarily from their loans and borrowings. The s policy is to maintain the bank borrowings to the minimum, and to obtain the most favourable interest rates available without increasing its foreign exchange exposure. Surplus funds in the are placed in deposits with banks and subject to interest rate risk. The s financial liabilities at fixed rate are contractually repriced at intervals of 1 to 10 months (: 1 to 20 months) from the balance sheet date. The s and the Company s financial assets at fixed rate are contractually repriced at intervals of 7 days (: 7 to 30 days). Tat Seng Packaging Ltd Annual Report 49

52 34. Financial risk management objectives and policies (cont d) (a) Interest rate risk (cont d) Interest on financial instruments at fixed rates is fixed until the maturity of the instrument. The other financial instruments of the and the Company that are not included in the above tables are not subject to interest rate risks. Sensitivity analysis for interest rate risk The table below demonstrates the sensitivity to a reasonably possible change in the SGD and Renminbi interest rates, with all other variables held constant, of the s profit net of tax (through the impact on interest expense on fixed interest rate loans and borrowings which are repriced on a 6 to 12-months interval) - Singapore dollar - Renminbi - Singapore dollar - Renminbi Increase/ decrease in basis points Effect on profit net of tax 82,000 (29,000) (82,000) 29,000 - Singapore dollar - Renminbi - Singapore dollar - Renminbi ,000 (31,000) (34,000) 31,000 (b) Liquidity risk Liquidity risk is the risk that the or the Company will encounter difficulty in meeting financial obligations due to shortage of funds. Liquidity risk arises in the general funding of the s operating activities. It includes the risk of not being able to fund operating activities at settlement dates and liquidate positions in a timely manner at a reasonable price. The has no significant exposure to liquidity risk. Short-term fundings will be obtained from financial institutions, when required. At balance sheet date, 100% (: 73%) of the s loans and borrowings will mature in less than one year based on the carrying amount reflected in the financial statements. The table below summarises the maturity profile of the s and the Company s financial liabilities at the balance sheet date based on contractual undiscounted payments. Within 1 year 1-2 years Total Within 1 year 1-2 years Total Trade and other payables Bills payables to banks Bank loans and borrowings Other liabilities 8,827,059 15,478,658 6,522,780 8,827,059 15,478,658 6,522,780 6,552,362 11,125,374 4,906,762 2,602,442 2,602,442 1,957,677 1,957,677 33,430,939 33,430,939 24,542,175 1,790,986 26,333,161 1,790,986 6,552,362 11,125,374 6,697,748 Company Trade and other payables Bills payable to banks Other liabilities 1,093,642 65,542 1,723,016 1,093,642 65,542 1,723, ,050 75,533 1,311, ,050 75,533 1,311,171 2,882,200 2,882,200 2,262,754 2,262, Tat Seng Packaging Ltd Annual Report

53 34. Financial risk management objectives and policies (cont d) (c) Credit risk Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The s maximum exposure to credit risk arises primarily from trade and other receivables. Credit risk is managed through the application of credit approvals, credit limits and monitoring procedures. For other financial assets (including investment securities and cash and cash equivalents), the and the Company minimise credit risk by dealing with reputable counterparties. As at 31 December, the s concentration of credit risk by geographical locations is mainly in Singapore and the People s Republic of China ( PRC ). Credit risk concentration profile The determines concentrations of credit risk by monitoring the country of its trade receivables on an on-going basis. The credit risk concentration profile of the s trade by country at the balance sheet date is as follows: Singapore PRC % of total % of total 2,905,129 16% 2,663,634 22% 15,213,478 84% 9,692,059 78% 18,118, % 12,355, % At balance sheet date, approximately 21% (: 20%) of the trade receivables were due from 5 major customers who are multi-industry conglomerates located in Singapore and PRC. Financial assets that are neither past due nor impaired Trade and other receivables that are neither past due nor impaired are creditworthy debtors with good payment record with the. Cash and cash equivalents and investment securities that are neither past due nor impaired are placed with or entered into with reputable financial institutions or companies. Financial assets that are either past due or impaired Information regarding financial assets that are either past due or impaired is disclosed in Note 10 (Trade receivables). (d) Foreign currency risk The is exposed to foreign exchange risk on sales and purchases that are denominated in a currency other than the functional currency of the respective companies in the. The currency giving rise to this risk is primarily the United States dollar. Foreign currencies received are kept in foreign currency bank accounts and are used to make foreign currency payments so as to minimise the foreign exchange exposure. At the balance sheet date, such foreign currency bank balance (mainly in USD) amount to 45,641 and 8,153 for the and the Company respectively. The is also exposed to currency translation risk arising from its net investments in PRC. The s net investments in PRC are not hedged as currency positions in RMB is considered long-term in nature. Sensitivity analysis for foreign currency risk The following table demonstrates the sensitivity to a reasonably possible change in the USD exchange rate (against SGD), with all other variables held constant, of the s profit net of tax. USD - strengthened 5% (: 5%) - weakened 5% (: 5%) Profit net of tax (17,000) 17,000 Profit net of tax (18,000) 18,000 (e) Market price risk Market price risk is the risk that the fair value or future cash flows of the s financial instruments will fluctuate because of changes in market prices (other than interest or exchange rates). The is exposed to equity price risk arising from its investment in quoted equity investments. These instruments are quoted on the SGX-ST in Singapore and are classified as available-for-sale financial assets. The does not have exposure to commodity price risk. Sensitivity analysis for market price risk At the balance sheet date, if the Straits Times Index had been 2% (: 2%) higher/lower with all other variables held constant, the s other reserve in equity would have been 22,000 (: 22,000) higher/lower, arising as a result of an increase/decrease in the fair value adjustment reserve. Tat Seng Packaging Ltd Annual Report 51

54 35. Capital management The primary objective of the s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholders value. The manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 December and 31 December. As disclosed in Note 20 (d), a subsidiary of the is required by the Foreign Enterprise Law of the PRC to contribute to and maintain a non-distributable statutory reserve fund whose utilisation is subject to approval by the relevant PRC authorities. This externally imposed capital requirement has been complied with by the above-mentioned subsidiary for the financial years ended 31 December and 31 December. The monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The includes within net debt, loans and borrowings, trade and other payables, other liabilities, less cash and cash equivalents. Capital includes equity attributable to equity holders of the parent less the fair value adjustment reserve and the abovementioned restricted statutory reserve funds. Trade and other payables Bills payable to banks Loans and borrowings Other liabilities Less: Cash and cash equivalents 8,827,059 15,478,658 6,522,780 2,602,442 (18,889,396) 6,552,362 11,125,374 6,697,748 1,957,677 (12,570,618) Net debt 14,541,543 13,762,543 Equity attributable to the equity holders of the parent Add : - Fair value adjustment reserve (Note 20(a)) Less : - Statutory reserve fund (Note 20(d)) 47,458, ,924 (1,321,071) 44,299, ,793 (1,088,626) Total capital 46,327,460 43,402,799 Capital and net debt 60,869,003 57,165,342 Gearing ratio 24% 24% 36. Segment information Reporting format The primary segment reporting format is determined to be business segments as the s risks and rates of return are affected predominantly by differences in the products and services produced. Secondary information is reported geographically. The operating businesses are organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. Business segments The has only one principal activity which is the manufacture and sale of packaging products. Accordingly, no segmental reporting by business segments is presented. Geographical segments The s geographical segments are based on the location of the s assets. Sales to external customers disclosed in geographical segments are based on the geographical location of its customers. Allocation basis and transfer pricing Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly income tax and deferred tax liabilities. Transfer prices between business segments are set on an arm s length basis in a manner similar to transactions with third parties. Segment revenue, expenses and results include transfers between business segments. These transfers are eliminated on consolidation. 52 Tat Seng Packaging Ltd Annual Report

55 36. Segment information (cont d) Singapore PRC Revenue: Sales to external customers 17,876,571 56,741,483 74,618,054 Segment results Finance cost Taxation 4,008,297 2,087,178 6,095,475 (517,406) 99,061 Net profit for the year 5,677,130 Segment assets 21,180,440 64,372,767 85,553,207 Segment liabilities Unallocated liabilities 2,882,200 30,623,964 33,506,164 3,662,122 Total liabilities 37,168,286 Capital expenditure Depreciation of property, plant and equipment Impairment loss of property, plant and equipment 77, ,628 4,568,922 2,683, ,547 4,646,083 3,353, ,547 Singapore PRC Revenue: Sales to external customers 16,501,703 38,324,903 54,826,606 Segment results Finance costs Taxation 947,600 2,227,537 3,175,137 (187,452) (634,556) Net profit for the year 2,353,129 Segment assets 23,003,216 53,642,121 76,645,337 Segment liabilities Unallocated liabilities 2,262,754 24,070,407 26,333,161 5,244,980 Total liabilities 31,578,141 Capital expenditure Depreciation of property, plant and equipment 48,101 1,094,392 1,233,443 2,180,454 1,281,544 3,274, Dividends and Company Declared and paid during the financial year: Dividends on ordinary shares: First and final dividend of per share less tax at 18% Special dividend of per share less tax at 18% 966,780 1,933,560 2,900,340 Proposed but not recognised as a liability as at 31 December: Dividends on ordinary shares, subject to shareholder s approval at the AGM: First and final dividend of per share less tax at 18% 966, Authorisation of financial statements for issue The financial statements for the year ended 31 December were authorised for issue in accordance with a resolution of the directors on 21 February Tat Seng Packaging Ltd Annual Report 53

56 and & uildings As At 31 December CHINA, SUZHOU OPERATIONS Location : Suzhou Jiangsu Province, Wanting Town, 88 Wendu Road Usage : Factory premises, office building, dormitory, development (Note A) Land area : 58, square metres Tenure : Leasehold - 50 years lease of 33,333.5 square metres expiring on 14 December years lease of 12, square metres expiring on 22 September years lease of 12,798 square metres expiring on 12 February 2051 Ownership : 100% owned by Tat Seng Packaging Suzhou Co., Ltd. Net carrying amount : RMB62.7 million (approximate S12.4 million) (Note A) as at 31 December Note A Revaluation were made on China, Suzhou s leasehold land & building on the following date. Land & building acquired after the following date are valued at cost: 14 October 2005 Revalued by : Robert Khan & Co Pte Ltd Valuation : RMB55.8 million (approximate to S11 million as at 31 December ) CHINA, HEFEI OPERATIONS Location : Hefei Anhui Province, 105, Zipeng Road Usage : Factory premises, office building Land area : 49,400 square metres Tenure : Leasehold - 48 years lease of 35,800 square metres expiring in August years 8 months lease of 13,600 square metres expiring on 8 December 2056 Ownership : 100% owned by Hefei Dansun Packaging Co., Ltd. Net carrying amount : RMB24.5 million (approximate to S4.8 million) (Note B) as at 31 December Note B Revaluations were made on China, Hefei s leasehold land & building on the following date. Land acquired after the following date is valued at cost: 10 February Revalued by : Valuation : RMB24.3 million (approximate to S4.8 million as at 31 December ) 54 Tat Seng Packaging Ltd Annual Report

57 tatistics of hareholdings As At 10 March 2008 Class of Share : Ordinary Shares Voting Right : One Vote Per Share DISTRIBUTION OF SHAREHOLDINGS Size of Shareholdings No. Of Shareholders % No. Of Shares % ,000-10, ,344, ,001-1,000, ,509, ,000,001 and above ,346, Total 1, ,200, TWENTY LARGEST SHAREHOLDERS No. Name No. Of Shares % 1 PSC CORPORATION LTD 100,529, LOH SEE MOON 23,580, SBS NOMINEES PTE LTD 2,202, KOH SER KIONG 2,090, PHILLIP SECURITIES PTE LTD 1,752, KIM TOON PRIVATE LIMITED 1,193, TAY HAN TUNG 980, SEAH TENG TENG 900, HANS SCHNIEWIND 800, SIAH OOI SIAH OOI CHOE FRANCIS 644, UOB KAY HIAN PTE LTD 639, CHUA KIM BEE 600, UNITED OVERSEAS BANK NOMINEES PTE LTD 531, CHEONG POH HUA 516, OCBC NOMINEES SINGAPORE PRIVATE LTD 428, CIMB-GK SECURITIES PTE. LTD. 400, LOW CHENG YEE (LU JINGYI) 400, TAN WAN CHER GERALDINE 391, LIM CHOONG SOONG 310, DBS VICKERS SECURITIES (SINGAPORE) PTE LTD 302, Total 139,187, SUBSTANTIAL SHAREHOLDERS No. Name Direct Interest % of Shares Deemed Interest % of Shares 1 PSC CORPORATION LTD 100,529, LOH SEE MOON 23,580, Based on the information available to the Company as at 10 March 2008, approximately 20% of the issued ordinary shares of the Company is held by the public, and therefore, Rule 723 of the Listing Manual issued by the Singapore Exchange Securities Trading Limited is complied with. Tat Seng Packaging Ltd Annual Report 55

58 otice of nnual eneral eeting NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Company will be held at 28 Senoko Drive, Singapore on 24 April 2008 at a.m. to transact the following business:- AS ORDINARY BUSINESS 1. To receive and consider the Audited Financial Statements of the Company for the financial year ended 31 December and the Directors Report and the Auditors Report thereon. (Resolution 1) 2. To approve the Directors fees of S174,000 for the financial year ended 31 December (31 December : S153,832). (Resolution 2) 3. To re-elect the following Directors retiring pursuant to Article 91 of the Company s Articles of Association:- Mr. Foo Der Rong (Resolution 3) Dr. John Chen Seow Phun (Resolution 4) Ms. Cheong Poh Hua (Resolution 5) 4. To re-appoint Messrs Ernst & Young as auditors of the Company to hold office until the conclusion of the next Annual General Meeting and to authorise the Directors to fix their remuneration. (Resolution 6) AS SPECIAL BUSINESS To consider and, if thought fit, to pass the following ordinary resolutions with or without modifications:- 5. Authority to allot and issue shares (a) That, pursuant to Section 161 of the Companies Act, Chapter 50, and the listing rules of the Singapore Exchange Securities Trading Limited, approval be and is hereby given to the Directors of the Company at any time to such persons and upon such terms and for such purposes as the Directors may in their absolute discretion deem fit, to: (i) (ii) (iii) issue shares in the capital of the Company whether by way of rights, bonus or otherwise; make or grant offers, agreements or options that might or would require shares to be issued or other transferable rights to subscribe for or purchase shares (collectively, Instruments ) including but not limited to the creation and issue of warrants, debentures or other instruments convertible into shares; issue additional Instruments arising from adjustments made to the number of Instruments previously issued in the event of rights, bonus or capitalisation issues; and (b) (Notwithstanding the authority conferred by the shareholders may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors while the authority was in force, provided always that (i) the aggregate number of shares to be issued pursuant to this resolution (including shares to be issued in pursuance of Instruments made or granted pursuant to this resolution) does not exceed 50% of the total number of issued shares excluding treasury shares of the Company, of which the aggregate number of shares (including shares to be issued in pursuance of Instruments made or granted pursuant to this resolution) to be issued other than on a pro rata basis to shareholders of the Company does not exceed 20% of the total number of issued shares excluding treasury shares of the Company, and for the purpose of this resolution, the issued share capital shall be the Company s total number of issued shares excluding treasury shares at the time this resolution is passed, after adjusting for; a) new shares arising from the conversion or exercise of convertible securities, or b) new shares arising from exercising share options or vesting of share awards outstanding or subsisting at the time this resolution is passed provided the options or awards were granted in compliance with Part VIII of Chapter 8 of the Listing Manual of the Singapore Exchange Securities Trading Limited, and c) any subsequent bonus issue, consolidation or subdivision of the Company s shares, and (ii) such authority shall, unless revoked or varied by the Company at a general meeting, continue in force until the conclusion of the next Annual General Meeting or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier. (Resolution 7) (See Explanatory Note 1) 56 Tat Seng Packaging Ltd Annual Report