Memstar technology ltd. Annual Report 2014

Transcription

1 Memstar technology ltd. Annual Report 2014

2 Corporate Profile On 11 April 2014, Memstar Technology Ltd. completed the disposal of its membrane business and principal operating subsidiary, Memstar Pte. Ltd. to United Envirotech Ltd. ( UEL ), through the sale of 1,670,383 ordinary shares and the transfer and/or novation of certain sale assets for a consideration of S$293,414,807 comprising a cash payment of S$73,353,702 and the allotment of 200,055,550 new UEL Shares, at an issue price of S$1.10 per UEL Share. The net proceeds from this sale were mainly distributed to shareholders as dividends and capital repayments both in cash and inspecie of UEL Shares. Following the completion, Memstar Technology Ltd. became a cash company under Rule 1018 (Cash Companies) of the Listing Manual of the Singapore Exchange Securities Trading Limited. The Company does not have any subsidiary as at 30 June The Company is currently actively exploring potential new business opportunities. Announcements on material developments will be made as and when appropriate. 1 Chairman s Statement and Operations Review 2 Board of Directors 4 Corporate Information 5 Corporate Governance and Financial Report

3 chairman s STATEMENT AND OPERATIONS REVIEW Dear Shareholders, On behalf of the Board, I am pleased to present to you Memstar Technology Ltd. (the Company ) Annual Report for the financial year ended 30 June 2014 ( FY2014 ). The Year in Review Income Statement Review During the financial year, the Company disposed of its principal operating subsidiary, Memstar Pte Ltd, which specialised in the manufacture and distribution of polyvinylidene fluoride hollow fibre membrane for a consideration of S$293,414,807 to United Envirotech Ltd. The sale was completed on 11 April 2014 and a net gain on disposal of S$197.2 million was recognised. Administrative expenses of S$0.7 million comprising mainly statutory and compliance costs is comparable to the previous financial year ended 30 June 2013 ( FY2013 ). Following the sale of the subsidiary and business assets, the results of the disposed operations for the nine month period ended 31 March 2014 were classified as discontinued operations. Comparison to the results of FY2013 would not be meaningful and hence no comparision was shown in the accounts. Resulting from the above, the Company recorded a net profit after tax of S$196.2 million in FY2014 as compared to a net loss of S$2.0 million in FY2013. Balance Sheet Review The Company s cash and cash equivalents of S$2.4 million as at 30 June 2014 represents 85.0% of the total assets from continuing operations. Subsequent to year end, other receivables of S$0.4 million as at 30 June 2014 were fully recovered. Cash Flow & Liquidity The Company recorded an increase in net cash generated from operating activities of S$5.3 million for FY2014 as compared to FY2013. This was mainly due to higher profit from operations in FY2014 and decrease in receivables. Net cash generated from investing activities amounted to S$50.1 million, mainly from net cash inflow on disposal of interest in subsidiary. Net cash used in financing activities totaled to S$55.7 million, mainly due to dividend and capital reduction payments to shareholders. Consequent to the above, the Company reported cash and cash equivalents of S$2.4 million as at 30 June Moving Forward The Board of Directors is committed to actively seek new potential business opportunities for the Company. Announcements on material developements will be made as and when appropriate. A Word of Thanks On behalf of the Board of Directors, I would like to thank our shareholders, business associates and customers for their unwavering support during the past year. I would also like to express my appreciation to all employees for their hard work and dedication during the year. Ms Pan Shuhong Chairman / Non-Executive Director Annual Report

4 Board of Directors PAN SHUHONG I Non-Executive Director Ms Pan Shuhong has been re-designated as a Non-Executive Director of the Company following the disposal by the Company of its operating subsidiaries and business assets in April She was previously the Executive Chairman of the Company and responsible for charting out the Group s growth and business expansion, policies and business strategy formulation and corporate directions including investment decisions. She is also responsible for ensuring the integrity and effectiveness of the governance process of the Board and representing the Board to Shareholders. She is a member of the Company s Nominating Committee. Prior to joining Memstar, Ms Pan was the General Manager of NOVO Envirotech (Guangzhou) Co., Ltd. (a whollyowned subsidiary of United Envirotech Ltd., a SGX Mainboard listed company) during which she was responsible for the marketing and investment activities of the company. Prior to joining NOVO Envirotech (Guangzhou) Co., Ltd. in 2003, she was the General Manager and Executive Director of NOVO Safety & Environmental Technology (Guangzhou) Co., Ltd. and a Senior Manager (China) of NOVO Environmental Technology Services Pte Ltd (NOVO ETS), both subsidiaries of PSB Corporation. From 1993 to 1995, she was employed by Shenzhen Zhonghongda Import & Export Co., Ltd. as Department Manager. She left and joined Landtop Corporation Pte. Ltd. in 1996 as Technical Manager. In 1998, she started her own business, Sinland Technology Services, which was in the business of providing environmental consultancy and coordination services, prior to joining NOVO ETS in Ms Pan specialises in electrochemistry and water treatment using advanced membrane technology. She graduated with Bachelor and Master degrees in Chemistry from Jilin University, China in 1990 and 1993 respectively. Ms Pan was first appointed to the Board of Directors on 12 September 2007 and last re-elected on 29 October Dr Ge Hailin I Non-Executive Director Dr Ge Hailin is the Founder and a Non-Executive Director of the Company. Prior to the disposal of the operating subsidiaries and business assets of the Company, he was the Chief Executive Officer of the Company and was responsible for the day-to-day operations of the Group. He supported the Executive Chairman in charting and reviewing of corporate directions and strategies, which cover areas of marketing and strategic alliances. Dr Ge has more than 25 years of R&D experience in conducting polymer, membrane materials and chemical engineering. Since mid 1980 s, he has also been involved in environmental analysis, water and wastewater treatment. His research and extensive interests in industrial application of new technologies resulted in many scientific papers, patents and know-how, which included successfully developing an effective and efficient production process of PVDF hollow fibre membrane. He was recruited by Singapore Economic Development Board in February 1992 to work at the Singapore Institute of Standards and Industrial Research (SISIR) as a senior research fellow and then PSB Corporation as a section head to conduct R&D work, in particular conducting polymer and membrane separation technology. In 1997, he founded his own company HW Electrochem Technology Pte Ltd focusing on development of functional materials and membrane technology for environmental and water treatment application. Dr Ge graduated from Wuxi Institute of Light Industry, China in 1977 and obtained his Master in Chemical Engineering from East China University of Science and Technology, China in He was awarded a scholarship by Wollongong University, Australia to undertake his PhD study in chemistry. He obtained his PhD in 1990 and conducted his Post-Doctoral research for two years at the same university. Dr Ge was first appointed to the Board of Directors on 12 September 2007 and last re-elected on 30 October Lam Peck Heng I Lead Independent Director Mr Lam is the Lead Independent Director and a member of the Nominating Committee, Remuneration Committee and the Audit Committee. Mr Lam had been a teacher at Raffles Institution, a senior officer at the Economic Development Board, an Assistant Secretary at the Ministry of Finance of Singapore, an Assistant General Manager at Intraco Ltd and the Registrar and Executive Director of the Singapore Society of Accountants, now known as Institute of Singapore Chartered Accountants ( ISCA ). He was appointed Head of Mission in Myanmar from 1988 to He was Singapore s High Commissioner to India from 1993 to 1996 and High Commissioner to New Zealand from 1996 to He was Bhutan s Honorary Consul in Singapore from 1983 to He was awarded the Public Service Medal in 1982 and made a Friend of Labour in Mr. Lam is also an independent director of Eratat Lifestyle Limited. Mr Lam obtained his Bachelor of Science (Honours) degree in Mathematics from the University of Singapore, and Master of Arts degree in Mathematics from the University of Kansas, USA. 2 MEMSTAR TECHNOLOGY LTD.

5 Mr Lam was first appointed to the Board of Directors on 12 September 2007 and last re-appointed on 30 October He will be subject to re-appointment at the forthcoming Annual General Meeting pursuant to Section 153(6) of the Companies Act, Cap. 50 and being eligible, has been recommended for re-appointment. HONG PIAN TEE I Independent Director Mr Hong is the Chairman of the Audit Committee and a member of the Remuneration Committee. Prior to retiring from professional practice, he was the Managing Director of PricewaterhouseCoopers Intrust Limited, a position he held from 1985 to Mr Hong s experience and areas of expertise are in corporate advisory, financial reconstruction and corporate insolvencies since He has been a corporate/financial advisor to clients with businesses in Singapore and Indonesia and in addition, was engaged to restructure companies with operations in Taiwan, Indonesia and Malaysia. Mr Hong is also the Chairman of the Pei Hwa Foundation Limited, Lead Independent Director of Golden Agri- Resources Ltd, Lead Independent Director of XMH Holdings Ltd. and Non-Executive Chairman/Independent Director of AsiaPhos Limited. Mr Hong was appointed to the Board of Directors on 22 October He will be subject to re-appointment at the forthcoming Annual General Meeting pursuant to Section 153(6) of the Companies Act, Cap. 50 and being eligible, has been recommended for re-appointment. CHIA CHUNG MUN ALPHONSUS I Independent Director International Enterprise (IE) Singapore and concurrently, Senior Director, International Business Division at the Ministry of Trade and Industry. Mr Chia Is also the Independent Director of Amara Holdings Ltd. Lee Suan Hiang I Independent Director Mr Lee is a member of the Audit Committee and the Nominating Committee. He was appointed to the Board of Directors on 21 October 2011 and was last re-elected on 29 October He is currently the Chief Executive of the Real Estate Developers Association of Singapore. A Colombo Plan Scholar in Industrial Design (Engineering), he had a varied career in the public service as Deputy Managing Director of the Economic Development Board and Chief Executive of SPRING Singapore, National Productivity Board, Singapore Institute of Standards and Industrial Research and National Arts Council. He was also Chairman of PSB Corporation, Deputy Chairman of the International Federation of Arts Councils and Cultural Agencies and Council Member of the International Standards Organisation. He is the current President of the EDB Society and a Fellow of the UK Chartered Management Institute, Chartered Institute of Marketing and the World Academy of Productivity Science. He was awarded the Public Administration (Gold) Medal in 1998, the World SME Association Award in 2001, the Japan External Trade Organisation Award in 2002, the Chevalier de l Ordre des Arts et Lettres from France in 2010 and the NTUC Friend of Labour Award in Mr Lee is also an Independent Director of United Envirotech Ltd, Advance SCT Limited and Viking Offshore and Marine Limited. Mr Chia is the Chairman of the Remuneration Committee and a member of the Audit Committee. He was appointed to the Board of Directors on 22 October 2010 and last re-elected on 21 October He will be subject to retirement by rotation at the forthcoming Annual General Meeting and being eligible, has been recommended for re-election. Mr Chia is currently the Deputy Chief Executive Officer of XMH Holdings Ltd, a SGX Main-board listed company. Prior to his current appointment, he was the Chief Executive Officer of Singapore Cooperation Enterprise (SCE). SCE is an agency formed by Ministry of Trade and Industry and the Ministry of Foreign Affairs of Singapore to build longterm partnerships with foreign parties and also generate business opportunities for Singapore s private sectors. From 2004 to 2007, he was the Deputy Chief Executive Officer of Annual Report

6 corporate information BOARD OF DIRECTORS Pan Shuhong I Non-Executive Director Dr Ge Hailin I Non-Executive Director Lam Peck Heng I Lead Independent Director Hong Pian Tee I Independent Director Chia Chung Mun Alphonsus I Independent Director Lee Suan Hiang I Independent Director AUDIT COMMITTEE Hong Pian Tee I Chairman Lam Peck Heng Chia Chung Mun Alphonsus Lee Suan Hiang NOMINATING COMMITTEE Lam Peck Heng I Chairman Pan Shuhong Dr Ge Hailin Lee Suan Hiang REMUNERATION COMMITTEE Chia Chung Mun Alphonsus I Chairman Lam Peck Heng Hong Pian Tee AUDITORS Moore Stephens LLP Public Accountants and Chartered Accountants 10 Anson Road #29-15 International Plaza Singapore Partner-in-charge Neo Keng Jin Year of appointment: 2013 REGISTERED OFFICE 23 Bukit Batok Street 22 Singapore Tel : (65) Fax : (65) COMPANY REGISTRATION NUMBER K share REGISTRAR Boardroom Corporate & Advisory Services Pte. Ltd. 50 Raffles Place #32-01 Singapore Land Tower Singapore COMPANY SECRETARY Lee Seng Suan I FCPA, ACIS PRINCIPAL BANKERS DBS Bank Limited Standard Chartered Bank 4 MEMSTAR TECHNOLOGY LTD.

7 CORPORATE GOVERNANCE AND FINANCIAL REPORT 6 Corporate Governance Report 16 Report of the Directors 22 Statement by the Directors 23 Independent Auditors Report 24 Statement of Comprehensive Income 25 Balance Sheet 26 Statement of Changes in Equity 27 Statement of Cash Flows 28 Notes to the Financial Statements 62 Statistics of Shareholdings 64 Notice of Annual General Meeting Proxy Form Annual Report

8 CORPORATE GOVERNANCE REPORT The Board of Directors of Memstar Technology Ltd. is committed to maintaining a high standard of corporate governance and transparency within the Group to protect the interests of its shareholders and enhance long-term shareholder value. The Board is pleased to report the Company s corporate governance processes with specific reference to the principles and guidelines of the Code of Corporate Governance 2012 (the Code ). BOARD MATTERS THE BOARD S CONDUCT OF AFFAIRS Principle 1: Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the long-term success of the company. The Board works with Management to achieve this objective and the Management remains accountable to the Board. The Board has overall responsibility for the corporate governance of the Company so as to protect and enhance long-term shareholder value. It sets the overall strategy for the Company and the Group and supervises executive management and monitors their performance. Apart from its statutory responsibilities, the principal functions of the Board are: 1. To review the performance, position and prospects of the Group; 2. To approve the Group s strategic plans, key operational initiatives, major investments and funding decisions; and 3. To identify principal risks of the Group s business and ensure adequate risk management processes and systems are in place. To assist in the execution of its responsibilities, the Board has established an Audit Committee, a Nominating Committee and a Remuneration Committee which are chaired by Independent Directors. These Committees function within clearly defined terms of references and operating procedures. The effectiveness of each Committee is reviewed by the Board on a regular basis. During the financial year, the Directors received updates on regulatory changes to the Listing Manual of the Singapore Exchange Securities Trading Limited ( SGX-ST ) and changes to the Companies Act and Accounting Standards. The Board meets regularly at least 4 times a year to review and deliberate on the key activities and business strategies of the Group, including reviewing and approving significant acquisitions and disposals, reviewing financial performance and to approve the public release of quarterly and annual financial results. The Board also periodically reviews the internal control and risk management systems of the Group to ensure that there are sufficient guidelines and procedures in place to monitor its operations. Where necessary, additional meetings may be held to address significant transactions or issues. The Company s Articles of Association provides for meetings to be held via telephone and video conferencing whereby all directors participating in the meeting are able to communicate as a group without requiring the directors physical presence at the meeting. All relevant information on material events and transactions are circulated to Directors as and when they arise. 6 MEMSTAR TECHNOLOGY LTD.

9 The attendance of the Directors at Board meetings and Board Committee meetings during the financial year ended 30 June 2014 is set out as follows: Board Audit Committee Nominating Committee Remuneration Committee Number of meetings held Ms Pan Shuhong 5 4 * 1 1 * Dr Ge Hailin 5 4 * 1 1 * Mr Lam Peck Heng Mr Hong Pian Tee * 1 Mr Chia Chung Mun Alphonsus * 1 Mr Lee Suan Hiang * * Attended by invitation BOARD COMPOSITION AND GUIDANCE Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgment on corporate affairs independently, in particular, from Management and 10% Shareholders. No individual or small group of individuals should be allowed to dominate the Board s decision making. The Board comprises two Executive Directors and four Independent Directors. The current Board members are qualified professionals with a diverse range of expertise and skills to provide a balanced view within the Board. Key information regarding the Directors is given in the section titled Board of Directors in this Annual Report. The composition of the Board enables management to benefit from a broad and objective perspective as each Director brings to the Board a diverse background, experience and knowledge which provide for effective direction for the Group. The Board adopts the Code s definition of what constitutes an Independent Director in assessing the independence of the Directors. The Board is of the view that the four Independent Directors (who represent more than half of the Board) are able to act with independent judgement. No individual or small group of individuals dominates the decision making process of the Board. The Board is satisfied that its current size is adequate and appropriate and that the present composition of the Board allows it to effectively exercise objective judgement independently of the management. The composition of the Board will be reviewed on an annual basis by the Nominating Committee to ensure that the Board has the appropriate mix of expertise and experience and collectively possesses the necessary core competencies for effective decision making. CHAIRMAN AND CHIEF EXECUTIVE OFFICER Principle 3: There should be a clear division of responsibilities between the leadership of the Board and the executives responsible for managing the company s business. No one should represent a considerable concentration of power. The roles of the Chairman and Chief Executive Officer ( CEO ) are undertaken by two separate persons who are not related to each other, and each has her/his own responsibilities. Annual Report

10 CORPORATE GOVERNANCE REPORT Ms Pan Shuhong, the Executive Chairman bears responsibilities for the workings of the Board and ensures the integrity and effectiveness of the governance process of the Board. She is responsible for representing the Board to shareholders and is instrumental to the development of the Group. As the CEO, Dr Ge Hailin s responsibilities include supporting the Executive Chairman in charting and reviewing of corporate directions and strategies, which cover areas of marketing, product development and strategic alliances. He is responsible for the day-to-day management of the Group s corporate affairs and ensuring that strategies and policies adopted by the Board are implemented. BOARD MEMBERSHIP Principle 4: There should be a formal and transparent process for the appointment and re-appointment of directors to the Board. The Nominating Committee ( NC ) comprises four members, of whom the Chairman is an Independent Director. The Chairman is Mr Lam Peck Heng and the other three members are Ms Pan Shuhong, Dr Ge Hailin and Mr Lee Suan Hiang. The NC s responsibilities include the following: (i) (ii) (iii) (iv) To make recommendations to the Board on all Board appointments and re-nominations, having regard to the Director s contributions and performance (such as attendance, preparedness, participation and candour) including, as applicable, as an Independent Director. All Directors are required to submit themselves for renomination and re-election at regular intervals and at least once every three years; To determine annually whether or not a Director is independent; In respect of a Director who has multiple board representations on various companies, to review and decide whether or not such Director is able to perform and has been adequately carrying out his duties as Director, having regard to the competing time commitments that are faced by the Director when serving on multiple boards; and To decide how the Board s performance may be evaluated and propose objective performance criteria, as approved by the Board, that allows comparison with industry peers, and assess how the Board has enhanced long-term shareholder value. The NC reviews and recommends to the Board the re-nomination of retiring Directors for re-election at each Annual General Meeting ( AGM ) and the appointment of new Directors. The review ensures that the Director to be re-nominated or appointed is able to contribute to the ongoing effectiveness of the Board, has the ability to exercise sound business judgement, and has demonstrated leadership capability, high level of professional skills and appropriate personal qualities. Each member of the NC shall abstain from voting on any resolution relating to his own re-nomination as Director. BOARD PERFORMANCE Principle 5: There should be a formal annual assessment of the effectiveness of the Board as a whole and its board committees and the contribution by each director to the effectiveness of the Board. The Company believes that the Board s performance is ultimately reflected in the performance of the Company. The Board is tasked with making sound commercial decisions and setting strategic directions so as to act in the best interests of the Company and its shareholders. 8 MEMSTAR TECHNOLOGY LTD.

11 The Board is of the opinion that the financial indicators set out in the Code as guidelines for the evaluation of Directors are more of a measure of management s performance and hence are less applicable to Directors. The financial indicators do not fully measure the long term wealth creation and shareholder value of the Company. The Nominating Committee is tasked with the assessment of the Board s performance. The assessment process will adopt both quantitative and qualitative criteria. ACCESS TO INFORMATION Principle 6: In order to fulfill their responsibilities, directors should be provided with complete, adequate and timely information prior to Board meetings and on an on-going basis so as to enable them to make informed decision to discharge their duties and responsibilities. Directors are from time to time furnished with information concerning the Group to enable them to be fully cognizant of the decisions and actions of the management. The Board has unrestricted access to the Company s records and information. In order to ensure that the Board is able to fulfill its responsibilities, the management will provide complete, adequate and timely information to the Board on the affairs of the Company and the Group in the form of on-going reports relating to the operational and financial performance of the Group. The Board has separate and independent access to the Company Secretary and to other key executives of the Company and of the Group at all times in carrying out their duties. The Company Secretary or his representative attends all Board meetings and meetings of the Board committees of the Company and ensures that Board procedures are followed and that applicable rules and regulations are complied with. The minutes of all Board and Board committee meetings are circulated to the Board members. Directors have the right to seek independent legal and other professional advice, at the Company s expense, concerning any aspect of the Company s operations or undertakings in order to fulfill their duties and responsibilities as Directors. REMUNERATION MATTERS PROCEDURES FOR DEVELOPING REMUNERATION POLICIES Principle 7: There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration. The Remuneration Committee ( RC ) comprises three members, all of whom are Independent Directors. The Chairman is Mr Chia Chung Mun Alphonsus, and the two members are Mr Hong Pian Tee and Mr Lam Peck Heng. The RC is primarily responsible for recommending to the Board a framework of remuneration for the Board and the key executives and determining the specific remuneration packages for each Executive Director. The recommendations will be submitted for endorsement by the Board. The main duties of the RC include the following: (i) (ii) Recommending a framework and reviewing the procedures for fixing the remuneration packages of Executive Directors and key executives of the Group; Reviewing from time to time the appropriateness of remuneration awarded to Directors including, but not limited to, Director s fees, salaries, allowances, bonuses, share options and benefits-in-kind; Annual Report

12 CORPORATE GOVERNANCE REPORT (iii) (iv) Ensuring that the level of remuneration offered will be appropriate to the level of contribution and after taking into account factors such as industry and comparable company standards, relevant Company and the Group s performance and individual performance and responsibilities undertaken; and Recommending a formal and transparent process for determining Directors fees for the Non-Executive Directors of the Company. Each RC member will abstain from voting on any resolution in respect of his own remuneration. The RC is provided with access to expert professional advice on remuneration matters, if required, and the expenses of such services will be borne by the Company. LEVEL AND MIX OF REMUNERATION Principle 8: The level and structure of remuneration should be aligned with the long-term interest and risk policies of the company, and should be appropriate to attract, retain and motivate (a) the directors to provide good stewardship of the company, and (b) key management personnel to successfully manage the company. However, companies should avoid paying more than is necessary for this purpose. In setting remuneration packages, the RC will take into consideration the pay and employment conditions within the industry and in comparable companies. The Independent Directors receive Directors fees, in accordance with their contribution, taking into consideration factors such as effort and time spent and responsibilities of the Directors. The Directors fees are recommended by the entire Board for shareholders approval at each AGM. No director is involved in deciding his own remuneration. The Executive Directors have service agreements. The service agreements cover the terms of employment, salaries and other benefits. DISCLOSURE ON REMUNERATION Principle 9: Each company should provide clear disclosure of its remuneration policy, level and mix of remuneration, and the procedure for setting remuneration, in the company s annual report. It should provide disclosure in relation to its remuneration policies to enable investors to understand the link between remuneration paid to directors and key management personnel, and performance. Details of the remuneration of Directors and key management personnel of the Group disclosed in bands for services rendered during the financial year ended 30 June 2014 are as follows: Salary % Bonus % Fees % Allowances and Other Benefits % Total Compensation % Directors $250,000 to below $500,000 Ms Pan Shuhong Dr Ge Hailin Below $250,000 Mr Lam Peck Heng Mr Hong Pian Tee Mr Chia Chung Mun Alphonsus Mr Lee Suan Hiang Key Management Personnel Below $250,000 Yeo Hui Lian MEMSTAR TECHNOLOGY LTD.

13 The Group does not have any employees who are immediate family members of a Director or the CEO and whose remuneration exceeded S$50,000 during the financial year ended 30 June No share options were granted to any employee during the financial year ended 30 June Details of the Company s Employee Share Option Scheme and the Share Options granted can be found on the page 17 of the Directors Report. ACCOUNTABILITY AND AUDIT ACCOUNTABILITY Principle 10: The Board should present a balanced and understandable assessment of the company s performance, position and prospects. The Board is accountable to the shareholders and is mindful of its obligations to comply with statutory requirements and the Listing Manual of the SGX-ST. The Board currently provides shareholders with the Company s performance, position and prospects on an annual and quarterly basis via announcements to the SGX-ST within the prescribed periods. Announcements are also released from time to time in compliance with the Listing Manual to keep shareholders informed of material developments in the Group. The management provides financial reports to the Board on a regular basis. The Directors have separate and independent access to all levels of key personnel in the Company. RISK MANAGEMENT AND INTERNAL CONTROLS Principle 11: The Board is responsible for the governance of risk. The Board should ensure that Management maintains a sound system of risk management and internal controls to safeguard shareholders interests and the company s assets, and should determine the nature and extent of the significant risks which the Board is willing to take in achieving its strategic objectives. The Group has established a Risk Assessment Framework for the identification of key risks within the business, namely Business and Strategic Risks, Financial Risks and Operational Risks. The Group recognises risk management as a collective effort beginning with the individual subsidiaries and business units, followed by the operating segments and ultimately the Management and the Board, working as a team. A self-assessment process, conducted regularly by the Management, was introduced to ensure that the Group s risk management controls are satisfactory. Minimum acceptable controls have been implemented to enhance the Group s internal control function in areas such as finance, operations and compliance. The internal control measures aim to ensure that the Group s assets are safeguarded, proper accounting records are maintained, and that financial information used within the business and for publication is reliable. The Board has received assurance from the CEO and the Group Financial Controller ( GFC ) that: (a) (b) Financial records have been properly maintained and the financial statements give a true and fair view of the Group s operations and finances; and an effective risk management and internal control system has been put in place. Based on the framework of risk management controls and internal controls established and maintained in the Group, the work performed by the Management and the review undertaken by the independent auditor as part of their statutory audit, the written assurance from the CEO and GFC that the financial records have been properly maintained, the Board, with the concurrence of the AC, is of the opinion that the Group internal controls in place Annual Report

14 CORPORATE GOVERNANCE REPORT were adequate to address financial, operational, compliance and information technology controls risks which the Group considers relevant and material to its operations. AUDIT COMMITTEE ( AC ) Principle 12: The Board should establish an Audit Committee with written terms of reference which clearly set out its authority and duties. The AC comprises four members, all of whom are Independent Directors. The AC is chaired by Mr Hong Pian Tee and the other three members are Mr Lam Peck Heng, Mr Chia Chung Mun Alphonsus and Mr Lee Suan Hiang. The main responsibilities of the AC are to assist the Board in fulfilling its statutory and other duties relating to corporate governance, financial and accounting matters and reporting practices of the Group. The AC meets periodically to perform the following functions: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) Review the audit plans of the Company s external auditors and internal auditors, including the results of the Company s external and internal auditors review and evaluation of the Company s system of internal controls; Review the annual consolidated financial statements and the external auditors report on those financial statements, and discuss any significant adjustments, major risk areas, changes in accounting policies, compliance with financial reporting standards, concerns and issues arising from their audits including any matters which the auditors may wish to discuss in the absence of management, where necessary, before submission to the Board for approval; Review the quarterly financial results prior to recommending their approval to the Board for public release; Review and discuss with external and internal auditors, any suspected fraud, irregularity or infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on the Company s operating results or financial position and the management s response; Review the co-operation given by the management to the external and internal auditors; Consider the appointment and re-appointment of the external auditors; Review and approve any interested person transactions falling within the scope of Chapter 9 of the Listing Manual; Review any potential conflicts of interests; Review the procedures by which employees of the Company may, in confidence, report to the Chairman of the AC, possible improprieties in matters of financial reporting or other matters and ensure that there are arrangements in place for independent investigation and follow-up actions in relation thereto; Undertake such other reviews and projects as may be requested by the Board, and report to the Board its findings from time to time on matters arising and requiring the attention of the AC; and Undertake generally such other functions and duties as may be required by law or the Listing Manual, and by such amendments made thereto from time to time. Apart from the duties above, the AC shall commission and review the findings of internal investigations into matters where there is any suspected fraud or irregularity, or failure of internal controls or infringement of any Singapore law, rule or regulation which has or is likely to have a material impact on the Group s operating results and/or financial position. 12 MEMSTAR TECHNOLOGY LTD.

15 Each member of the AC shall abstain from voting any resolutions in respect of matters he is interested in. 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 its meetings, and has been given reasonable resources to enable it to discharge its functions. The AC meets with the internal auditors and the external auditors separately, without the presence of the Management, at least once a year. The Company has complied with Rule 712 and Rules 715 or 716 of the SGX-ST Listing Manual in relation to its independent auditor. The Company has in place a whistle blowing framework for employees to raise concerns about improprieties in matters of financial reporting or other matters. The AC has reviewed the non-audit services provided by the external auditors and is satisfied that the nature and extent of such services would not prejudice the independence and objectivity of the external auditors. The AC recommends to the Board that Moore Stephens LLP, Singapore, be nominated for re-appointment as auditors at the forthcoming AGM. INTERNAL AUDIT Principle 13: The company should establish an effective internal audit function that is adequately resourced and independent of the activities it audits. The Company outsources its internal audit function to Baker Tilly Consultancy (S) Pte Ltd, a consultancy firm which adopts a risk-based methodology to review the material internal controls of the Group. The consultancy firm reports to the Chairman of the AC outlining the results of the review performed and management s action plans to address process improvements. The AC is satisfied that the Company s internal audit function is adequately resourced to perform the job for the Group. SHAREHOLDERS RIGHTS AND RESPONSIBLILITIES SHAREHOLDER RIGHTS Principle 14: Companies should treat all shareholders fairly and equitably and should recognise, protect and facilitate the exercise of shareholders rights, and continually review and update such governance arrangements. The Group s corporate governance practices promote fair and equitable treatment to all shareholders. To facilitate shareholders ownership rights, the Group ensures all material information is disclosed on a comprehensive, accurate and timely basis via SGXNET, especially information pertaining to the Group s business development and financial performance which could have a material impact on the share price of the Company so as to enable shareholders to make informed decision in respect of their investments in the Company. Any notice of a general meeting of shareholders is issued at least 14 days before the scheduled date of such meeting. At the general meetings, shareholders are given the opportunity to voice their views, raise their concerns with the Directors or question the Management on matters relating to the Group and its operations. COMMUNICATION WITH SHAREHOLDERS Principle 15: Companies should actively engage their shareholders and put in place an investor relations policy to promote regular, effective and fair communication with shareholders. The Company maintains full and adequate disclosure, in a timely manner, of material events and matters concerning its business through SGXNET, public announcements, circulars to shareholders and annual reports. Annual Report

16 CORPORATE GOVERNANCE REPORT The Company does not practice selective disclosure of material information. Quarterly, half yearly and full year financial results and price sensitive information is disclosed in an accurate and comprehensive manner through SGXNET on a timely basis. The Company does not have a fixed dividend policy. The form, frequency and amount of dividends will depend on the Company s earnings, general financial condition, results of operations, capital requirements, cash flow, general business condition, development plans and other factors as the Directors may deem appropriate. Notwithstanding the foregoing, any pay-out of dividends would be clearly communicated to shareholders via announcements released on SGXNET. CONDUCT OF SHAREHOLDER MEETINGS Principle 16: Companies should encourage greater shareholder participation at general meetings of shareholders, and allow shareholders the opportunity to communicate their views on various matters affecting the company. To facilitate participation by shareholders, all general meetings of the Company are held in Singapore. Shareholders have the opportunity to participate effectively in and to vote at general meetings of shareholders. Shareholders are informed of the rules, including voting procedures that govern general meetings of shareholders. The Company s Articles of Association provides that shareholders of the Company are allowed to vote in person or by way of duly appointed proxies. All directors are required to attend general meetings of shareholders and the chairman of the Board and the respective chairman of the AC, NC and RC are usually present and available to address shareholders queries at these meetings. The Company s independent auditor will be present at the AGMs to address shareholders queries about the conduct of audit and the preparation and content of the auditor s report. The Company Secretary prepares minutes of general meetings that include substantial and relevant comments or queries from shareholders relating to the agenda of the meeting, and responses from the Board and the Management, and such minutes are available to shareholders upon their request. DEALINGS IN SECURITIES The Group has adopted an internal code which prohibits the Directors and officers of the Group from dealing in the Company s shares during the period commencing two weeks and one month, as the case may be, before the announcement of the Group s quarterly and full-year financial results and ending on the date of announcement of the relevant results or if they are in possession of unpublished material price-sensitive information of the Group. In addition, Directors and officers are expected to observe insider trading laws at all times even when dealing in securities within the permitted trading period. They are also advised to refrain from dealing in securities for shortterm considerations. INTERESTED PERSON TRANSACTIONS The Company ensures that interested person transactions, if any, comply with its internal control procedures and Chapter 9 of the Listing Manual of SGX-ST. The AC will review all interested person transactions, to ensure that they are carried out on normal commercial basis and in accordance with the internal control procedures and are not prejudicial to the interests of the shareholders. The Company confirms that there were no interested person transactions that required disclosure under Rule 907 of the SGX-ST Listing Manual for the financial year ended 30 June MEMSTAR TECHNOLOGY LTD.

17 MATERIAL CONTRACTS There are no material contracts entered into by the Company or any of its subsidiaries that involve the interests of the CEO, any Director, or the controlling shareholder of the Company. RISK MANAGEMENT POLICIES AND PROCESSES The Company regularly reviews and improves its business and operational activities to identify areas of significant business risks as well as takes appropriate measures to control and mitigate these risks. The Group also considers the various financial risks and their management, details of which are found on pages 55 to 58 of the Annual Report. Annual Report

18 REPORT OF THE DIRECTORS 30 JUNE 2014 The directors are pleased to present their report to the members together with the financial statements of Memstar Technology Ltd. (the Company ) for the financial year ended 30 June DIRECTORS The directors of the Company in office at the date of this report are: Pan Shuhong Dr Ge Hailin Lam Peck Heng Hong Pian Tee Chia Chung Mun Alphonsus Lee Suan Hiang 2 ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES OR DEBENTURES Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose object was 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, other than as disclosed under Share Options on page 17 of this report. 3 DIRECTORS INTERESTS IN SHARES OR DEBENTURES (i) According to the register of the directors shareholdings, the following directors, who held office at the end of the financial year, had an interest in shares of the Company and related corporations as stated below: Shareholdings registered Shareholdings in which director Name of directors in the name of directors is deemed to have an interest As at As at As at As at The Company No. of ordinary shares Pan Shuhong 256,977,698 (1) 256,977,698 (1) 563,803,426 (2) 563,803,426 (2) Dr Ge Hailin 147,817, ,817, Hong Pian Tee 1,590,000 1,590, Lee Suan Hiang 100,000 (3) 100,000 (3) - - Lam Peck Heng - 1,000, (1) Includes 55,000,000 shares held by a nominee (2) Ms Pan Shuhong is deemed interested in the shares held by Joyfield Group Limited as she is the controlling shareholder of Joyfield Group Limited (3) Shares held by a nominee There was no change in any of the above-mentioned interests between the end of the financial year and 21 July MEMSTAR TECHNOLOGY LTD.

19 3 DIRECTORS INTERESTS IN SHARES OR DEBENTURES (CONT D) (ii) According to the register of directors shareholdings, the directors holding office at the end of the financial year had options to subscribe for ordinary shares of the Company granted pursuant to the Scheme as set out below: Name of directors Number of unissued ordinary shares under options held by directors As at As at As at Dr Ge Hailin 5,000, Lam Peck Heng 1,000, For details, refer to Share Options in Note 5 of this report. Except as disclosed in this report, no directors who held office at the end of the financial year had interest in shares, share options, warrants or debentures of the Company, or of related corporation, either at the beginning of the year, or at the end of the financial year. 4 DIRECTORS CONTRACTUAL BENEFITS Since the end of the previous financial year, no director 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 he has a substantial financial interest, except as disclosed in the financial statements. Certain directors also received remuneration from the related corporations in their capacity as directors and/or executives of those related corporations. 5 SHARE OPTIONS (i) Options to take up unissued shares The Memstar Employee Share Option Scheme (the Scheme ) was approved and adopted by the shareholders at an Extraordinary General Meeting held on 19 October The Scheme is administered by the Remuneration Committee ( Committee ) whose members are: Chia Chung Mun Alphonsus (Chairman) Lam Peck Heng Hong Pian Tee The Scheme allows the participation of Executive, Non-executive and Independent Directors and employees of the Company and its subsidiaries who have contributed significantly to the growth of the Company and its subsidiaries in the equity of the Company. Persons who are controlling shareholders of the Company, including directors who are controlling shareholders and their associates are not eligible to participate in the Scheme. The Scheme became operative upon the Company granting options to subscribe for 14,100,000 ordinary shares at S$0.072 per share of the Company on 12 December Annual Report

20 REPORT OF THE DIRECTORS 30 JUNE SHARE OPTIONS (CONT D) (i) Options to take up unissued shares (cont d) Under the Scheme, the ordinary shares of the Company ( Shares ) under option may be exercised in full or a multiple thereof, on the payment of the exercise price. The exercise price is based on the price that is equivalent to the Market Price*; or a price that is set at a discount to the Market Price, provided always that the maximum discount shall not exceed 20% of the Market Price; and the prior approval of the Shareholders shall have been obtained in a separate resolution. The option period for an option granted at Market Price commences after the first anniversary of the date of grant of the option and expires on the tenth anniversary of such date except that for options granted to the Non-executive Directors and Independent Directors, the option shall be exercised before the fifth anniversary of such date. An option granted at a discount to the Market Price shall be exercisable after the second anniversary of the date of grant of the option up to the tenth anniversary of such date except that for options granted at a discount to Non-executive Directors and Independent Directors, the option shall be exercised before the fifth anniversary of such date. The Scheme shall continue in operation at the discretion of the Committee, subject to a maximum period of ten years and may be continued for any further period thereafter with the approval of shareholders by ordinary resolution in a general meeting and of any relevant authorities may then be required. Options granted will lapse when the option holder ceases to be a full-time employee or director of the Company or its subsidiaries. * market price - a price equal to the average of the last dealt prices for the Shares of the SGX-ST over the three consecutive trading days immediately preceding the date of grant of that option, as determined by the Committee by reference to the daily official list or any other publication published by the SGX-ST. (ii) Unissued shares under option and options exercised The number of Shares available under the Scheme shall not exceed 15% of the issued share capital of the Company. The number of outstanding share options under the Scheme as follows: Number of options to subscribe for ordinary shares of the Company Date of grant Balance at Options granted Options exercised Options forfeited/ lapsed Balance at Exercise price per share Exercisable period ,000,000 - (1,000,000) - - S$0.072* to ,600,000 - (10,600,000) - - S$0.072* to Total 11,600,000 - (11,600,000) - - * Options granted at a discount 18 MEMSTAR TECHNOLOGY LTD.